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TORONTO (Reuters) - The future of Canada's Ring of Fire, a remote cluster of rich mineral deposits in northwestern Ontario, is looking increasingly dim as the finances of its biggest private investor, Cliffs Natural Resources Inc (NYSE:CLF - News), have taken a turn for the worse.

Crouched in swampy lowlands and named for a Johnny Cash song, the 4,000 sq km (1,500 square mile) zone has no rail lines, highways or reliable power. Canadian political leaders say the Ring of Fire could support a century of mining, but the cash-strapped government has yet to commit infrastructure funds.

But other challenges facing Cliffs may prove more difficult. The iron ore and metallurgical coal producer has proposed a $3.3 billion chromite project, including a $600 million highway that could open the region for smaller mining companies such as Noront Resources Ltd (TSXV:NOT.V - News).

The project, Black Thor, would be North America's first major chromite mine, and Cliffs touts the mineral - which is refined into ferrochrome, used to make stainless steel - as a natural next step for a company with long experience supplying the steel industry. But not everyone is enthusiastic.

"They have an infrastructure, logistical problem," said Robert Yuksel Yildirim, president of Turkish industrial conglomerate and ferrochrome producer Yildirim Group, who considered investing in Black Thor.

Yildirim has met with Cliffs several times, but does not plan to buy in. He is concerned about excess supply in the chrome ore market, where China is the primary buyer: "At the market price, I don't think they will be competitive," he said.

Cliffs has been battered by weak iron ore prices, and a key growth project, Bloom Lake iron ore in Quebec, faces higher-than-expected costs. The stock has plunged more than 70 percent over the last 12 months, as soft Chinese demand weighed on companies that supply steelmakers, hitting relatively high-cost iron ore producers like Cliffs.

"For Cliffs, this constitutes an existential threat," said Morningstar analyst Daniel Rohr. "If we head down the road I think we're heading down, there's not going to be a lot of capital in Cliffs' piggy bank to fund something on the scale of this Ring of Fire project."

Asked about the steep capital costs - not far off Cliffs' $2.8 billion market capitalization - Bill Boor, Cliffs' senior vice president for ferroalloys, said the company will consider joint ventures as a source of funding, and capital spending would be spread out.

"I think sometimes there's an intuition that people have that when we say 'go' on a project we have to be sitting on that money, and yet, we've got several years to spend it," he said.

Boor is clear that Cliffs would need government support to build its highway. But crucial talks with provincial authorities, who have jurisdiction over mining development, have been on hold for months, and it is unclear why.

FIFTY BILLION DOLLARS

Tony Clement, a federal minister assigned to promote the project, says the minerals in the Ring of Fire could be worth up to $50 billion, and development could create more than 5,000 local jobs. At least a dozen TSX Venture-listed companies have projects or claims near Black Thor.

KWG Resources Inc (TSXV:KWG.V - News), invested in an early-stage chromite project in the region, wants to build a railroad on the narrow ridge that Cliffs' highway would follow. Chief Executive Frank Smeenk is frustrated that the government chose to work only with Cliffs in the first place.

"They're blinded by the size, by the big guy," he said.

John Mason, mining project manager for the economic development agency in Thunder Bay, the region's most populous municipality, said Cliffs' long history and strong relationship with steelmakers gives it an important role in Ring of Fire.

But he is well aware that Cliffs is not nearly as big as it was a year ago: "It's a concern, there's no question about that," he said.

The proportion of Cliffs shares on loan has risen sharply over the last year, an indication that traders are selling the stock short, betting it will fall further.

On April 12, just over one quarter of Cliffs' shares outstanding were on loan, more than all but one of its peers on the S&P 500 index, according to data from Markit.

Some analysts also worry about a cluster of projects that could dramatically increase the supply of iron ore pellets in the Great Lakes market. Credit Suisse's Nathan Littlewood says Cliffs needs to consider drastic options, selling assets or raising billions in equity, to survive the next commodity cycle.

THOR'S HAMMER

Black Thor's role in the Ring of Fire can be traced back to last spring, when Ontario backed Cliffs' highway, a 340 km (210 mile) north-south route, over the east-west road or rail options put forward by other miners.

Cliffs has a non-binding agreement with the province, and while terms are not public, Noront said Ontario indicated in August that it planned to "contribute financially" to a north-south route. Noront is ready to look at other options if needed, but currently plans to use the road to ship concentrate from its Eagle's Nest nickel, copper and platinum group element project.

Noront, which completed its feasibility study for Eagle's Nest in September 2012, is the highest-profile of a cluster of smaller mining companies with interests in the region, including Probe Mines Ltd (TSXV:PRB.V - News) and Fancamp Exploration Ltd (TSXV:FNC.V - News).

But Cliffs' talks with the province have been on hold since Kathleen Wynne took over as premier in January. It is not clear what, if anything, that means, but Wynne could rethink her predecessor's approach, given that there is no binding deal.

The Ontario Ministry of Northern Development and Mines declined an interview request. It said in a statement attributed to Minister Michael Gravelle that it is looking forward to resuming detailed talks "shortly."

Black Thor would produce 600,000 tons of ferrochrome at a furnace in nearby Sudbury, plus 1 million tons of ore concentrate for export. Cliffs plans to target customers in North America, Western Europe and Asia, and will no doubt court steelmakers near and far as it wraps up its feasibility study later this year.

An environmental assessment and consultations with local aboriginal communities are already under way. Some aboriginal leaders are wary of the upheaval that development could bring, and environmental groups worry about the impact on wetlands.

But CRT Capital Group analyst Kuni Chen does not see infrastructure or permitting issues as deal breakers.

"I think the project makes sense, the strategy makes sense, it's consistent with their approach to be a supplier of raw materials to the steel or stainless steel industry," he said.

Boor said the search for a joint venture partner will likely start in earnest by the end of this year, adding that so far there has been no lack of interest.

(Reporting by Allison Martell; Editing by Janet Guttsman and Leslie Gevirtz)

No, these are not the planned E/W or the N/S roads, or FN trap-lines, nor the railway route. These are iceberg marks, some exceeding 20 km in length and 100 m wide, are pictured about 180 km SSE of RoF....

…(durban1)