Ottawa cools to Ring of Fire’s potential
Ottawa cools to Ring of Fire’s potential
The Globe and Mail
Published Tuesday, Dec. 20, 2016 5:00PM EST
Last updated Tuesday, Dec. 20, 2016 6:44PM EST
Ottawa has been throwing cold water on the Ring of Fire, a mineral deposit in Northern Ontario that was once thought to be worth more than $60-billion.
Since the federal Liberal Party came to power last year, the government has stonewalled requests to pay for infrastructure, lowered expectations for development and slashed its valuation for the deposit, according to internal Department of Natural Resources documents obtained by The Globe and Mail.
The skepticism among federal ranks has proven to be another barrier to mining the 5,000-square-kilometre crescent of mostly chromite in the boggy James Bay lowlands and boreal forest.
Development of the Ring was already facing significant challenges: No permanent road access, no power, environmental concerns, a prolonged commodities slump and scores of unresolved issues with the nine First Nations groups that live in the region.
“You’ll recall that enthusiasm for advancing [Ring of Fire] major projects is low right now, primarily [because] of low commodity prices,” Genevieve Carr, director of Major Projects Management Office for Natural Resources Canada, said in an e-mail after the Liberals won the federal election last November.
The Trudeau government has said the Ring holds important socioeconomic opportunity for the First Nations communities and Canada and is committed to advancing sustainable resource development.
But privately, there are doubts about the costs and economic viability.
The office in charge of managing big resources projects for Ottawa said: “Development is unlikely in the next several years given current commodity prices. A confounding factor is the lack of infrastructure to get materials to market (i.e. road),” according to a December, 2015, document prepared for an assistant deputy ministerial meeting of the Ring.
The main commodity in the Ring is chromite, a steel-hardening ingredient that is bulky to mine and transport. The other is nickel, which is also used to make steel. Although prices for both steel-making ingredients have rebounded slightly this year, they are still trading at multiyear lows. The outlook for steel is uncertain with the world’s biggest metal user, China, restructuring and consuming less metal.
Under the previous conservative government, the Ring was exulted as being worth more than $60-billion. Under the current government that value has since dropped sharply.
“Estimates of the resource value of the Ring of Fire have inflated stakeholder expectations in the past,” said background notes dated March 22, according to the documents obtained under Access to Information.
The documents show the Trudeau government initially valuing the Ring at between $31-billion and $54-billion. By March, that valuation was scratched out. The exact figure has been redacted from the documents, which only cover the Trudeau government’s first six months in office.
The Department of Natural Resources declined to publicly disclose its internal value. It said estimates may differ in the future because “deposits may not be economical, future prices are uncertain, mining plans will not extract all mineralization and some of the extracted minerals will be lost to waste.”
However, the $60-billion value or even the $31-billion figure does not take into account whether the deposit is economical to mine. And the private sector appears to put a far lower value on the property.
The owner of the biggest chromite deposits, Cliffs Natural Resources Inc., pulled out of the region during the commodities downturn because it was losing money and trying to salvage its main iron ore business.
The U.S.-based miner, which sought creditor protection in Canada, blamed the Ontario government for its Ring failure. It sold its property claims to Noront Resources Ltd. for $20-million, which is 4 per cent of the $550-million Cliffs spent to own and develop the chromite deposits.
Today, Noront is pretty much the only player left in the Ring. The junior miner, which is trading around 25 cents a share and has a market value of less than $100-million, needs the government to pay for the road and infrastructure in order to make its business work.
“They note that a road and power infrastructure going in in tandem will be critical, and that without this infrastructure the regions’ mineral deposit economic viability is dubious,” said one assistant deputy minister of natural resources in a February e-mail after meeting with Noront.
There are two potential routes that have been floated: an east-west road and a north-south road or railway, which would likely have to serve as a dedicated mining route for the bulky chromite rocks.
Noront, which is being run by an experienced mine builder, is advocating for a 280-kilometre east-west road to move ore from its nickel deposit. It has the support from the Ontario government, which has set aside $1-billion to build infrastructure.
The province has repeatedly asked Ottawa to help with funding, but so far Ottawa has not committed to match the $1-billion. It is unclear whether Ontario would build the road without federal support. The province’s minister of northern development and mines said infrastructure needs within the region are broad. “Additional federal support is required for full access,” the minister, Michael Gravelle, said in an e-mailed statement.
Publicly the federal government has said it continues to work with Ontario and First Nations communities to identify the most suitable road corridor.
Privately, Ottawa has stalled on giving Ontario a response. In remarks prepared for the federal natural resources minister’s meeting with his Ontario counterpart, staff provided the minister with vague responses to inquiries about funding.
“I look forward to learning more about the role of the Ring of Fire infrastructure development corp in advancing priorities in Northern Ontario and working on these and other issues of concern to Ontario in the coming years,” said the prepared remarks.
The documents show federal employees wary of the costs associated with developing the chromite.
“Lots still to be addressed and all with expensive price tags for the enabling infrastructure, but the high-quality deposit is there,” an assistant deputy minister of natural resources said in a February e-mail.
Later in March, materials prepared for a government meeting said: “Mine development has the potential to support decades of economic activity in the Ring of Fire.”
But the policy director for the minerals and metals division stressed that “chromite development will be market driven and highly dependent on prices and transportation costs.”