Cliffs targets juniors, Detour bullish on project
Peter Koven, Financial Post Published: Tuesday, May 25, 2010
Toronto -- After enduring its share of bad headlines over the past couple of years, things are looking up for Ontario's mining sector.
Between a surprise diamond royalty, land use restrictions and problematic First Nations relations, Ontario's reputation as a premier mining destination has taken a beating of late. That was reflected in the latest edition of the Fraser Institute's rankings of mining jurisdictions, in which Ontario plunged from 10th place in 2009 to 22nd place in 2010.
But two announcements this week suggest good days may be ahead.
U.S. mining giant Cliffs Natural Resources Inc. unveiled hostile takeover bids for two Canadian juniors, which should expedite development of the so-called "Ring of Fire" in the James Bay Lowlands in Northern Ontario. It is expected to be the province's next major mining camp, and was promoted heavily in the last budget.
At the same time, Toronto-based Detour Gold Corp. released a bullish feasibility study for a gold mine that promises to be the largest in Ontario and second-largest in Canada.
The Cliffs offers were a long time coming. The company announced joint bids for KWG Resources Inc. and Spider Resources Inc. that add up to about $186-million.
By completing one or both of these takeovers, Cliffs will become majority owner of the "Big Daddy" chromite project in the Ring of Fire.
The Ring of Fire is expected to host the first chromite mine in North America. But it is extremely remote, and will ultimately take a large company with deep pockets to get it developed. By buying out its junior partners, Cliffs expects to move faster than it could with smaller companies at its side.
"For the Ring of Fire to be developed for everyone's benefit, we need to have this transition from junior companies to a company like Cliffs that can develop these assets," Bill Boor, head of Cliffs' ferroalloys division, said in an interview.
Cliffs plans to complete a pre-feasibility study on its chromite assets this year, before making a final decision on whether to go ahead with development in 2013. The company hopes to start mining around 2015, creating thousands of direct and indirect jobs.
Meanwhile, Detour Gold proved yesterday that it is sitting on an extremely lucrative gold deposit, in an area with a long history of mining close to the Quebec border.
Its feasibility study on the Detour Lake project showed that it holds 11.4 million ounces of gold reserves, and should produce 649,000 ounces of gold a year at low cash costs. The proposed open-pit mine is likely to be the biggest gold producer in Canada after Osisko Mining Corp.'s Canadian Malartic mine.
In an interview, chief executive Gerald Panneton pointed out the study was done using a gold price of US$850 an ounce. If the price is closer to current levels (above US$1,100 an ounce) when the mine is built, it will churn out a lot more than 649,000 ounces a year.
"We could be in production in 2013, creating 1,000 jobs during construction and 500 jobs [afterwards]," he said.
The next step for Detour is to secure enough financing to cover the US$992-million construction costs. The company has $308-million in the bank, and expects to raise the rest through a mix of debt and equity.
Financial Post
pkoven@nationalpost.com
