Mining News

Not a Small World After All

Posted by Alana Wilson on 1/7/2014 1:44:27 PM

An article in Canada’s Financial Post looks at an interesting factor in what the article describes as the “Ring of Fire Debacle” – the recent collapse in investor interest in developing what has been estimated at $60 billion (yes, with a 'b') worth of minerals. In the article, Peter Koven points out that in the mining world, distance - and the infrastructure to traverse it – are key:

But the debacle with Cliffs points to an equally important truth: that without a credible infrastructure plan, billions of dollars of capital, and firm agreements with government and local stakeholders, remote deposits like the Ring of Fire are worth approximately Zero. In that scenario, the Ring of Fire is not a mining centre; it’s just a swamp.

Koven reminds us that even with enthusiastic estimates of mineral deposits, for distant resources, resolving the infrastructure problem is critical to finding investors:

A couple of years ago, Ring of Fire deposits were being valued at hundreds of millions of dollars by over-eager investors. They were captivated by the fabulous drilling results, and not focusing enough on the logistical challenges and the underlying economics of the projects. Today, one could argue that the opposite is true: investors are completely focused on the challenges and scarcely thinking about the value of the resources.

This issue is not limited to the Ring of Fire. Other remote, large-scale, politically challenging projects across the world are getting heavily discounted by the market. Some of them, like the Livengood gold project in Alaska, don’t make sense anymore because of falling commodity prices. And the recent track record of companies trying to develop them is pretty bad. Just look at Pascua-Lama, Barrick Gold Corp.’s misadventure in the Andes that was supposed to cost US$3-billion… and then US $5-billion… and then US$8-billion… and then US$8.5-billion… and goodness knows what next.

Nonetheless, Koven observes that if the province can get an infrastructure plan in place and resolve issues with First Nations in the Ring of Fire area, prospects for development in the Ring of Fire could “turn on a dime” in 2014.

Even if it doesn’t, however, some miners see the potential to start small with other projects in the area, and build out the infrastructure that could pave the way for larger operations:

That is how Al Coutts, the chief executive of Noront Resources Ltd., sees it. He understands the government’s desire to have absolutely everything mapped out before the first pile of dirt is excavated. That would clear the way for Cliffs (or someone else) to build a giant chromite mine. But he thinks the region would be better served by opening a couple of smaller, manageable operations and getting a bit of success under its belt.

The entire article is well worth reading, but the take away could be, in the world of mining, it’s not such a small world after all.

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