UPDATE 3-Cliffs suspends Canada chromite project, hopes dim for Ring of Fire

Thu Jun 13, 2013 1:06am IST

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* Miner Cliffs cites regulatory, political delays
    * Black Thor project could open up region for development
    * Weak iron ore prices have hit Cliffs' core business


    By Allison Martell
    June 12 (Reuters) - Cliffs Natural Resources Inc 
said on Wednesday it was suspending work on its $3.3 billion
chromite-mining project in northwestern Ontario, a move that
dimmed hopes for development of the region's mineral-rich Ring
of Fire. 
    Cliffs attributed the delay to stalled talks with the
Ontario provincial government and on other political and
regulatory problems. 
    It was far from clear that the company would be able to
revive the project, called Black Thor, given the low iron ore
prices that are pressuring it operations elsewhere.
    "It's hard to see why Cliffs would undertake a project of
this magnitude when its core business, the source of all of its
cash flow, is withering," said Morningstar analyst Daniel Rohr.
    He said Cliffs would likely not have had the capital to go
ahead with Black Thor even if infrastructure and regulatory
issues had been resolved.
    The Ring of Fire, about 1,500 km (1,000 miles) northwest of
Toronto, is a large cluster of mineral deposits that Canadian
political leaders have said could bring economic development to
northern Ontario much as oil sands have to northern Alberta.
    There are no rail lines, highways or reliable power sources
in the region, and Cliffs' plan for Black Thor includes a $600
million highway that could open the zone to smaller mining
companies such as Noront Resources Ltd that are
developing projects or have claims there. 
    Noront's current plan is to use Cliffs' proposed north-south
road to ship concentrate from its Eagle's Nest nickel, copper
and platinum group element project, but Chairman Paul Parisotto
said an east-west route was a viable alternative.
    "We're confident that we could assist in arranging financing
for the east-west corridor," he said, adding that Noront's two
biggest shareholders, China's Baosteel and private
equity firm Resource Capital Funds, are "very supportive."
    Noront is the highest-profile of several junior mining
companies with interests in the Ring of Fire, including Probe
Mines Ltd and Fancamp Exploration Ltd. 
    
    "CLOSE RELATIONSHIP"
    The Ontario government effectively appointed Cliffs to lead
development in the region last year, when it drafted a
non-binding agreement to support the highway. But talks were put
on hold when Kathleen Wynne took over as provincial premier in
January.
    The province's Ministry of Northern Development and Mines
said it has a "close relationship" with Cliffs: "We will
continue to work diligently to finalize many aspects of an
arrangement that would bring this significant investment to
Ontario," said an emailed statement attributed to Minister
Michael Gravelle.
    Cleveland-based Cliffs has been battered by weak prices for
iron ore and metallurgical coal, and it has been clear that it
would need government support to build the highway.
    Chromite is refined into ferrochrome, used to make stainless
steel, and Cliffs has touted the mineral as a natural next step
for a company with long experience supplying the steel industry.
    But relatively high-cost iron ore producers like Cliffs have
been hit hard by weak demand in recent quarters. At Tuesday's
close, its shares were down 55 percent so far this year.
    Tony Clement, the federal minister whose portfolio includes
the Ring of Fire, remained upbeat on both the region and Black
Thor. "There are going to be bumps along the road," he said. "I
would not place too much emphasis on a particular decision by a
particular company."
    Asked whether the federal government would consider loan
guarantees for mining infrastructure, Clement said decisions
should be based on "business principles," not "state largesse."
    Cliffs said its decision resulted from political and
regulatory delays - "unfinished" agreements with the province,
legal challenges from some aboriginal communities and a delayed
environmental assessment - not the tough market.
    Cliffs' shares were down 0.8 at $17.36 on the New York Stock
Exchange.
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