Cliffs senior executive said Ring of Fire chromite will be mined in sequence

U.S. giant Cliffs Natural Resources Ltd. (NYSE: CLF, Stock Forum) is ready to begin the complex process of developing an $800 million chromite mine in northern Ontario after snapping up a 52% stake in Spider Resources Inc. (TSX: V.SPQ, Stock Forum), one of its joint venture partners at the remote site.

The acquisition of Spider puts Cliffs in position to control three separate chromite discoveries in the Ring of Fire region, which it hopes to begin mining as early as 2015.

But a senior Cliffs official said the process of gaining permits and developing the necessary infrastructure for an open pit mine will be far from easy.

“This is a big project with a lot of complexity,’’ said William Boor, President of Cliffs’ recently-created ferroalloys division.

It will involve the construction of a concentrator, likely at the mine site, and ferrochrome processor at another location in Ontario. It is expected that a 340-kilometre railway will be needed to transport the chromite from the mine site to existing transportation networks further south.

Gaining the permits to carry out that plan will involve negations with First Nations, as well as a host of ministries at both the Federal and provincial government level, Cliffs said.

“It is still fairly early days for this project,’’ said Boor, a 44-year-old chemical engineer, who is charged with stick-handling Cliffs’ foray into Canadian chromite mining.

“We are still establishing the process of how to move forward with environmental assessments and [figure out] how that will dovetail into permitting.”

The Spider acquisition gives Cliffs a 73.5% of the Big Daddy, one of the three discoveries that lie in close proximity to one another and will form the basis for any future mining operations. The other 26.5% of Big Daddy is held by KWG Resources Inc. (TSX: V.KWG, Stock Forum). Cliffs also owns 100% of the nearby Thor and Black Label discoveries.

An initial resource estimate for Big Daddy pegs the indicated resources at 23.2 million tonnes, grading 40.66% chromite and inferred resources at 16.3 million tonnes, averaging 39.09% chromite.

The larger Black Thor find has inferred resources of 69.55 million tonnes, grading 31.9% chromite. There is as yet no available resource estimate for Black Label.

Boor said these discoveries will be mined in sequence, with Black Thor likely being first in line.

“Our early view is that Black Thor is probably the leading candidate because of the width of the deposit and how it sets up for open pit [mining],’’ he said.

Any future mining activity is subject to pre-feasibility studies that will be completed this year. That will be followed by two more years of feasibility studies. While the studies are in progress, the company will also be working to gain the necessary permits to start the mine.

As a result, a production decision likely won’t be made until the end of 2012, said Boor. If the mine gets the green light, it would take about two more years to complete the construction work, potentially delaying any production startup until 2015.

“It just reinforces our view that there is a way to go before this thing becomes a reality,” he said.

Still, Boor said Cliffs is big enough to be able to fund development of a mine that is expected to cost about $800 million to build. That doesn’t include the cost of the railway, which mining industry sources say could be funded through some sort of public, private partnership.

Early estimates suggest that the Ring of Fire operation could produce up to 800,000 tonnes of ferrochrome annually, material that will be sold to stainless steel manufacturers in North America and Western Europe.

Cliffs is also looking at the possibility of shipping ferrochrome to Asian markets by way of a railway link to the Canadian west coast.

Chromite mining will be the third large business area for Cliffs. The others are iron ore and coal.

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