Cliffs says high electricity prices in Ontario are a challenge

Cliffs Natural Resources (CLF-N) warned in a conference call today that high electricity rates in Ontario are forcing it to widen its search for a location to build a proposed ferrochrome production facility that will utilize a closed electric arc furnace for its Black Thor chromite deposit.

“At current provincial power rates there isn’t a location in Ontario that is economically viable for Cliffs to build a furnace operation,” Bill Boor, president of Cliffs’ ferroalloy division, told journalists on the conference call. “The availability of a large, reliable and cost-competitive supply of electricity is a key consideration in locating the appropriate site for the facility.”

The conference call was arranged to update journalists on the company’s plans to develop its Black Thor chromite deposit in the Ring of Fire in remote northern Ontario.

 While Cliffs’ preliminary base case analysis does name Sudbury as a “technically feasible” site for the proposed ferrochrome production facility, Boor emphasized that it is far too early in the selection process to name a location.

The company estimates the furnace requirements will be about 300 MW and has identified only a few places in northern Ontario where this power requirement could be met. It has identified a brownfield site within Sudbury as the ‘base case’ location for the ferrochrome production facility but plans to meet with other municipalities including Thunder Bay, Greenstone and Timmins, to discuss other options.

At full capacity, the ferrochrome production facility is expected to produce 1,500 tonnes of ferrochrome per day. Ultimately the ferrochrome metal that is produced will be sold for use in stainless steel manufacturing in North America and worldwide.

When asked what acceptable power rates would be to keep the facility in Ontario, Boor replied: “When we go out in the coming weeks and months we’re going to be talking both inside and outside of Ontario. We don’t pick out power individually when we’re trying to pick the right place because there are other trade-offs like logistics. I think it’s generally understood that there is a challenge with power rates in Ontario and we think it’s best for everyone if we call that out right upfront. Other provinces are certainly at much cheaper rates right now…we’re going to open it up and look at some neighbouring provinces as we do further site selection work.”

At the same time, he added, the company has always approached the project “with strong intent that we could have it in Ontario…we understand the importance of that for Ontario and we’d like to see it there.”

A prefeasibility study is to be completed by September 2011 and if the results are favorable, a full feasibility study will begin immediately and likely be completed in late 2012. Construction could then start in 2013 with mining operations beginning in 2015, Boor maintained. Initially Black Thor would be an open-pit chromite mine but could transition to an underground mine ten or fifteen years after mining begins.

Transportation will be the greatest challenge in this remote area of northern Ontario. The deposit is more than 300 km north of Ontario’s existing road and rail network. The closest major city to the deposit is Thunder Bay, about two hours by air to the southwest. The nearest industrial facilities are the Victor diamond mine, 150 km to the east, and the Musslewhite mine, 250 km to the west.

Cliffs has come up with a base case of options for an integrated transportation system Boor says would include an air strip to transport workers; a permanent year-round road between the mine site and the existing road and rail network in Ontario; a load-out facility at the mine site where haul trucks would be loaded with ore and concentrate; and a trans-load facility within the municipality of Greenstone where haul trucks would be unloaded and ore and concentrate would be transferred to rail cars to be taken to the ferrochrome production facility and on to world markets.

“We think the road [between the mine and the existing road and rail network in Ontario] is a good solution from a number of perspectives but that doesn’t preclude a rail line being installed in the future,” Boor noted. “We’ve had preliminary discussions with First Nations and government on these routes but the vision of a public-private partnership really makes sense…The infrastructure solution for the Ring of Fire really needs to be looked at from the big picture by the provincial government.”

The next step is to submit a project description to government agencies in March.

Boor noted that Cliffs is not actively looking for partners and currently plans on developing Black Thor on its own.

He also estimated that as many as 1300 new jobs could be created: up to 500 at the site in the McFauld’s Lake area; another 300 building the transportation system; and up to 500 jobs at the ferrochrome production facility.

He could not say how many of the jobs would be permanent.