Noront, Cliffs May Gain From Ontario Government Aid (Update2)

March 31, 2010, 4:24 PM EDT

By Rob Delaney

March 31 (Bloomberg) -- Noront Resources Ltd. and Cliffs Natural Resources Inc., aiming to become North America’s only chromite suppliers, may benefit from government support for projects in Canada’s Ontario province.

Noront may develop its Blackbird chromite deposit in tandem with its Eagle One nickel and copper project in the so-called Ring of Fire mineral belt if the Ontario government helps finance transport links and power, Noront Chief Executive Officer Wes Hanson said in an interview.

Ontario has said it will seek to capitalize on the chromite discovery, which Premier Dalton McGuinty’s government has described as the most promising mining opportunity in a century, and has set aside money to train workers. Cliffs bought Freewest Resources Canada Inc., which controls a chromite deposit in the belt, for C$240 million ($224 million) in January.

“It’s not common for a government to endorse a mineral belt so forcefully,” said Michael Gray, an analyst at Genuity Capital Markets. “The message they’re sending to the investment community is positive. They see this as an industry driver and as something that will help local, aboriginal communities.”

Prices for chromite, a raw form of a key stainless steel ingredient that North American metal producers import mostly from Africa, have risen 71 percent in the past year as steel production recovers from the manufacturing slowdown that started in 2008. South Africa and Zimbabwe account for about 90 percent of the world’s chromite reserves, according to the International Chromium Development Association, an industry group that includes Xstrata Plc and ArcelorMittal.

‘Enormous Deposits’

“One of the most exciting opportunities for all of Ontario is the so-called Ring of Fire, where they’ve found enormous deposits of chromite,” Ontario Finance Minister Dwight Duncan said in a March 29 speech. “This could be as exciting as the discovery of nickel in the 19th century,” Duncan said, referring to deposits in Sudbury owned by Vale SA and Xstrata.

Noront needs better roads or a railway from its projects in the Ring of Fire to carry ore to Thunder Bay, Ontario, where the company may build a $500 million furnace to refine chromite into ferrochrome, Hanson said. Without better infrastructure, Noront is more likely to focus on the Eagle One nickel and copper mine initially, he said.

Noront’s shares, which have more than doubled in the past year, rose 3 cents, or 1.9 percent, to C$1.65 at 3:58 p.m. in Toronto trading. Cliffs fell 30 cents to $70.95 in New York.

Chromite hasn’t been produced in North America in at least a decade, and supply from Africa is “less certain” because of problems on the continent including power shortages, Genuity’s Gray said.

Supply Security

“It’s a security-of-supply issue, and that’s why Cliffs is going after all the sources of raw material for steel,” he said.

Cliffs is “very excited about being up there and starting to work, and we’re looking forward to cooperating with everyone involved,” including the government, Christine Dresch, a company spokeswoman, said in a telephone interview.

Noront’s Blackbird deposit has at least 15 million tons of chromite, which would yield about 5 million tons of ferrochrome, Hanson said.

The Ontario finance ministry’s budget, announced last week, mandated establishing a coordinator from the Ministry of Northern Development, Mines and Forestry to work with aboriginal communities near the Ring of Fire and gather their input on mining-infrastructure proposals, Anne-Marie Flanagan, a ministry spokeswoman, said in a telephone interview. The coordinator will also represent Ontario’s transport ministry and natural resources ministry.

Worker Training

The Ontario government earmarked in its budget C$25 million to train workers in the Ring of Fire region for the mining industry.

Efforts by the government to solicit input from local communities and train workers are “helpful,” Stephen Parsons, an analyst at Wellington West Capital Markets Inc., said in a telephone interview. “It should facilitate coordinated mining development in the area.”

Until Noront and other miners in the region provide more exploration results, the government won’t make any commitments for further financial support, Flanagan said.