Capital Market Highlights: Chromium

Chromium’s primary use is in the production of ferrochrome alloy which is used to make stainless steel.  There is no substitute for Chromium in the production of stainless steel. The health of the stainless steel market is reflected in chromium and ferrochrome pricing.

Ferrochrome benchmark prices fell in 2012 due to softening but still positive demand growth for stainless steel.  As demand increased for stainless steel in 2013 so did demand for ferrochrome causing pricing for the metal to increase to $1.13 per pound early in the year.  Pricing is expected to strengthen in step with forecasts for stainless steel prices.

The ICDA indicated that South Africa remains the largest national producer of ferrochrome with carbon content greater than 4%, a category that comprises high-carbon ferrochrome and charge chrome. But its share of overall output has shrunk since 2007.  Kazakhstani and Indian producers maintained a combined share of global output of high-carbon/charge chrome of slightly more than 20% in 2011.  Global production of low-carbon and medium-carbon ferrochrome rose to almost 12% year-on-year. The strength of low and medium-carbon ferrochrome production growth relative to the output of high-carbon ferrochrome and charge chrome over the last year reflects the rapid rise in special alloy steel production that has taken place worldwide since 2010.

Potential Ferrochrome Production in Ontario

Ontario is a premier destination for exploration and mining companies. Hosting the world’s leading mining financial centre, the Toronto Stock Exchange, Ontario has a rich mining history forged in the Timmins, Red Lake, Kirkland Lake and Thunder Bay camps that dates back a century and spans a range of commodities including gold, silver, base metals, diamonds, and industrial & strategic metals. Ontario ranked first in Canada in terms of value of mineral production in 2011 at C$10.7 billion, representing 21% of all Canadian non-fuel mineral production during that year and directly accounting for more than 1.6% of total Ontario GDP. In 2011, roughly C$1.0 billion was spent on exploration in Ontario and the availability of skilled labour, infrastructure and suppliers has supported the continued growth of mineral exploration, mine development and mineral extraction in the province. These factors coupled with the application of new technologies and the building of new community, governmental, socio-economic and financial relationships, means there is significant potential for mineral development across Ontario.

A region that best exemplifies the high potential for value and wealth creation across all stages of the mining industry is an area in the James Bay Lowlands region of Northwestern Ontario, known as the “Ring of Fire”. Located approximately 500 kilometres northeast of the city of Thunder Bay, it covers an area of roughly 5,000 square kilometres, is estimated to hold C$30 billion to C$50 billion worth of minerals and contains North America’s first major chromite resource.  The Ring of Fire is considered the premier mineral development opportunity in Ontario at this time.  The potential of this region is not just in minerals but also represents significant potential economic development, community development, infrastructure and transportation development, land-use planning, and a significant boost to the perception of mineral exploration for decades to come.

Approximately 35 companies are currently active in the Ring of Fire, most of which were drawn to the area during the staking rush that followed Noront Resources’ high grade copper-nickel-platinum-palladium discovery in 2007.  The most concentrated exploration area is located over a 20 kilometre stretch of land on the eastern side of the Ring of Fire. Mineral discoveries to date include copper-zinc, nickel-copper–platinum, chromium-iron-vanadium – all commodities that are vital to the growth of the global economy. The discoveries made in the Ring of Fire are highly regarded because of their large size and high grade, with the aggregate in-situ metal discovered in the region representing value in the billions of dollars.

The discovery of three high grade chromite ore zones through 2008 and 2009 in the McFauld’s Lake area of the Ring of Fire represented a pivotal point for exploration and possible future development in the area. The three deposits included the Blackbird One and Blackbird Two deposits discovered by Noront Resources Ltd., the Black Thor and Black Label deposits originally discovered by Freewest Resources Canada Inc. (now Cliffs Natural Resources) and the Big Daddy deposit discovered by a joint venture between Cliffs, Spider Resources Inc. and KWG Resources Inc.  This string of deposits is believed to be part of a trend with a total strike length of 14 kilometres, running from Blackbird One to Black Thor. Results to date indicate that together, they form one of the most significant chromite discoveries ever made domestically in North America and compare favourably to some of the major deposits found globally, with grades ranging between 30% and 60% Cr2O3.

Cliffs Natural Resources, a NYSE-listed iron-ore and coal mining company, has been executing a strategy over the last several years to achieve scale in its mining operations with a focus on serving the world’s largest steel markets. The company’s objective is to become the sole North American chromite and ferrochrome producer and exporter. Cliff’s completed two transactions in 2010 to solidify its chromite position in the Ring of Fire. The first was the C$250 million acquisition of Freewest Resources for its Black Thor and Black Label chromium projects. The second was the acquisition of Spider Resources for its Big Daddy chromite project for C$130 million.

Cliffs has scheduled production to begin in 2016, consisting of four interrelated components. An open pit mine is anticipated to produce roughly 3.7 million tonnes of crude chromite ore annually, with a projected mine life of 30 years.  After preliminary processing at the mine site, 2.3 million tonnes of concentrated ore will be transported south.  In Sudbury, the proposed Capreol smelter is projected to produce 560,000 tonnes of high carbon ferrochrome annually.  As a huge portion of the world’s chromite ore is produced in South Africa, it would appear that Cliffs is taking advantage of producing ferrochrome in a geopolitically safe region such as Ontario, with an abundance of reasonably priced power.

The Ontario government’s announcement in Q2 2012 of Cliffs’ plans to invest a total of C$5.1 billion to develop its Ring of Fire assets was a very exciting development for companies operating or looking to operate in the Ring of Fire. The proposed investment will be split between a C$3.3 billion chromite mine development plan and a C$1.8 billion smelter facility to be built in Sudbury. The planned building of new roads, rail expansion and general infrastructure development will improve access to Ontario’s northern expanses and should lead to the discovery of additional base-metal deposits. Since this development will drive the creation of over 900 jobs, the ongoing development of the Ring of Fire represents immense economic potential for the province of Ontario as well as investors.