TORONTO (miningweekly.com) – The exceptionally high grades at the Big Daddy chrome project, in Ontario's Ring of Fire district, may mean un- or partly-refined material could be economically shipped directly from a future mine to customers, says KWG Resources president Frank Smeenk.
KWG, fellow junior Spider Resources and US coal and iron-ore miner Cliffs Natural Resources are engaged in a tussle for control of the project, in which Cliffs owns 47% and KWG and Spider each own 26,5%, with an option to boost that to 30%.
Late last month, Cliffs announced it planned hostile takeover offers for both Spider and KWG, in a bid to ensure that it can control the development programme for Big Daddy. (Of course, with 47% already, it only needs to succeed in one of the offers to get a controlling stake in the project.)
Now, in an attempt to put control in their own hands, KWG and Spider are going ahead with a plan to combine their companies, in a merger that would give the enlarged firm 53% of Big Daddy.
Depending on which side comes out in the driving seat, there are a couple of quite different scenarios for the development of the Big Daddy project
Cliffs has said it would look at developing its larger- (but lower-grade) Black Thor project first, while KWG and Spider are naturally keen to see progress at their own asset.
Secondly, while Cliffs would likely focus on the North American market, Smeenk said he would have aspirations to tackle export markets.
And Cliffs has also indicated it would probably build electric-arc furnace facilities in Ontario to refine the ore mined from its projects into ferrochrome.
But for Big Daddy, that may not be necessary, Smeenk said.
“Big Daddy looks to be a deposit that can produce a marketable product readily and that is something that would be in the interest of Spider and KWG shareholders, but not necessarily in the best interest of Cliffs shareholders.”
Most of the world's supply of chrome - a key ingredient in stainless steel - is smelted into ferrochrome – about half of which comes from South Africa.
However, mines Kazakhstan, which also produces a big slice of global output, have high enough grades so that lump ore is shipped directly to users.
Importantly, the Kazakh grades are similar to what has been established at Big Daddy, at around 39% or 40% chrome, Smeenk said.
To get production to market, KWG has already staked a line of claims from the deposit down to the CN trans-Canada railroad.
“And to us, that looks like a viable option to access the export markets via Prince Rupert with lump product, with unrefined or perhaps partly refined material.”
The final decision will depend on the market, and what kind of product can be sold economically.
If the merger with Spider does go ahead, the next steps will be the consultation process with the local First Nations, and to launch baseline environmental studies.
A decision will also need to be made on whether to start out as an openpit mine, or to go straight underground.
“You can make the case that a nice big deposit like this may just as well go underground from the outset,” Smeenk said.
Depending on what kind of product can be marketed, it is possible that a concentrate could be produced on site using simple gravity separation and potentially magnetic separation.
Unless there are some roadblocks related to permitting or community relations, the route to production should not be a lengthy one, Smeenk said.
“If the First Nations consultations and permitting processes do not take longer than planning and construction, we are advised that the planning and construction process could be completed in less than four years.”
Commenting on the timetable, Spider Resources vice-president for finance Rick Hamelin said there will be a better indication of the timeline once a feasibility study is completed.
“There is still a lot of work that needs to be done,” he said.
TALKS ALL ROUND
Although the news only broke in the last couple of weeks, discussions had been under way with both Cliffs and Spider for some time, Smeenk said in an interview this week.
In fact, the negotiations with Cliffs got more “enthusiastic” in the last month or so, he said, but the parties could not agree on a valuation and so Cliffs opted to let the market decide whether its price was good enough.
With Spider, talks had been going on for more than a decade, which is about as long as the two companies have been working together in the Ring of Fire, and shareholders in both companies have responded positively to the merger plan, Smeenk asserted.
“By and large, our shareholders and Spider shareholders are thrilled. I think it's self-evident that the whole is greater than the sum of its parts.”
Cliffs launched its formal offer for Spider Resources this week. Because the US company has a stake in KWG, the offer is a related party transaction, and so KWG must first obtain an independent valuation report on the company. It announced on Thursday it has hired Cormark Securities to do the work.
Smeenk said there is always a possibility that something friendly could be negotiated with Cliffs, but said that there are no talks under way at the moment.
Spider's Hamelin declined to comment on whether the company would consider negotiations with Cliffs.
Cliffs was not immediately available to comment.