ANALYSIS-Miner Cliffs woes could douse hopes for Canada’s Ring of Fire – by Allison Martell (Reuters U.K. – April 16, 2013)

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TORONTO, April 16 (Reuters) – The future of Canada’s Ring of Fire, a remote cluster of rich mineral deposits in northwestern Ontario, is looking increasingly dim as the finances of its biggest private investor, Cliffs Natural Resources Inc, have taken a turn for the worse.

Crouched in swampy lowlands and named for a Johnny Cash song, the 4,000 sq km (1,500 square mile) zone has no rail lines, highways or reliable power. Canadian political leaders say the Ring of Fire could support a century of mining, but the cash-strapped government has yet to commit infrastructure funds.

But other challenges facing Cliffs may prove more difficult. The iron ore and metallurgical coal producer has proposed a $3.3 billion chromite project, including a $600 million highway that could open the region for smaller mining companies such as Noront Resources Ltd.

The project, Black Thor, would be North America’s first major chromite mine, and Cliffs touts the mineral – which is refined into ferrochrome, used to make stainless steel – as a natural next step for a company with long experience supplying the steel industry. But not everyone is enthusiastic.

“They have an infrastructure, logistical problem,” said Robert Yuksel Yildirim, president of Turkish industrial conglomerate and ferrochrome producer Yildirim Group, who considered investing in Black Thor.

Yildirim has met with Cliffs several times, but does not plan to buy in. He is concerned about excess supply in the chrome ore market, where China is the primary buyer: “At the market price, I don’t think they will be competitive,” he said.

Cliffs has been battered by weak iron ore prices, and a key growth project, Bloom Lake iron ore in Quebec, faces higher-than-expected costs. The stock has plunged more than 70 percent over the last 12 months, as soft Chinese demand weighed on companies that supply steelmakers, hitting relatively high-cost iron ore producers like Cliffs.

“For Cliffs, this constitutes an existential threat,” said Morningstar analyst Daniel Rohr. “If we head down the road I think we’re heading down, there’s not going to be a lot of capital in Cliffs’ piggy bank to fund something on the scale of this Ring of Fire project.”

Asked about the steep capital costs – not far off Cliffs’ $2.8 billion market capitalization – Bill Boor, Cliffs’ senior vice president for ferroalloys, said the company will consider joint ventures as a source of funding, and capital spending would be spread out.

“I think sometimes there’s an intuition that people have that when we say ‘go’ on a project we have to be sitting on that money, and yet, we’ve got several years to spend it,” he said.

Boor is clear that Cliffs would need government support to build its highway. But crucial talks with provincial authorities, who have jurisdiction over mining development, have been on hold for months, and it is unclear why.

FIFTY BILLION DOLLARS

Tony Clement, a federal minister assigned to promote the project, says the minerals in the Ring of Fire could be worth up to $50 billion, and development could create more than 5,000 local jobs. At least a dozen TSX Venture-listed companies have projects or claims near Black Thor.

KWG Resources Inc, invested in an early-stage chromite project in the region, wants to build a railroad on the narrow ridge that Cliffs’ highway would follow. Chief Executive Frank Smeenk is frustrated that the government chose to work only with Cliffs in the first place.

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