Cliffs gets coy in Ring of Fire

While there were no earth-shaking events in the mining world for the first week of June, the industry continues to perk along, with plenty of M&A activity and ambitious exploration and mine development projects proceeding at breakneck speed.

• The cat-and-mouse game in the McFaulds Lake-Ring of Fire chromite camp in northern Ontario took a subtle turn. Aspiring camp consolidator Cliffs Natural Resources owns 47% of the Big Daddy chromite deposit, and in May unveiled simultaneous hostile bids for Spider Resources and KWG Resources, which each own 26.5% of Big Daddy. The two targets responded with their own two-way friendly merger plan.

On June 3, Cliffs formally launched its $86-million hostile offer for Spider, and reported it had bought 7.8 million Spider shares on the open market, bringing its holding to 27.4 million shares, or 4.2% on a fully diluted basis.

But four days later, Cliffs got into some head games. The company announced it is “reviewing its options” as to whether it would still go through with tabling a formal offer for KWG, since its chief goal is to gain majority control and operatorship of Big Daddy, and it can do this by acquiring only Spider. (And, yes, of course, this math was the case before Cliffs first made its dual takeover offers.)

We’ll see if Cliffs’ divide-and-conquer tactic works here, or if Spider and KWG shareholders can hang together long enough to force the major to sweeten its bids. On the surface, Cliffs has all the advantages in that there are no rival bidders and it has the corporate capacity to wait out its junior partners. On the other hand, there is a real need within the Cliffs organization to settle the Big Daddy ownership quickly, so it can move ahead with grander plans to develop the remote camp, which will be complex, time-consuming and expensive.

• Western Coal celebrated the reopening of the Willow Creek metallurgical coal mine near Chetwynd in northern British Columbia. The mine was a heartbreaker earlier this decade for original owner Pine Valley Mining, which found the coal far more oxidized than first anticipated and had to close the mine after two years of operation.

But Western Coal has turned the asset around and almost doubled the reserve base. It’s now looking at nearly doubling production capacity to 1.7 million tonnes of metallurgical coal per year by next year. Western Coal also has the advantage of being able to plan development at Willow Creek in concert with its nearby Brule coal mine.

• The Saskatchewan government lived up to its reputation as a sensible, pragmatic administrator with the introduction of its new diamond-mining royalty system, which is fair and clear.

The three main features are: a 1% base royalty on the value of mine production, with an initial five-year holiday; a stepped royalty rate on profits to a maximum of 10% once capital investment is fully recovered; and full-cost recognition including a 100% depreciation rate of capital costs and a processing allowance.

With growing uncertainty over mining taxes around the world, this new diamond tax regime gives another good boost to the possible development of Shore Gold’s huge but low-grade diamond deposits in central Saskatchewan, which will require billions of dollars to develop and will be kept on the shelf for decades longer if investors are scared off by high or unpredictable taxes.

• Near Taxco in southern Mexico’s Guerrero state, authorities found and recovered 55 bodies dumped into a 200-metre ventilation shaft at the abandoned La Concha silver mine. Some of the bodies had their hands bound and were blindfolded, leading to speculation they relate to executions by the country’s ruthless drug cartels.

According to CNN International, police have so far identified four of the bodies, including one of a local prison warden who had gone missing. State authorities are now moving to examine the mine’s 10 remaining ventilation shafts.

Taxco is a popular tourist destination and is often called the “Silver Capital of Mexico.”

• Russian state-owned miner Atomredmetzoloto has struck a deal to boost its stake in Canadian-headquartered Uranium One from 23.1% to at least 51% in exchange for half interests in two large uranium mines in Kazakhstan plus US$610 million in cash. Output from the two new mines will turn Uranium One into one of the world’s top five uranium miners.