Not new and probably needs updating but I found it in my files and thought I would pass it on. I am sure I got it from Agoracom when it was first posted.

Goldfinger

Economic analysis of the
Ring of Fire chromite mining play
By Joan Kuyek, D.S.W.
For MiningWatch Candaa
January 25, 2011
MiningWatch Canada
Economic analysis of the Ring of Fire chromite mining play 1 1
This paper has been commissioned by MiningWatch Canada to undertake a preliminary review
of the economic issues surrounding chromite mining in the Ring of Fire mining area of northern
Ontario. There is no experience with chromite mining or ferrochrome production in Canada, and
none of the over 35 mineral exploration companies involved have carried out technical studies
that look at the economic viability of their claims. As a result, this economic analysis is a work in
progress that raises more questions more than it provides answers. The paper is organized as
follows:
• Chromite characteristics, uses and environmental concerns
• Chromite and ferrochrome processing
• Supply, prices and markets
• Key issues regarding Ring of Fire economics:
 Power requirements
 Rail-line
 Ferrochrome prodcution facility
 The companies
 Taxation and government subsidies
 Water management
 Shipping and peak oil
 Sustainability
 Feasibility of the mine projects
Kemi Chromite Mine, Finland
MiningWatch Canada
Economic analysis of the Ring of Fire chromite mining play 2 2
Chromite characteristics, uses and environmental concerns
Chromium is a chemical element with the symbol Cr. It is a bluish, hard, lustrous metal with a
very high melting point (1857°C)1. It is odourless, tasteless and malleable. It has high corrosion
resistance. It has unique magnetic properties; at room temperature and below it shows
antiferromagnetic properties.2 Exposed to air, it reacts with oxygen and forms a thin protective
oxide surface layer that prevents rusting
Although many minerals contain chromium in low concentrations, the only commercial ore
mineral is chromite, an iron chromium oxide (FeCr2O4). 3 Chromite is found in peridotite from
the Earth's mantle. It also occurs in layered ultramafic intrusive rocks and in metamorphic rocks
such as serpentine, and corundum.4
Because of its corrosion resistance and hardness, chromium is combined with iron and nickel to
form stainless steel and/or super steel alloys; 94% of chromium is used for this purpose.5 Its
other uses are chrome electro-plating and refractory uses. Some chromium is still used in paint as
it changes colours in combination with other elements. It is sometimes used for leather tanning,
and as a dietary supplement, although these uses are falling into increased disrepute because of
the toxicity of their by-products.
The most common and stable form of chromium is trivalent CR(III) which is not generally
considered toxic. Another form of chromium - hexavalent chromium CR(VI) is, however, highly
toxic. It is a powerful oxidant at low or neutral pH. It is produced industrially by the oxidative
roasting of chromite with calcium or sodium carbonate. It is generally believed that Cr(VI) is
only created by human agency.6 The relationship between Cr(III) and Cr(VI) depends on pH and
oxidative properties of the environment. Ground water has been known to contain up to 39μg/L
of total chromium of which 30μg is present at Cr(VI).7
Residues from mining and processing chromite are often toxic, not only because of the presence
of Cr(VI) but because of the reagents and other waste materials in overburden and wastes.
Abandoned and closed chromium production sites require long-term monitoring, containment
and clean-up.8 Cr(VI) is particularly toxic when inhaled and it can cause severe damage to the
lungs, kidneys, liver and blood cells. It is also carcinogenic.9
1 The Element Chromium. The Periodic Table. http://www.periodic-table.org.uk/element-chromium.htm
2 Chromium, Wikipedia, http://en.wikipedia.org/wiki/Chromium and
Chromium, The Encyclopaedia of Earth. http://www.eoearth.org/article/Chromium
3 Chromite, Absolute Astronomy. http://www.absoluteastronomy.com/topics/Chromite
4 ibid.
5 http://www.roskill.com/reports/steel-alloys/chromium
6 Chromium, Wikipedia, http://en.wikipedia.org/wiki/Chromium
7 A. R. Gonzalez, K. Nhung’u, A.R. Flegal. Natural Occurrence of hexavalent chromium in the Aromas Red Sands
Aquifer, California Environmental Science and Technology 39 (15):5505-5511 2005.
8 J.S. Geelhoed, et al. Processes Determining the Behaviour of Chromium in Chromite Ore Processing Residue Used
in Landfill, Land Contamination and Reclamation, 7(4), pages 271-279. 1999.
9 OSHA Fact Sheet. 2006. Health Effects of Hexavalent Chromium. www.osha.com. See also, Pellerin, Cheryl and
Susan M. Booker. “Reflections on Hexavalent Chromium”. Environmental Health Perspectives, Volume 108,
Number 9. September 2000. Pages 403-407.
MiningWatch Canada
Economic analysis of the Ring of Fire chromite mining play 3 3
From the International Program on Chemical Safety10
Almost all the hexavalent chromium in the environment arises from human
activities. It is derived from the industrial oxidation of mined chromium deposits
and possibly from the combustion of fossil fuels, wood, paper, etc. In this
oxidation state, chromium is relatively stable in air and pure water, but it is
reduced to the trivalent state, when it comes into contact with organic matter in
biota, soil, and water. There is [a natural] environmental cycle for chromium,
from rocks and soils to water, biota, air, and back to the soil. However, a
substantial amount (estimated at 6.7 x 106 kg per year) is diverted [by human and
natural processes] from this cycle by discharge into streams, and by runoff and
dumping into the sea. The ultimate repository is ocean sediment
10 Environmental Health Criteria 61, International Programme on Chemical Safety, published under the joint
sponsorship of UNEP, ILO and WHO, Geneva 1988. 1.1.2. Sources of chromium, environmental levels and
exposure. http://www.inchem.org/documents/ehc/ehc/ehc61.htm
MiningWatch Canada
Economic analysis of the Ring of Fire chromite mining play 4 4
Chromite and ferrochrome processing
Most chromite extraction is through open pit mining operations. As with any open pit operation
inflows of water have to be managed and controlled, and overburden, waste rock and the ore
have to be removed. Then ore is then crushed to release the chromite. Usually a “jaw crusher” is
employed. Initial processing of chromite sorts ore into “lumpy” ores and fines, and uses heavy
media or gravity separation of finer ores to remove gangue or waste materials and to produce
upgraded ores or concentrates. Magnetic separation and froth flotation techniques have also been
applied in some cases. “Lumpy ore” requires little beneficiation and is effectively quarried. In
order to be considered “lumpy ore”, the chromite must have a grain over 6mm, so that it can be
fed directly to the ferroalloy smelter11.
The Big Daddy Deposit in the Ring of Fire may be as much as 100% lumpy ore. 12 Micon
estimated that the Big Daddy Massive Chromite Domain contains an indicated resource of 16.3
million tonnes averaging 40.66% chromium oxide (Cr2O3), and an additional inferred resource
averaging 39.09% Cr2O3. By comparison, Outkumpu’s Kemi Mine in Finland has ore reserves of
41.1 million tonnes averaging 24.5% Cr2O3. 13 It should be noted that indicated and inferred
resources have not been analyzed for economic viability.14
Before the chromite can be used for steel making, it has to be converted to ferrochromium. The
International Chromium Development Association15 provides a description of the process of
producing ferrochromium alloys from chromite. (see a further description in Appendix A)
Chrome ore in various sizes is typically charged into a submerged AC electric arc furnace and
reductants (coke, coal and quartzite) are added. The smelting process is energy intensive,
requiring up to 4,000 kWh per tonne of material. Slag is separated from the liquid ferrochrome
and tapped into ladles for further processing. Liquid ferrochrome is then poured into moulds and
after cooling crushed into sizes as required by the customers. Crushed ferrochrome is railed to
final customers or harbours for shipment.
11 There are two Micon International Limited Technical Reports, both preliminary assessments: one for Spider and
KWG on the Big Daddy chromium deposit dated March 30, 2010 and one for Noront on the McFaulds Lake
Eagles Nest Project dated September 9, 2010.I refer to them in the references as Micon Big Daddy and Micon
Noront. This reference is from Big Daddy, page 98.
12 KWG Press Release, January 19,2011 “Big Daddy Drilling begun, passes test for lump ore.”
13 Micon. Big Daddy. Page 87
14 Micon, BigDaddy, page 10.
15 Explanation and diagram courtesy of http://www.icdachromium.com/chromium-ore-processing.php
MiningWatch Canada
Economic analysis of the Ring of Fire chromite mining play 5 5
Supply, markets and price
Chromium is the 21st most abundant material in the earth’s crust and geologists estimate that
there are about 12 billion tonnes of chromite in the world that could be mined16. “This is enough
chromium ore to meet world demand for hundreds of years into the future.”17 In addition, scrap
metal that contains chromium can be recycled as an alternative, more environmentally
responsible source.
About 45% of the mined chromite ores in the world are produced in South Africa18. Kazakhstan,
India, Russia and Turkey are also substantial producers, and Finland, Iran and Brazil produce
smaller amounts. The world’s largest producer of ferrochrome is Xstrata in South Africa (45%)
with seven operating chromite mines and six others that are not operating. 19 Other top chromite
producing companies are (in alphabetical order) Anglo Platinum Ltd, Aquarius Platinum Ltd,
Merafe Resources Ltd and Outokompu OYJ.20
Fourteen percent of all chromite is consumed in the USA, but there is almost no domestic
production .The Stillwater Mine produces chromite but does not market it, and a small new mine
in Oregon is about to go into production.
The price of chromite is determined, not by metal exchanges like the London Metals Exchange,
but by negotiation between individual buyers and sellers.21 It is confusing (to say the least) to
sort out the price of raw chromite from processed ferrochromium and processed chromium.
In 2007, in the midst of the huge steel and metals commodity boom, a USGS presentation to the
Metal Powder Industries Federation in Denver on the price of chromium and other metals22 said
the following:
The chromium industry’s production capacity expansion to meet sustained stainless
steel demand was delayed by antiapartheid policies and dissolution of the Soviet Union,
an event that reduced demand, and put chromium-containing materials on the market
[recycled stainless steel scrap] until 1994 as stocks in the former Soviet Union were
sold off. It took until 1995 for world demand to catch up with installed capacity as
indicated by the price increase in that year. ...In 2003, the price of chromium rose 40%
following two consecutive years of strengthening of the South African rand, which rose
24% against the U.S. dollar in 2003 alone. ...The rising cost of ferrochromium
production and a strengthening South African rand, along with increased demand for
16 J. Papp. USGS. Mineral Commodity Summaries, January 2010 Chromium, page 43
17 Eoearth.org/article/Chromium. The USGS estimates that there are 12 billion tonnes of mineable ore.
18 Mbendi Information Services. World Chromite Mining- Mining and Production
http://www.mbendi.com/indy/ming/chrm/p10010/htm
19 http://www.wikinvest.com/stock/Xstrata_(LON:XTA)
20 http://www.infomine.com/commodities/chromium.asp
21 Micon. Big Daddy, page 101
22 John F. Papp, Lisa A. Corathers, Daniel L. Edelstein, Michael D. Fenton, Peter H. Kuck, and Michael J. Magyar.
Cr, Cu, Mn, Mo, Ni, and Steel Commodity Price Influences, Version 1.1. http://pubs.usgs.gov/of/2007/1257/
MiningWatch Canada
Economic analysis of the Ring of Fire chromite mining play 6 6
ferrochromium and limited supply of stainless steel scrap, caused the price of
ferrochromium to reach historically high levels in 2004.
During the 1991-2006 time period, South African chromite ore and ferrochromium
smelter production capacity more than doubled while that of other countries declined.
Kazakhstan and India became the second and third leading chromite ore producers.
Indian chromite ore and ferrochromium production capacity also expanded while that
of Albania, Croatia, Japan, Zimbabwe and other countries decreased.
Chromium consumption by the leading consumers (China, Germany, Japan, and the
United States) shows that China moved from the least amount of consumption to the
greatest amount during this time period and was the only leading consumer that
substantially increased its consumption. Percent change shows that chromium price
changes are similar to China’s consumption changes. Chromium consumption growth
was driven throughout the time period by stainless steel production growth in Asia;
growth in Taiwan in the early part of the time period; growth in Korea and India
throughout the time period; and growth in China that started in 2000 and dominated the
end of the time period. China’s growth rate was more than double that of any of the
others.
The Economics of Chromium was published by Roskill in early 200923 and made the following
important points:
• Around 94% of global chromite production is destined for use in the metallurgical
industry, for the production of ferrochrome, with the remainder produced for use in the
foundry, chemical and refractory sectors.
• Around 70% of global chromite production is consumed domestically in ferrochrome
production in the country of origin.
• Three countries dominate output of ferrochrome. In 2008, South Africa, Kazakhstan and
India accounted for around 67% of total world production
• Chinese production has started to increase rapidly. At around 1.5Mt in 2008, Chinese
ferrochrome production has grown at an annual average rate of 28% per year, for the
period 2002 to 2008.
• The stainless steel industry is by far the largest consumer of ferrochrome. Until the
beginning of the downturn in the global economy, stainless steel production had shown
large increases.
• Demand in developing countries such as China and India helped global output increase at
an annual average rate of 5.4% for the period 2000 to 2007, with China alone accounting
for over 60% of this rise in global stainless production.
• Any changes to supply have a large impact on the price.
23Roskill Information Services. The Economics of Chromium, 11th edition 2009
http://www.roskill.com/reports/steel-alloys/chromium
MiningWatch Canada
Economic analysis of the Ring of Fire chromite mining play 7 7
After the report was written, the 2008 financial crash had a major effect on chromium markets.
Roskill then reflected:
“The onset of the economic downturn from mid-2008 has seen demand for
chromium plummet, with prices following a similar path. Ferrochrome
consumption fell by 3.5% in 2008, in year-on-year terms, as major Asian and
European consumers reduced orders to a minimum in an attempt to run down
inventories, as demand from end-users declined sharply...
Export prices for ferrochrome have fallen by 68% for the ten months to May
2009, as demand from stainless steel, the main end-use for ferrochrome, has
collapsed. In response to weakening demand and falling prices producers have cut
production, in some cases ceasing operations all together. Around 70% of world
ferrochrome production capacity was suspended in the first quarter of 2009, with
the Xstrata-Merafe joint venture operating at 20% of capacity since December
2008, while Samancor Chrome suspended all production in the first quarter of
2009.”24
In 2010, the industry was once again bullish, anticipating considerable increase in demand.
Xstrata, the world’s largest chromium producer, is building a 4.9 billion rand ($710 million)
smelter in South Africa to feed demand for the stainless steel ingredient.25 The sustainability of
this new economic growth over the long-term is highly questionable.
The following chart26 shows what happened to refined chromium prices between November 1,
2005 and December 2010.
24 Roskill Information Services. Double-Digit Falls in Ferrochrome and Chromite Demand in 2009. June 3, 2009.
http://www.roskill.com/reports/chromium
25 C. Lourens and R. Bonorchis. Xstrata Approves $710 Million Smelter; Merafe May Join. Bloombert Oct 20,
2010. http://www.bloomberg.com/news/2010-10-20/xstrata-partner-merafe-to-decide-by-year-end-on-whetherto-
build-smelter.html
26 http://www.infomine.com/chartsanddata/chartbuilder.aspx?z=f&g=127648&dr=15y show
MiningWatch Canada
Economic analysis of the Ring of Fire chromite mining play 8 8
Raw chromite ore fetches considerably less than refined chromium on the market, and is subject
to massive price fluctuations. Table 18-6 in the Micon Big Daddy Report showed 2010 prices for
metallurgical grade chromite ranging from $180/tonne to $395/tonne, depending on grade.27
South African chromite miners have been selling raw ore to China at prices significantly below
what other producing countries have been getting. Mining Weekly reported in March of 2010
that “China bought the 2.9-million tons [of raw chromite ore] from South Africa at the
comparatively low average price of $215/t including cost, insurance and freight (CIF), compared
with the $360/t CIF it paid for raw ore from India - 67% more. China also paid 35% more for the
raw ore it bought from Turkey.” 28 South Africa’s ability to produce ferrochrome from its
chromite ores is restricted by an inadequate power supply.
The price and market for chromite is intimately tied to the fate of the steel industry. Historically,
most North American steel plants have been centred around the Great Lakes on both the US and
Canadian sides of the border. The steel industry in North America has been in decline for
decades, since the price of oil went up in the 1970s, with the growth of inexpensive steel
production capacity in other parts of the world, and with the rise of globalized corporations that
move products between their subsidiaries.
27 Micon. Big Daddy. page 102
28 M. Creamer. South Africa exporting more raw chrome ore at low prices. MiningWeekly. March 5, 2010
http://www.miningweekly.com/article/south-africa-exporting-more-raw-chrome-ore-at-low-prices-2010-03-05
MiningWatch Canada
Economic analysis of the Ring of Fire chromite mining play 9 9
Writing for Credit Agricole on the website www.consensuseconomics.com, Magne and Frecaut,
presented the following analysis of steel industry prospects.
“From a pre-crisis peak of 121.1m tonnes in May 2008, world steel production
plummeted to a low of 81.7m tonnes in December that year. It has since
recovered, but remains below its level two years earlier. Because steel production
in rich countries fell much more than in countries like China, the latter increased
its share of global output. In May 2008 China produced 38% of the world’s steel;
by August 2009, its share had soared to 49%. Since then, steel production in other
countries has recovered too, causing China’s share of world output to slip to 45%
in July. But China’s dominance of the global steel industry is not under threat. In
July it produced more than five times as much steel as Japan, its closest rival.
“The slowdown in the commodity price cycle predicted by many analysts
for “after the Beijing Olympic Games” did indeed take place and, in just a few
months, turned into a downturn of unprecedented violence and scale. It has
affected all sectors, even though their fundamentals continue to differ
significantly....In our view, only a major wave of plant closures and a very
significant reduction in world capacity would be capable of rebalancing supply
and adapting it to actual demand, which was probably significantly overestimated
(particularly in China in the euphoria of preparing for the Olympic Games)....
Based on an initial purely theoretical analysis, we think it would be necessary to
reduce production capacity by between 200 million tonnes and 300 million
tonnes. Obviously such major restructuring would require governments to respond
to the situation and implement support measures.
In conclusion, for us the steel industry has entered a major crisis period,
characterised by a very significant structural supply surplus and prices that are too
low for most companies. The length of the crisis will naturally depend on an
improvement in economic conditions.”29
29 P. Magne and G. Frécaut, Steel: The End of the Commodities Super Cycle Crédit Agricole, Paris. May 20, 2009.
http://www.consensuseconomics.com/News_and_Articles/Steel_Prices401.htm
MiningWatch Canada
Economic analysis of the Ring of Fire chromite mining play 10 10
Key issues regarding Ring of Fire economics
Power Requirements.
Electricity requirements for the production of ferrochromium are very high, often coming to
more than 1/3 of the cost of production.30 Electric arc furnaces use up to 360-400 kWh of power
per tonne. The furnaces are so energy intensive they often require the building of new dedicated
power plants. World-wide, most of the power used for ferrochrome production currently comes
from coal.
Outokumpu, the Finnish chromite mining company estimates that electricity costs (including the
ferrochrome smelter and the Kemi Mine) are 31% of their ferrochrome production costs, with an
additional 28% of costs for other energy.31 These energy costs are drastically lower if the only
activity is milling the ore on site. As an example, the Bloom Lake Iron Ore Mine estimated the
average cost of crushing and processing iron ore at US$4.18/tonne concentrate (less than 20% of
the total cost of production of the iron ore). On the other hand, shipping ore that is minimally
processed is much more costly – because the weight and bulk are greater. 32
All the players in the Ring of Fire have expressed concerns about power availability and price for
their projects. In April 2010, Moe Lavigne, KWG’s VP of exploration and development, told
Northern Ontario Business that their project, including a mine, concentrator, ferrochrome
smelter, and rail would cost $2 billion. He went on to say:
“…the issue with an electric arc furnace is that it consumes a huge amount of
electricity and one of the issues will be where do we get the electricity
cheaper?...It’s a simple financial decision. It makes more sense business-wise for
us to save a billion dollars a year by building a plant somewhere else.” 33
For the Big Daddy deposit, Lavigne pegged an acceptable power cost at 4 cents a kWh.34 At
present, Ontario residential consumers are paying anywhere from 5.1 to 9.9 cents per kWh.35
Wes Hanson, Noront CEO is also blunt. He told Northern Life in November that the project will
“require a substantial government investment.”36
30 Hatch Associates. CIS Ferroalloys Industry:Current Profile and Future Potential. 21st International Ferro-alloys
Conference. 15 Nov. 2005. Slide 26
31 K. Kaituei. Ferrochrome investment-self-sufficiency and future growth Capital Markets Day 2010. Sept. 22, 2010.
Outokumpu. www.ouitokumpu.com. slide9
32 Consolidated Thompson Mines April 2009 Technical Report, Bloom Lake Mine
33 Northern Ontario Business. Power, First Nation Cooperation Key to developing Ring of Fire mine. Northern
Ontario Business, April 19, 2010.
34 Northern Ontario Business. Power, First Nation Cooperation Key to developing Ring of Fire mine. Northern
Ontario Business, April 19, 2010.
35 http://www.ieso.ca/imoweb/siteShared/demand_price.asp?sid=bi
36 I. Ross. Sudbury Mining suppliers well placed to benefit from Ring of Fire. Republic of Mining, Dec1, 2010.
http://www.republicofmining.com/2010/12/01/sudbury%E2%80%99s-mining-suppliers-%E2%80%98wellplaced%
E2%80%99-to-benefit-from-ring-of-fire-by-ian-ross/
MiningWatch Canada
Economic analysis of the Ring of Fire chromite mining play 11 11
Rail-line
In order to access the chromite deposits in the Ring of Fire, a 340 km rail-line will have to be
built from Nakina to the site. KWG has already claim-staked the rail-bed along a conveniently
located esker, although mining claims should not constitute a rail right of way. The companies
have hired consulting firm Krech Ojard & Associates to do a technical study of the proposed rail
line. Since the location is an enormous swamp, crossed by a number of major rivers, the
engineering will be complicated and construction costly.
Ontario Northland Transportation Commission –with considerable experience in the region - has
expressed strong interest in the rail line. The ONTC maintains 1100 kilometres of track from
North Bay to Moosonee and from Calstock to Hearst. They’ve built spurs in the past to mines in
northeastern Ontario 37 The company is losing $7-9 million in freight with the closure of the
Kidd Met smelter in Timmins. When ONTC built a new spur into the Agrium phosphate mine
near Kapuskasing in 1999 – more than a decade ago - the cost per kilometre was about $1
million.38 They say that adding a major bridge can cost as much as an entire section of new track.
Doing structural work on their quarter-mile-long bridge spanning the Moose River will cost
between $18 million -$20 million over five years.39
Recently, Consolidated Thompson Mines had to strengthen an existing 500 km rail line from
Wabush, Labrador to the St. Lawrence and build an additional 31 kilometre line to their new iron
mine. Capital costs for only the rail upgrades came in at over $176 million (almost double the
original estimate). In addition they anticipate an operating cost for rail transport of $11.87 per
tonne mined.40 In December 2010, heavy rains washed out sections of the railbed which took
more than two weeks to repair.41
It should be noted that since Cliffs Natural Resources purchased Consolidated Thompson on
January 11, 2011, for $4.5 billion, they now own a railway company. BL Railway, which
operates in Newfoundland and Labrador was created by Consolidated Thompson in 2008.
37 I. Ross. Study begins on Northern Ontario’s Ring of Fire Railroad. Republic of Mining. June 2010.
http://www.republicofmining.com/2010/06/17/study-begins-on-northern-ontario%E2%80%99s-ring-of-firerailroad-%
E2%80%93-by-ian-ross/
38 “Agrium invested more than $70 million to establish the mine and build the mill and the rail spur. The railway
spent $22 million on the spur line to move the reserve of 22 million tonnes for the next two decades.”
http://www.northernontariobusiness.com/Regional-News/timmins/Phosphate-mining-potential-near-Hearst-%289-
01%29.aspx
39 Ibid.
40 Consolidateed Thompson Iron Ore Company. Annual Information Return.Fiscal Year ended December 31, 2009.
Page 32.
41 Consolidated Thomspon Iron Ore Mines website.
MiningWatch Canada
Economic analysis of the Ring of Fire chromite mining play 12 12
Ferrochrome production facility
There is substantial interest from municipalities like Timmins and Thunder Bay in hosting a
ferrochrome smelter, because of the jobs that would be generated and property tax revenues they
might enjoy. Value-added production of ferrochrome would also increase potential economic
benefits at the provincial level. It is not clear, however, if a processing plant in Ontario would be
the companies’ preferred option. Tom Laughren, the Mayor of Timmins, says that the
“underlying cost structure in Ontario makes processing prohibitive.”
A smelter will require rail and or port access, public willingness to sacrifice the environment,
competitive electricity costs and a tax and benefit regime that is attractive to industry. Ontario is
in competition with Quebec, which has very low industrial electricity costs, because of the
hydroelectricity projects on the Cree lands of northern Quebec. Section 91 of the Ontario
Mining Act requires minerals to be refined within Canada, though an exemption can be granted
by the Minister who also can define the degree of processing required.
In 2010, Timmins lost the Xstrata Kidd Metallurgical plant, and with it 640 jobs. The Kidd Met
smelter in Timmins is owned by Xstrata, the world’s largest chromite miner, which has shown
no interest to date in the Ring of Fire play – although the Xstrata labs have been carrying out
metallurgical analysis for KWG. The site’s processing facilities would have to be substantially
overhauled if not entirely rebuilt to process chromite however basic infrastructure is in place and
there is strong support from local politicians42. As an indication of the cost of such a facility, the
new Xstrata-Merafe smelter in South Africa will cost $710 million.
This summer, the province gave $225,000 for Timmins to spend on a feasibility study to outline
the Met Site’s assets, environmental concerns and marketing opportunities. The chair of the
CAW union local, Ben Lefebvre, said in June that “the infrastructure at the site won’t last
beyond the end of the year, as the frost will likely lay waste to the equipment as it goes unused
through the winter months”. Although discussion has taken place with Cliffs, it would be at least
five years before anything could be built in Timmins.43
The companies
None of the companies involved in the Ring of Fire are experienced chromite miners. KWG,
Noront and the Cliffs Natural Resources subsidiaries44 (Spider and Freewest) are all exploration
companies. Cliffs itself has no chromite mining experience; neither has it operated a ferrochrome
smelter.45
42 C. Romain. Minister tries to calm fears for Ring of Fire, Vows ore won't go to China. Timmins Daily Press.
Jan. 12, 2011. www.timminspress.com/ArticleDisplay.aspx?e=2924802
43 N. Stewart. Timmins Looks past Kidd Met Closure. Northern Ontario Business, June 11 2010
www.northernontariobusiness.com/Industry-News/mining/Timmins-looks-past-Kidd-Met-closure.aspx
44 Cliffs purchased 100% of Spider October 7, 2010, 100% of Freewest January 27, 2010, 100% of Wabush
February 1, 2010, 100% of Consolidated Thompson(Bloom Lake) January 11, 2011.
45 Cliffs Natural Resources website www.cliffsnaturalresources.com
MiningWatch Canada
Economic analysis of the Ring of Fire chromite mining play 13 13
Cliffs Natural Resources mines iron ore in Brazil, Australia, Minnesota and Labrador. Coal,
essential for coke and power plant fuel, is mined by Cliffs in West Virginia and Alabama.
Cliffs recently purchased, for $4.5 billion – at $17.25 a share, Consolidated Thompson Iron
Mines (January 11, 2011), a company with less than a year of experience operating an iron ore
mine. Consolidated Thompson had a very well connected Board, including Brian Tobin as CE0,
and Goldcorp’s Kevin MacArthur; it had been able to get permitting for the Bloom Lake iron
mine in record time.
Perhaps of most significance for northern Ontario, with the purchase of Consolidated Thompson,
Cliffs Natural Resources has cemented relationships with purchasers in China:
In July 2007, the Consolidated had entered into a distribution agreement with
Worldlink Resources Limited, a China-based integrated trading company, for the
supply of iron ore concentrates. In December 2007, the distribution agreement
was expanded to a seven-year term as Worldlink committed to purchase 7.0
million tonnes of iron ore concentrate per year. Worldlink is a trading company
engaged in the import and export business of iron ore, coal and other dry bulk
commodities and has been marketing in China since 2000, including having joint
ventures with two Chinese steel mills. By providing long-term mineral resources,
Worldlink has built consolidated marketing channels and relationships with major
steel customers in China.46
The company intends “to apply our expertise in open-pit mining and mineral processing to
chromite ore resource base that could form the foundation of North America’s only ferrochrome
production operation.”47 With the purchase of Consolidated, they have now announced a major
company re-organization48, focusing on sales to Asia.
There is no doubt that they want to develop a chromite mine in northern Ontario, assuming they
can make money doing it. However, it will not be economic for the company to do it unless there
is very substantial public investment in infrastructure like rail-lines, electrical subsidies, First
Nations compensation and training.
KWG Resources is a mineral exploration company, not a mining company. It started out as a
diamond exploration company, and currently owns “Debuts Diamonds Inc. (“DDI”), a whollyowned
subsidiary which holds all the Company’s diamond exploration properties. KWG controls
the MacFadyen Kimberlites and other contiguous exploration properties that are all adjacent to
the De Beers Victor Diamond Mine”.
KWG owns 49 26.5% of the Big Daddy chromite deposit in the Ring of Fire. The company also
claim staked a potential 340 km railline from the deposits to Nakina, along an esker. Mining
46 Consolidated Thompson. Op cit. Page 5
47 Cliffs Natural Resources Inc. Notes to unaudited financial statements Sept. 30, 2010, page 17.
48 Cliffs Natural Resources Inc. Announces Global Reorganization: Worldwide Realignment of Commercial,
Operating and Administrative Functions Designed to Leverage Global Scale and Improve Production Efficient
Jan 21, 2011. http://www.mfrtech.com/articles/9482.html
49 KWG. Management Discussion and Analysis, Dec 2010. Page 4. www.sedar.com
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Economic analysis of the Ring of Fire chromite mining play 14 14
claims do not leagally constitute a Right of Way. They also hold Net Smelter Return royalty
agreements on the nearby Black Thor and Black Label deposits. The company created whollyowned
subsidiary Canada Chrome corporation to manage the rail-line interests. “ A number of
off-balance sheet financing alternatives are being pursued to fund the first phases of consultation,
assessment and construction of this transportation corridor.”50 In June 2010, there was a struggle
with Cliffs over a proposed amalgamation between KWG and Spider Resources. In the end,
Spider became a wholly owned subsidiary of Cliffs. 51
There are almost forty exploration companies active in the region, but most are unlikely to
develop a mine.
The Noront Eagle One project is a proposed underground nickel and PGM mine in the Ring of
Fire region, projected to last for eleven years. Like chromite, it is a bulky and expensive material
to transport, and so, unlike gold, is not conducive to air transport. An underground mine and mill
will also have extensive power requirements for which the company proposes a diesel power
plant at Webequie with a transmission line to the site. The mine also will need a winter road to
Webequie, a slurry line from the site to a load-off in Webequie and a reinforced road south to
smelters.52 An underground mine in the swampy environment will probably require either
drainage or freeze walls, and will therefore be more expensive. The management of tailings -
which the company intends to eventually put back underground – will be very challenging.
It is unlikely that this mine will be able to go ahead unless the infrastructure is supplied by some
source other than the Company’s own financing, and even then, it will be marginal. Recently,
investors appear to agree, as the shares of Noront are in freefall.
Taxation and government subsidies.
The companies concerned have been accumulating substantial tax asset pools during their
exploration activity. By August 2010, Spider had over $20 million in deferred exploration
costs53. Noront’s deferred exploration expenditures in October 2010 came to almost
$97million.54 KWG had accumulated $30,596,595 in deferred costs and exploration expenses by
the end of September 2010.55 Even if the chromite mining project does not go ahead, the
Canadian Income Tax Act (section 66) allows Cliffs to use the Canadian Exploration credits
from Spider and Freewest to offset the profits from Wabush Mines and Bloom Lake (which are
both turning a profit).
Canada’ s tax incentives are considerable for mining exploration and development. As an
example, because KWG has set up its rail-line interests as Canada Chrome, a separate subsidiary,
Canada Chrome exists as a separate legal person and can have a completely separate balance
sheet from a parent company. This enables a parent or a partner company to make use of losses
50 Ibid.
51 KWG news releases posted on www,sedar.com June-July 2010.
52 Micon - Mcfaulds Lake p. 11
53 Spider Resources. Interim Financial Statements June 30 2010. Page 10.
54 Noront. Management Discussion and analysis for the quarter ending October 31, 2010. Page5
55 KWG, MD&A, Dec1010. Page 16.
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Economic analysis of the Ring of Fire chromite mining play 15 15
from that operation as they wish: deducting losses from the parent balance sheet if they need tax
write-offs, or allowing the subsidiary sink further in debt or go bankrupt. KWG CEO Frank
Smeenk is quoted in the Sudbury Mining Solutions Journal: “The attractiveness of a project
financing vehicle using tax incentives available in Canada and having a partner like KWG is that
Cliffs’ financial metrics aren’t affected by this huge capital cost, so we’re finding a sympathetic
hearing in Cleveland.”56
In Ontario, Ring of Fire mines will qualify as “northern Ontario remote mines” and will enjoy a
ten year tax holiday from paying any mineral royalties (the Mining Tax). If First Nations succeed
in negotiating a royalty sharing agreement with the province, they must be careful that it is based
not on a percentage of the mining tax, but on a share of gross revenues.
All companies have been demanding enormous government interventions to assist Ring of Fire
development: building an all weather road, paying the lion’s share of a railroad to the mine site,
lower power rates, transmission lines and possibly new power sources, contribution to the
development of a new ferrochrome smelter, etc. They will also expect governments to pay for
training for First Nations and others to be able to take on jobs. The 2010 provincial budget
announced a $450 million Northern Industrial Electricity Rate Program (NIERP), $45 millionin
new project based skills training program for Aboriginals and Northern Ontario residents, the
appointment of a Ring of Fire Co-ordinator and the $1.2 billion in infrastructure development to
strengthen Northern communities 57
The Micon Study of the Eagle One project (accurate to within +50%) states: “this estimate
assumes that certain proportions of the off-site capital costs will be borne by other stakeholders
potentially including the provincial and federal governments and other mining companies with
interests in the ROF.” 58 Later the study admits that it assigned only 25% of the all season road,
50% of the power line and 50% of the winter road costs to Noront.59
The high capital costs of mine development would also ensure that they do not show a profit for
income, or mining tax purposes for a number of years, and will pay little or no mining and
income tax during the life of the mines.
Water management
Since the Ring of Fire is in the James Bay lowlands, one of the world’s largest wetlands water
management requirements will be enormous: it will be necessary to engineer massive drainage
and pumping systems or to use freeze walls in order to mine. Wes Hanson of Noront said that :
“It’s not uncommon to see your diamond drilling contractor standing up to their waists in water,
56 N. Tollinsky. Ontario Ring of Fire Chromite Operator Still to be determined. Sudbury Mining Solutions Journal.
March 2010.
http://www.sudburyminingsolutions.com/articles/News/03-10-Chromite-mine-operator-still-to-be-determined.asp
57 http://www.fin.gov.on.ca/en/budget/ontariobudgets/2010/bk_northern.html
58 Micon, Noront page 6.
59 Micon, Noront page 11
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Economic analysis of the Ring of Fire chromite mining play 16 16
finishing a hole.”60 In similar conditions, the Victor Mine, McArthur Mine and Aquarius Mine
were forced to use the “freeze wall” method in order to keep water out of their mines. This
greatly adds to the cost of production, and can have serious effects on aquifers and the water
table.
The difficulty of managing tailings and waste rock over the long term in an environment that is
saturated with water will be enormous. Writes Norm Tollinsky: “It makes sense to locate the
concentrator where the furnace is to bypass the engineering challenges associated with tailings
management in the swampy terrain of James Bay.”61
In addition, Micon has indicated in the Big Daddy study that the aggregates needed at the mine
site and to build a base for the railroad may not be available. In this case, they would have to be
brought in, at great cost.
Shipping costs.
Although rates for ore shipments are negotiated on a contract by contract basis, the Baltic
Exchange62 provides in depth market analysis and information to its 500 members about going
shipping rates and conditions. Currently, bulk carrier shipping costs from Asia to Europe are at
an all time low, because of the flooding of coal mines in northern Australia. 63 This situation is
unlikely to continue indefinitely, and shipping costs will rise as production resumes. Rising fuel
prices, the inevitable result of peak oil, will combine with the increased demand for shipping to
substantially increase costs in the medium term.
Bloomberg provides this analysis:
Marine fuel, known as bunker, cost $543.50 a metric ton on Jan. 14 in Singapore,
a key refueling point, according to data compiled by Bloomberg. That’s 30
percent more than in May and the highest since October 2008... Futures traders
are anticipating higher oil costs through at least the next eight years, according to
contracts traded on the New York Mercantile Exchange. Crude for next month
traded at $91.34 a barrel late yesterday and changed hands at $96.50 for delivery a
year after that, bourse data show. The largest ships burn 320 tons of fuel a day
when traveling at full speed, according to Soren Andersen, vice president for
vessel management at Maersk Line, the container unit of A.P. Moeller-Maersk.”64
60 Noront CEO whets appetite of Sudbury mine suppliers. Northern Ontario Business. Nov. 30 2010.
http://www.northernontariobusiness.com/Industry-News/mining/Noront-CEO-whets-appetite-of-Sudbury-minesuppliers.
aspx
61 N. Tollinsky, N. Ontario Ring of Fire Chromite Operator Still to be determined. Sudbury Mining Solutions
Journal. March 2010.
http://www.sudburyminingsolutions.com/articles/Exploration/06-09-Chromite-discovery-sparks-excitement.asp
62 Balticexchange.com
63 A. Hollaway. Shipowners Increase Payments to Get Their Vessels to Atlantic. Bloomberg. Jan 11, 2011
http://www.bloomberg.com/news/2011-01-17/shipowners-increase-payments-to-get-their-vessels-to-atlantic.html
64 A. Nightingale and K. Park. Container Ship Rates Rising as Fuel Prices Slow Vessels: Freight Markets
Jan 19, 2011 http://www.bloomberg.com/news/2011-01-19/container-ship-rates-rising-as-fuel-prices-slowvessels-
freight-markets.html
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Economic analysis of the Ring of Fire chromite mining play 17 17
Rising shipping costs will play a major role in markets for northern Ontario chromite or
ferochrome. Over the past three decades, it has become more cost efficient for steel producers to
ship bulk ores from Canada to smelters in Asia and South Africa than to refine it in North
America. Rising shipping costs could alter the equation, making it more viable to refine metals in
Canada, however the fastest growing markets are no longer in North America.
Sustainability.
There are a number of sustainability issues that need to be addressed in a full analysis of the
chromite proposals. They are outside the scope of this economic analysis, but warrant further
study. These issues include:
• Aboriginal sovereignty and consent;
• Distribution of benefits, costs and risks between communities;
• The ability (or inability) of our environmental protection systems to effectively monitor,
manage and control emissions to air and water from chromite mining and processing
operations;
• Impacts on ground and surface water from mining activities, including potential increases
in mercury concentrations;
• The lack of comprehensive environmental assessment of mines in Ontario;
• The lack of cumulative effects assessment of mines and smelters; and
• Net green house gas emissions including loss of carbon capture in affected areas of the
James Bay Lowlands65, mining, processing and shipping.
Feasibility of the mine projects
At the time of writing, none of the projects have prepared a feasibility study or even a prefeasibility
study at this time, so there is really little to evaluate. The claims of massive finds are
not yet even NI43-101 compliant reserves.
The Micon preliminary economic study of the Eagle One deposit indicated that the mine would
barely be able to repay capital costs at current nickel prices – and that was with considerable
“synergies” with governments and other mining companies. Joe Hamilton of Noront executives
told Sudbury Mining Solutions in June 2009: “You need something that will last for years to
justify the the infrastructure up there and it looks like chromite is going to derive(sic) that... I
don’t think the global market is going to be able to support the required production rates without
cratering the chromite price.”66 It is hard to believe that major multinational companies like
Xstrata will stand for a cratering of the price; it is more likely they would buy up the deposit just
to prevent its being developed. Cliffs Natural Resources is trying to enter their league; it remains
to be seen if they will be able to.
Mining analyst Brent Cook shares this opinion:
65 Ontario Nature estimates that “Ontario peatlands sequester carbon at a rate of 0.273 tonnes of carbon per hectare if
left undisturbed. That adds up to 7 million tonnes stored each year. www.ontarionature.org
66 Chromite discovery sparks excitement. Sudbury Mining Solutions. June 2009
http://www.sudburyminingsolutions.com/articles/Exploration/06-09-Chromite-discovery-sparks-excitement.asp
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Economic analysis of the Ring of Fire chromite mining play 18 18
The ferrochrome market is similarly supplied by a few major players and mineral
districts. Approximately 45% comes from South Africa, 17% from Kazakhstan
and 19% from India. According to the USGS, world resources total 12 billion
tonnes of direct-shipping grade chromitite ore. Direct-shipping grade ore is
greater than 38% Cr2O3 (chromite mineral) and a chrome to iron (CR/Fe) ratio of
greater than 1.8. The International Chromium Development Association
estimated that some 19 million tonnes of marketable chromitite ore were
produced in 2006 and that the market was in oversupply. Through mid-2008
chromite demand and prices increased, however the commodities crash of late last
year means demand has probably fallen nearly fifty percent. Indicative of the
price and demand collapse, Xstrata's Merafe ferrochrome plant in South Africa is
operating at 20% of capacity...
You begin to see the problems an emerging new nickel-chrome-PGE
province will face. The new province would immediately have to compete on an
economic basis with already developed mining districts hosting virtually
unlimited resources. In addition to the mine development costs including roads
and power, the project would have to consider the trade off costs between a new
smelter in Canada vs. shipping the ore to one of the operating smelters owned by
someone else. For major mining companies or investors to finance what is likely
to be billions of dollars in exploration and development costs they will need to see
very high returns to offset draining this swamp in the middle of nowhere.
The fact that the two major nickel-chrome-PGE districts can conceivably ramp up
production to meet increased demand puts them in ultimate control of the metal
prices. The advantage offered by the McFaulds Lake area is that it could provide
a third and politically stable supply of nickel-chrome-PGE. The go-ahead factor
will be the discovery of a world-class high-grade deposit that puts the economic
evaluation over the top and threatens the existing nickel-chrome-PGE market.67
A threat of increased chromium supply on the market from Cliffs will likely bring the large
ferrochrome competitors in to the play such as Xstrata and Anglo-American. Whether they
decide to let the project proceed or close it down will be determined by their own interests; not
the interests of the environment, Ontario or the affected First Nations.
67 B. Cook. 2010. The Ring of Fire McFaulds Lake area play - Draining a swamp.
http://www.resourcestockdigest.com/company_specific_commentary/index.php?&content_id=198
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Economic analysis of the Ring of Fire chromite mining play 19 19
Appendix A - Ferrochrome Production
From the website of the International Chromium Development Association
http://www.icdachromium.com/chromium-ore-processing.php
Most of the world's production of chromite (95%) is used in the metallurgical industry in the
form of ferrochromium alloys. The alloys are produced by high temperature reduction (smelting)
of chromite. They are essentially alloys of iron and chromium with much lesser amounts of
carbon and silicon, the amounts depending upon the grade or type of alloy, and impurities such
as sulphur, phosphorous and titanium. The conversion of chromite to ferrochromium alloys is
dominated by electric submerged arc furnace smelting with carbonaceous reductants,
predominantly coke, and fluxes to form the correct slag composition. The electric current is 3-
phase alternating current (AC) and the furnaces have three equally spaced consumable graphite
electrodes in a cylindrical, refractory-lined container with a bottom tap-hole.
Characteristics of the submerged arc furnace for smelting chromite include:
1. Relatively easy to control provided the charge is well sorted to maintain a permeable
overburden which will allow easy escape of the gases produced.
2. Self-regulating with power input determining the rate of consumption of charge
(overburden)
3. Some pre-heating and pre- reduction of the overburden by the hot ascending gases.
Submerged arc furnaces can be open, semi-closed or closed with correspondingly better thermal
efficiency and the ability to make use of the energy in the off-gases from the closed furnaces.
In the early days of high-carbon ferrochromium production, the furnaces were supplied with
high-grade, lumpy chromite from countries such as Zimbabwe but with the increasing demand
from the 1970s, other countries, South Africa in particular, commenced production from their
lower-grade ores. The alloy produced from these ores became known as charge chrome because
the chromium content was lower and the carbon content, and in particular the ratio of C:Cr, was
very much greater than in high-carbon ferrochromium. This did not suit the stainless steelmakers
who required as little carbon as possible entering their melts for each chromium unit and who
were, therefore, having to use larger amounts of the more costly low-carbon ferrochromium to
compensate. However, the situation changed radically with the advent of the argon-oxygen
decarburising (AOD) and vacuum-oxygen decarburising (VOD) processes. These processes
enabled the steelmakers to remove carbon from the stainless melts without excessive oxidation
and losses of chromium.
A more advanced attempt to overcome the problem of ore fines was the introduction of DC arc,
or plasma, furnace technology. The DC arc furnace uses a single, central hollow graphite
electrode as the cathode, with an electrically conducting refractory furnace hearth as the anode.
The furnace operates with an open bath, so there is no problem with overburden, and the
chromite fines, together with coal and fluxes, are fed directly into the bath through the hollow
electrode. The furnace has a closed top. Some of the advantages of DC arc furnace operation are:
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Economic analysis of the Ring of Fire chromite mining play 20 20
use of fine ores without agglomeration, use of cheaper reductants and greater choice of
reductants, higher chromium recoveries, deliberate changes in the charge composition are
reflected rapidly in the slag or metal, and closed top operation allows furnace off-gas energy to
be used.
Another approach to friable ores has been to pelletise them, after further grinding if necessary,
with binder, reductant and fluxes and pass them through a rotary kiln where they are hardened
(sintered), pre-heated and pre-reduced to a degree before charging to a submerged arc furnace.
A further development in treating ore fines by kiln pre-reduction used unaglomerated chromite
fines and low cost coal, with fluxes, as the feed to the kiln. Self agglomeration of the fines was
achieved close to the discharge from the kiln where the charge becomes pasty in a high
temperature zone of approx. 1,500ºC. Very high degrees of reduction were achieved (80-90%) so
that the downstream electric furnace (DC arc) became essentially a melting furnace.
A more recent approach, and one which is being installed by more plants, is again by pelletising.
Pellets are produced with coke included and these are sintered and partly pre-reduced on a steel
belt sintering system. From there, the pellets are delivered to pre-heating shaft kilns that are sited
above submerged arc furnaces and which operate as direct feed bins, making use of the off-gas
heat from the furnaces. Lump ore, coke and fluxes are also directed to the feed bins.
In addition to the technologies already discussed, there have been various other approaches to
smelting chromite. These include rotary hearth sintering and pre-reduction of pellets, and
fluidised bed pre-heaters for chromite fines.
Some intensive development work has been carried out in Japan upon entirely coal/oxygen based
smelting processes using no electrical energy, sometimes referred to as smelt-reduction
processes.