The Ring of Fire

12 01 2010

With a title such as this one, I hope this entry will appeal to amateurs of all things western. There is this great chromite rush taking place in the northern Ontario, Canada, as various juniors are racing to provide a National Inventory Compliant 43-101 resource estimate (see previous entry). Brian Sylvester wrote an article on this deposit known as the Ring of Fire, and the rivalries in between the various firms currently drilling in the area in the September issue of Mining Markets. A lot has happened since September and I intend to follow up on Brian Sylvester’s article.

A Bit of Background

Chromite is usually processed into ferrochrome which is then used as strenghtener in stainless steel. 90 per cent of chromite mined in used in such production. Current supply of chromite originates mainly from South Africa (38 per cent of global production), Kazakhstan (18 per cent) and India (18 per cent). With the exception of South Africa most producing countries are supplying nearby regional producers. There is currently no North American supplier of chromite. Commercial development of the Ring of Fire would involve substituting South African supply by the Canadian one.

Chromite is essentially an old boys club and it could prove difficult for new players to join especially if it involves taking another firm’s cosy spot. Unless one has really large tonnage of very good grade and quality chromium this is unlikely to happen. Guys in the Ring seem to be confident in their resource and assume that strategic positioning through the International Chromite Development Association and a lot of effort into branding could be enough to allow them a share of the North America market and perhaps a modest breakthrough in China. A strategic alliance with Cliffs Natural Resources, an important supplier of iron ore and metallurgical coal to North American steel mills is in order.

Companies

I am unsure of how closely the ring of fire follows the narrative of a typical gold rush but it surely fits the general storyline of the “capitalist economic activity in which the participants aspire to race each other in common pursuit of a new and apparently highly lucrative markets”. A general buoyant feeling of a ‘free for all’ is also mandatory and with recent events the ring of fire’s chromite rush can certainly score a few style points. Below is an update on companies presented in Mining Markets in case they would turn out, after all, to be great stock picks.

Noront Resources (Not-T): First Past the Post

Noront is so far the best financed companies working on the ring and is “leading the charge” if you allow me to borrow their PR lines. The company was the first to present on December 9th, 2009, an initial resource estimate (NI 43-101 compliant) for a portion of its Balckbird chromite deposit. Measured and indicated resource of 8.9 million tonnes as well as a further inferred resource of 6 million tonnes. Drill results on Noront’s property have also indicated the presence of nickel, copper and platinum group metals on the property.

In December, Noront made an unsolicited offer to acquire rival Freewest Resources, whose resource is estimated to be greater in terms of grade and tonnage, by attempting to exchange each 7 Freewest share held for 2 of Noront’s share. Noront’s intentions of acquiring Freewest have sparked a fairly public exchange of love and affection between the two companies. Eventually Freewest rejected the offer in favour of Cliffs Natural Resources (already owning a 12 per cent stake in Freewest at the time of the deal.

Freewest Resources (FWR-V)

As for Freewest Resources, it owns three properties in the ring of fire, Black Thor, Black Label (in joint venture with Noront) and Big Daddy (in joint venture with KWG and Spider Resources). These three deposits are expected to have the greatest tonnage in the ring of fire. The company is rumoured to have the best intersection it the belt at this point.

Black Thor is significantly advanced in the process of releasing an estimate too and is the actual runner up. Yet on November 17th, the company provided updates on the Black Thor mineralization as a potential mineral deposit which falls short of NI 43-101 compliance but tipped on the possibility of the deposit containing from 50 to 60 million tonnes of chromite. Platinum group metals were also found as well as a possibility of diamond occurrence. At this point, the economic viability of this deposit is still intangible as the tonnage and grade a still uncertain.

KWG Resources (KWG-V) & Spider Resource (SPQ-V)

As mentioned earlier, the two firms mentioned above are involved in a joint venture with Freewest Resources in the exploration of the Big Daddy deposit. They have recently provided further drilling results on this property which hinted at the presence of nickel.

KWG focuses on two property groups. One is a chromite, nickel and base metal group and the other one is a diamond group held in a wholly owned subsidiary, Debuts Diamonds Inc. (DDI). It however involved in the development of a North American chromite market in ways that go beyond mining. Cliffs Natural Resources, who owns a 20% stake in KWG, has warranted KWG to initiate the development of a railway that would link mining operations to a ferro-chrome refinery. KWG has created Canada Chrome Corporation as a wholly-owned subsidiary to be the financing and development arm. To that end KWG set up the Canada Chrome Corporation. KWG also owns a 1% net smelter royalty (NSR) carried interest in three other newly-discovered chromite deposits.

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