Editorial: Not all pleased with Ring of Fire sale

The final week of April saw the closing of Noront Resources’ acquisition of Cliffs Natural Resources’ chromite assets in northern Ontario’s Ring of Fire region. The deal saw a last-minute bump-up in the price to US$27.5 million from the US$20 million agreed upon in late March.

The assets are comprised of three chromite deposits and associated claims that were held by Cliffs. The U.S. iron ore major says the sale is “another step in divesting interests in non-core assets” and that the proceeds will be used to cover costs associated with its bankruptcy filing in Canada.

Noront had a little more to say on the final price, however, commenting that in between the first offer and closing, Cliffs “had received an unsolicited, competing bid which it determined, after consultation … could reasonably be expected to lead to a superior proposal.” Thus, the reason for the higher price upon closing on April 28.

Noront’s flagship project has been its 100%-owned, high-grade, nickel-copper-platinum group metals Eagle’s Nest deposit — the only deposit in the Ring of Fire with a positive feasibility study.

But across 800 sq. km, or 65% of the Ring of Fire, Noront has gained a 100% interest from Cliffs in the Black Thor chromite deposit, a 100% interest in the Black Label chromite deposit, a 70% interest in the Big Daddy chromite deposit and 85% of the McFaulds Lake copper-zinc resource.

To come up with the US$27.5-million in cash to pay Cliffs, Noront has borrowed US$25 million from Franco-Nevada at a 7% annual interest rate, with interest to be accrued and paid at the end of the five-year loan term. In return, Franco-Nevada gets a 3% royalty over the Black Thor chromite deposit and a 2% royalty over all of Noront’s property in the region, except Eagle’s Nest.

Noront and fellow Toronto-based junior KWG Resources have always been competitors in the Ring of Fire and gone about their business separately. But now they are partners, and the two most active mining companies in the region.

For KWG — which has the remaining 30% interest in Big Daddy — the purchase by Noront is “positive news,” in that Noront is more communicative and keener on developing the Ring of Fire than Cliffs had been in recent years, especially with respect to Big Daddy, which was well down the line in terms of Cliffs’ broad development plans for the region.

Meanwhile, three days before closing at the higher sale price, the leaders of Marten Falls First Nation and Aroland First Nation in the Ring of Fire expressed their “disappointment” in the bidding process, saying that it had “not been inclusive and transparent, leading to a potential unfair and biased outcome.” At the time, they said that “there is a bidder who not only has First Nation support, but has a superior bid that will benefit Cliffs’ creditors and help advance the Chromite project for Ontario.”

More to the point — and in a sign of things to come, with respect to relationships between mining companies and First Nations in the area — interim Marten Falls Chief Bruce Achneepineskum stated: “We are united in opposing the proposed Noront and Franco-Nevada deal, and we will do everything in our capacity to make sure that no ore will ever leave our backyards without the meaningful involvement and participation of all Matawa First Nations. It is incomprehensible that the interest and ability of our communities to participate in the transaction has been so discounted that we were never even approached for any commercial discussion.”

The First Nations especially object to Franco’s total 5% royalty on the chromite claims, which they describe as “a high royalty load that will significantly impair the ability to justify and finance the ultimate construction of the Chromite project. If the project is put into operation, this additional revenue royalty will reduce the profitability significantly, cutting into the bottom line and jeopardizing chances of the First Nations obtaining any benefit. This will cause more exposure to pricing cycles and less profits to be shared with the impacted First Nations.”

They also object to Noront’s prioritizing of its nickel assets over its chromite ones, and its push to develop an east–west transportation corridor instead of a north–south one that would directly benefit five Matawa communities that are still beyond Ontario’s road system.