http://www.thesudburystar.com/2017/02/12/kwg-favours-railway-to-ring

KWG favours railway to Ring

By Ben Leeson, Sudbury Star

Sunday, February 12, 2017 9:07:43 EST PM

KWG Resources sees a bright future for the Ring of Fire and believes the best way to reach that future is on iron rails.

KWG is an original player in the Ring, a large deposit of chromite and other metals in the mineral-rich James Bay Lowlands, about 500 kilometres north of Thunder Bay. In 2006, the company took part in the first major discovery of chromite, a key component in making stainless steel.

"We came to the realization that the biggest consumers of chromium on the planet are the Chinese stainless steel makers," said Moe Lavigne, KWG's vice-president of exploration and development.

In the chromite-chromium-ferrochrome industry, the metals are exchanged under offtake agreements, between the resource producer and the buyer, rather than in an open market like nickel, copper and gold.

"To be able to proceed and put something into production, to introduce more of the commodity into the market, you need to have an agreement with the purchaser in place first," Lavigne said. "So since the beginning, we have been talking to people in China about trying to establish this and there were no takers and China seemed to be sort of aloof about the whole thing."

That changed after Cliffs Natural Resources, an American company and formerly a major player in the Ring, opted to pull out of the region. About six months later, one of China Railway's engineering divisions contacted KWG about completing a feasibility study and building the railroad itself.

"The feasibility study was completed around Christmastime," Lavigne said. "Our next step is to go to China and to secure financing for the building of the railroad, but nobody is going to finance a railroad to nowhere. There has to be a prize at the end of that railroad. In this case, the prize is chromium. It's our expectation that, when we do go to China, we're going to be able to sit down with the purchasers of chromium, whether it be chromite or ferrochrome, and get their backing in the form of an offtake agreement. If that happens, then all the lights are green, because with an offtake agreement in hand, you can then approach banks here to finance the development of the mine itself."

KWG has always taken the position that developing chromite in the Ring of Fire won't happen unless that chromite can be taken out of the area as cheaply as possible, which is why the company favours a railroad, rather than a road.

KWG can haul chromite out of the area for about $10 per tonne by rail, Lavigne said, compared to about $60 per tonne by truck. Consider that Chinese rail engineers told KWG the railroad should be able to take out eight million tonnes per year, that $50 difference per tonne is significant, and a large chunk of KWG's potential profit.

Also in the interest of reducing costs, KWG has tried to develop a new method for reducing chromite to ferrochrome, currently done inside electric arc furnaces, the type Cliffs had planned to build at a processing facility in Capreol.

"Building and operating an electric arc furnace is very expensive, especially if you're operating in an area where your hydro costs are really high," Lavigne said. "We recognized a few years ago that there might be an alternative and that is to use natural gas to reduce chromite to ferrochrome."

That reduction method, used successfully at a lab in Falconbridge, could cut the production costs of ferrochrome by as much as 50 per cent, Lavigne said.

KWG's plan differs from that of Noront Resources, another company with big plans in the Ring which bought up Cliffs' properties there about a year ago. Noront owns a nickel and copper deposit which the company hopes to develop first, initially using a road to haul out nickel, copper and a relatively small amount of chromite to sell to manufacturers in the northeastern United States.

"In our case, we plan to build the infrastructure as independently of the government as possible," Lavigne said. "This really turns into an international trade deal between Canada and China and I'm sure, once China has agreed to finance some of this infrastructure, that Canada and China are going to have to sit down and do a deal. That's going to be the driving force that's going to enable the development of the Ring of Fire."

When financing is secured for a railway, then the mine, KWG can create a project description and make submissions for environmental assessments, and also enter into serious discussions with First Nations in the area.

"Up to this point, it has been very hard to have serious discussions with anybody, because you don't really have a project unless you have financing," Lavigne said.

Opposing development are members of what Lavigne calls the "green movement," those who want to preserve the Canadian boreal forest as parkland and have created an "anti-development atmosphere" at Queen's Park.

"But the green movement also recognizes that the First Nations can't continue to live in the conditions they live in and this type of industrial development might be the seed that will help them aspire to better living conditions than they're in right now," Lavigne said.

"It's a package deal. The companies and the First Nations have to be partners. We want to put the First Nations in a position to raise the money where they can actually buy ownership in the companies and be real partners. I think if we achieve that, and we have financial backing, we can then go to both levels of government and say, 'Here's the plan. Stand behind us,' and if the First Nations are there, both levels of government will have to make a decision with respect to the counter-pressure to not do anything."

bleeson@postmedia.com