Sudol: Transportation costs key for successful Ring of Fire development

Photo supplied Prospectors from KWG Resources take samples in the Ring of Fire in this file photo.

Throughout this four-part series, transportation infrastructure has been highlighted as one of the key issues — a host of aboriginal concerns is the other — that must be resolved in order for the Ring of Fire’s world-class mineral projects, conservatively worth about $60 billion and counting, to move forward.

Since Cliffs Natural Resources is a billion-dollar multi-national, it seems to have taken up all the attention or oxygen in the room when discussing transportation issues. I have often heard from a variety of mining and government colleagues that Cliffs has the money and size, so their proposal must be the right one.

Last summer, mining and metals analyst John Tumazos found “the total of metal write-downs from 2008 to 2013 will breach the $200 billion mark this year.”

And let’s not forget that Cliffs took a $1-billion write-down in January for its $4.2-billion purchase of Consolidated Thompson Iron Mines Ltd. in 2011, as well as another roughly $900 million in other impairments, according to a Globe and Mail report.

As we have seen over and over again during the past few years, big mining companies can make enormous mistakes, so every plan they propose is not sacred or untouchable.

“It’s the transportation costs that will make this project sustainable for the next century,” says KWG Resources CEO Frank Smeenk. “Ontario chromite will have to compete with market leaders in South Africa and Kazakhstan, while the deposits in northern Finland are conveniently located less than 50 kilometres from an ocean port. We need to ensure that the minerals can be transported to the market in the most efficient manner, at the lowest possible unit costs.”

Smeenk is supporting an innovative business plan that was developed by the General Chairperson’s Association, the leadership organization of the unions representing Ontario Northland Railroad (ONR) employees — the New Deal — that would establish a James Bay & Lowlands Ports Authority. The agency would have a railroad connection between Moosonee and Koper Lake, which is a main float-plane airport in the Ring of Fire, northern infrastructure connecting First Nations to a new local enterprise.

A port authority is a special purpose agency formed by the federal government to operate ports and, surprisingly, airports and railways, as well. These are stand-alone agencies that are managed by the cities or regions they serve, like the Toronto Ports Authority and the Greater Toronto Airport Authority. With federal backing, these agencies can borrow money at lower government interest rates that can be paid back over a much longer period of time than standard corporate loans that are usually structured over a 30-year lifespan or less.

“(The Ministry of Northern Development and Mines) would lodge its shares in the ONR with the James Bay & Lowlands Ports Authority,” Smeenk says. “The Canada Marine Act provides that the governance of such transportation assets include representatives of the local communities and industry. I think this is a most unique opportunity to have the Matawa, Mushkegowuk and Nishnabie Aski bodies politic provide such leadership.

“In addition, taxpayers would avoid the very costly termination and closure liabilities that the province would occur if they liquidated the railway. And KWG would make its railroad engineering and right-of-way claims available for the extension of the ONR network into the Ring of Fire,” he said.

This new agency would finance the construction of the railroad and continuing operations of the ONR on a cost-recovery basis and amortize the loan over a 50- to 75-year period. In addition, vital infrastructure stays in public hands for the continued economic development of the far north. There would be feeder roads into the adjacent First Nations.

Smeenk says he feels the onus is on Premier Kathleen Wynne to talk to the Prime Minister about establishing the port authority and transferring the assets of the ONR into this new federal agency.

On Nov. 8, the Ontario government announced the creation of a Ring of Fire development corporation that would bring together all the private and public stakeholders, including the federal government and First Nations. The goal of this corporation would be to sort out the competing infrastructure proposals and help build, finance and operate the strategic transportation route(s) into the Ring. So, I assume the port authority concept with the involvement of the ONR would definitely be one of the proposals on the table.

However, Premier Wynne also sent an open letter to Prime Minister Steven Harper explaining the establishment of this development corporation and asking the federal government for roughly a billion and change to help the province defray the infrastructure costs. While I think the development corporation is a great idea — grabbing the proverbial bull by the chromite horns, so to speak – I am very concerned that federal financial participation is being conducted through the media instead of behind the scenes negotiations.

And I am sincerely hoping that partisan politics – Liberal Premier Wynne and Conservative Prime Minister Harper – is not going to hold back this multi-generational project that will generate tens of billions of dollars, if not considerably more, worth of economic activity that will benefit all levels of government.

Up until now, the federal government has been doing a considerable amount of “talking” but not much financial “walking.” It’s time the Harper government put some significant dollars on the table and financial backing to help struggling Ontario deal with the Ring of Fire’s billion-dollar infrastructure costs

Considering that for most of the last half-century, Ontario has contributed quit literally hundreds of billions of dollars in equalization payments that helped essential infrastructure projects in many other provinces, it is time we got a tiny fraction of that generosity back from the federal government.

Liberal Premier Sir George William Ross ruled Ontario for only a short period of time – Oct. 21, 1899 to Feb. 8, 1905 – yet his impact on Northern Ontario and the history of mining in Canada was extraordinary.

He is nicknamed the “Father of New Ontario” for having the vision to establish the Temiskaming and Northern Ontario Railway – the forerunner of today’s Ontario Northland – to help develop and settle the Great Clay Belt and for promoting the enormous mineral resources of the then province’s near-northern frontier.

This development is not just about Cliffs Natural Resources and their shareholders.

It’s about a modern 21st century mining frontier in the province’s far northwest — a geological treasure chest that will challenge a new generation of Ontarians.

It’s about the sustainable, long-term development and the economic transformation of impoverished First Nations communities.

And it’s about the enormous potential to create many jobs in the region, as well as throughout the entire province and provide much needed tax revenue for all levels of government.

The most economically competitive solution to transport millions of tons of chromite concentrate — or perhaps raw chromite ore — is a railroad. To build an inadequate road instead, due to inconsequential cost factors and, in the context of a century of mining and hundreds of billions worth of minerals found and yet to be discovered, would be astonishingly penny wise and pound foolish!

We are at a turning point in the history of this province, at a time when the urbanizing and industrializing Asian economies will continue to need the minerals found in the northwest for decades to come.

Does Premier Kathleen Wynne and her predominantly southern cabinet have the same vision that Premier Ross had over a century ago? And will Prime Minister Harper be willing to put in the federal government’s fair share and financial backing to ensure the ultimate success of this project?

Stan Sudol is a Toronto-based communications consultant and mining policy analyst who owns/edits www.republicofmining.com.

About the Ring of Fire

Located 500 kilometres northeast of Thunder Bay, the Ring of Fire contains billions worth of chromite — among the best deposits in the world — plus nickel, copper, platinum group elements, gold, zinc and vanadium metals.

In 2007, an interesting mix of six geologists and junior mining executives – Richard Nemis, Mac Watson, Frank Smeenk, Neil Novak, John Harvey and Don Hoy – collectively discovered the geologically rich Ring of Fire. It is the most significant mineral discovery in Canada since the Sudbury Basin in 1883 and the Timmins gold camp in 1909.

Cliffs Natural Resources of Cleveland wants to ship chromite ore from its Black Thor deposit in northwestern Ontario to a plant in Capreol for processing. However, its plans are on hold until it sorts out a host of environmental, infrastructure and First Nations issues.

Chromite is used to harden steel.