Established in 1980, Northern Ontario Business provides Canadians and international investors with relevant, current and insightful editorial content and business news information about Ontario’s vibrant and resource-rich North. Ian Ross is the editor of Northern Ontario Business ianross@nob.on.ca and this article is from the June, 2011 issue.

Junior miner proposes a separate James Bay lowlands power grid

If the Ontario government can’t supply competitively-priced industrial power, one Ring of Fire mining executive proposes going off the grid.

Moe Lavigne, vice-president of exploration and development for KWG Resources, said the price of public power is the determining factor on where the ferrochrome mineral processing will be located.

“We’re not a big player,” said Lavigne, “but we’re the only player in the Ring of Fire that understands the chromite industry, and we’re going to present our view of how we think it would be done in a perfect world.”

KWG Resources has a 28 per cent stake in the high grade Big Daddy chromite deposit in the James Bay lowlands. In April, the company released a preliminary economic assessment (PEA) that recommends moving its remote deposit closer down the path toward production and into the feasibility study phase.

Its development partner, Ohio-based international miner Cliffs Natural Resources, has majority ownership of the Big Daddy.

In February, Cliffs chose Sudbury and a former National Steel site near the suburb of Capreol (once a rail hub for the Canadian National Railway), as the leading site for its ferrochrome processing plant.

But the global miner emphasized last winter that no place in Ontario makes economic sense to place an electric arc furnace to do any processing because of the price of power in Ontario compared to neighbouring provinces and in the U.S.

However, the Ontario government is pushing for the processing to remain in Ontario.

Lavigne said the development option that makes the most sense would be placing all the ferrochrome processing infrastructure along the CN main line in Nakina in northwestern Ontario, “and that the power be provided locally.”

“The concept is the only way you’re going to overcome the high Ontario power costs.”

Lavigne believes the solution is creating a separate grid outside of the Ontario grid that will service the First Nation communities and the ferrochrome processing plant.

He’s floating the idea of setting up a grid that would involve building a series of hydroelectric dams on the massive rivers that a 350-kilometre long Ring of Fire railway would cross.

Lavigne said his company’s broad vision on how things will unfold in the Ring of Fire is for the First Nations to exercise their water rights to build their own power generation.

“You’re not going to be able to change the cost of power in Ontario, the solution is to build a separate grid.”

Lavigne said the First Nations have caught on to this and are trying to organize this at the moment to build their own capacity.

Having First Nations as partners in the power generation and part-owners in a proposed Ring of Fire railway is a “very eloquent solution” that should resonate with the First Nations and Ottawa.

How it unfolds with the funding formula remains to be seen, but the infrastructure could be financed through flow-through shares.

Lavigne said there are huge rivers – some 1,200 feet wide – that can be used for hydroelectric generation.

A ferrochrome processing facility would need in excess of 300 megawatts of power.

“If we want to keep the electric arc furnace in Ontario, we need to provide it with cheaper power and we know Ontario Hydro can’t do that,” said Lavigne.

He proposes that the hydroelectric generation stations be owned and operated by the First Nations through a regional economic development and power corporation.

A First Nations corporation would negotiate with the furnace owners to provide the operation with the competitive power rates for the next century in order to keep the processing in Ontario.

“Everybody’s jockeying in the background to figure out how they can be positioned in this deal.”

The economic assessment for the Big Daddy deposit, prepared by NordPro Mine & Project Management Services of Thunder Bay, places a $12.64 billion price tag on the project. The estimate is based on a price of US$325 per tonne of lump chromite mineralization.

The proposed development calls for an open pit and crushing plant, power line, a railway and all the bridges and other infrastructure that comes with it.

Construction would take three years with an open pit yield of 25.35 million tonnes of indicated resource (13.54 million tonnes of inferred) over a 16-year operating life.
Lavigne cautions the report represents only a limited 16-year mine life, not a long-term future of 100 years or more.

Lavigne said the deposit has plenty of upside that’s not even been addressed yet, including an anticipated 70-million tonne stockpile of “lower grade” chromite at 28 per cent that hasn’t been monetized yet.

But before a tonne of ore is mined, the transportation infrastructure must be built. The single biggest expenditure is a railroad, estimated to be $900 million.

The 350-kilometre-long rail line would connect the deposit with the Canadian National Railway’s mine line at Nakina.

The study and KWG suggest that a common transportation corridor used by all the Ring of Fire miners would make the most economic sense.

The PEA stated project returns are “sensitive” to the railway’s capital costs since it’s money spent before operations begin, so the costs could be shared by other miners working in the area.

Cliffs and Noront Resources, the two other major Ring of Fire players, propose using all-season roads as their transportation options.

Senior officials at Cliffs were not made available for comment, but a company spokeswoman maintains that its wholly-owned Black Thor chrome deposit will be the first mine to be developed in the Ring of Fire since it’s “technically” the best place to begin operations because the ore is thicker and closer to surface.

Patricia Persico said, though Cliffs remains partners with KWG in the Big Daddy deposit, Cliffs “does not agree entirely” with the assessment.

But on a common transportation corridor, Persico said, long term, “Cliffs would like to see rail infrastructure into the Ring of Fire; however, the cost is prohibitive for any one project to justify and fund. Railway would be excellent for our chromite project and good for the development of additional mines in the Ring of Fire region. However, Cliffs has proposed an all-weather road as a logical first step for the common transportation corridor.”

Lavigne said eventually all the miners will be on the same page in using one corridor and Cliffs understands the economics of shipping bulk tonnes by railroad versus road.
“Cliffs knows and understands this concept. We haven’t yet had indepth discussions with them and the Ontario government.

“We’re floating a balloon here. We think this is possible.”

Raymond Ferris, the Ring of Fire Coordinator for the Matawa First Nations, said the idea of utilizing the Attawapiskat and Albany Rivers for hydroelectric power generation – owned and operationed by the First Nations—has been a topic of discussion among the Northern communities for the last two years.

“We know there’s an estimated 350 megawatts of power there,” said Ferris. “We feel this is an opportunity for the First Nations, if the (rail transportation) corridor ever goes up that way.”
But before any such development occurs, there must be extensive environmental and economic assessments done first.

“There has to be a process of how that’s going to be conducted and how consultation will happen in the communities, whether they would like it or not.”

Ferris said run-of-the-river hydroelectric projects can be environmentally-green projects, but they slow down the flow and cause water temperatures to rise, which impacts aquatic life. “We have to take that into consideration.”

Paul Norris, president of the Ontario Waterpower Association, said KWG’s proposal is an “interesting concept” since it’s well-known that Ontario’s Far North has abundant untapped water power potential. Hydroelectricity provides 85 per cent of the power capacity in the North.

“There is no doubt that economic development in the North is something we all want to see…and hydro will be part of that.”

Though not familiar with the project’s technical limitations, Norris said the miners and First Nations’ would be “wise and prudent to look at the resources in the area and develop a business plan that can work.”

Norris said he’s positive and upbeat about the North’s future with major power projects underway on the Kapuskasing River, Lower Mattagami River and First Nations’ involvement in developments along Lake Superior’s North Shore.

But if companies like Cliffs expect to start mining by 2016, hydroelectric construction needs to start right away. The timelines of these projects, from concept to commissioning, takes about five years.

“The timeframe that they have in mind isn’t undoable, but they would likely want to get to work relatively quickly.”

www.kwgresources.com
www.cliffsnaturalresources.com
www.matawa.on.ca
www.owa.ca