TORONTO (miningweekly.com) - Cleveland, Ohio-based Cliffs Natural Resources, which already sells iron-ore and coal to steelmakers, now expects to be producing and shipping ferrochrome, an ingredient used to prevent corrosion in stainless steel, by 2015.

On Monday, the company announced it will buy the Ontario chrome assets of Canadian junior Freewest Resources, and laid out a plan to build chromite mines and electric arc furnace smelter facilities producing between 400 000 t/y and 800 000 t/y of ferrochrome.

Cliffs is hoping to take advantage of the difficulties facing producers in South Africa, which is responsible for more than one-third of the world's supply, where miners are battling electricity supply constraints and face the prospect of steep power cost increases, CEO Joseph Carrabba said on a conference call.

"We think suppliers are concerned about the vulnerability of their supply, and we believe this is the right niche and the right part of the world."

The chrome mining and ferrochrome smelting project that Cliffs is planning will likely require an investment in the ballpark of $800-million, the bulk of which will be spent in 2013 and 2014, he told analysts and investors.

The capex figure also does not include capital that may be required to install rail capacity.

In the transaction announced on Monday, Cliffs will buy Freewest's Black Thor and Black Label projects, in the Ring of Fire district, in the James Bay Lowlands of Ontario, plus the 50% it owns in the adjacent Big Daddy joint venture.

Based on preliminary data on the orebodies, the miner believes it has 30 years of production ahead.

"It's a very big project that we've embarked on," Carrabba commented.

He said that the company has been following Freewest for much of this year - it acquired almost 7% plus some warrants in a private placement in June - but made the decision to move on the smaller company after Freewest received an unsolicited takeover offer from fellow Ring of Fire explorer Noront Resources.

Cliffs will be targeting North American buyers because its Ontario location will provide cost advantages in shipping the ferrochrome, but will also look for opportunities to sell to Asia and Western Europe, he said.

Globally, four countries - South Africa, Kazakhstan, Finland and Turkey - account for about 80% of ferrochrome supply.

Based on data accumulated so far, the Ring of Fire chrome deposits compare very well with operations already running around the world, Carrabba said.

The deposits combine the high grades usually associated with South African orebodies, with the added benefit of thick mineralised seams.

"We are quite excited about the mineralisation," said Cliffs GM for acquisitions and development Richard Fink.

"It has the thickness of the thickest orebodies that we see in the world."

Although it is still early in the process, Fink estimates that a likely range for grades in the orebody is between 20% and 38% Cr₂O₃ in the core.

"But you've got very, very high-grade zones within there, there's quite a bit of development to go," he said.

"It's a very robust deposit."

Further, the fact that the deposits lend themselves to openpit mining will help lower production costs.

Although it is still early days, Carrabba said he expects the operations' costs will fall in the bottom third of the industry.

"We expect to be very low on the cost curve," he said.

The smelting operations, to process the chromite ore into ferrochrome, will likely be located to the south of the mines, on the northern shore of Lake Superior, probably in the Thunder Bay area, Carrabba said.

He does not expect to have trouble securing the power required to run the smelting operations.

Permitting for project is expected to take three years, and the company still needs to complete prefeasibility and feasibility work.

When the time comes to finance the project, it may look at accessing the public debt market, arranging a project finance facility or even potentially taking on a partner to help fund the investment, said CFO Laurie Brlas.

The price of ferrochrome dropped late last year, reflecting weakness in the stainless steel market, prompting ferrochrome producers around the to curtail production.

(For more on the Freewest deal click here.)

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