* 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 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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