Volatile commodity prices and cost pressures have Cliffs Natural Resources pushing back the start of chromite production at its Black Thor project in the James Bay lowlands Ring of Fire camp to 2017, or even beyond.
In the Cleveland miner's Oct. 25 third-quarter conference call, Cliffs chairman and CEO Joseph Carrabba said the company is curbing capital spending and is holding off on early site construction at the remote location in the James Bay lowlands until a feasibility study is finished next summer.
It's the second time in recent months that Cliffs has pushed back the start date at Black Thor by an additional year after steadfastly maintaining it was sticking to its original project startup date of 2015.
While Black Thor has great long-term potential, Carrabba said the sharp decline in prices of iron ore – Cliffs' bread and butter commodity -- has the company taking a serious re-evaluation of the massive $3.3-billion mine and processing development project.
“This includes delaying the major capital spending outlays and could push the production target date beyond 2017,” Carrabba told analysts.
“We still expect to complete the feasibility stage of development and environmental assessment by next year. However, we have decided to shelve our early works plans until feasibility is complete. At that time, we'll assess the study's findings, industry conditions and Cliffs' cash position and outlook before deciding to move forward with the project. In the meantime, we will explore the option to take on a partner for the project and we will continue to develop our relationship with the province of Ontario.”
Cliffs has a 100 per cent stake in Black Thor and is a 70-30 partner with KWG Resources on the Big Daddy chromite deposit, both 500 kilometres northeast of Thunder Bay.
In May, Cliffs and the province announced a $1.8-billion ferrochrome smelter would be placed in Sudbury. At the time, Bill Boor, Cliffs' senior vice-president, said discussions with Queen's Park on the price of power had advanced to where the company was “comfortable” in siting the furnace in Ontario.
No announcement of a power deal has been made, nor has any news of how an all-weather road to the Ring of Fire will be financed.
Carrabba blames uncertain conditions in Europe and the lack of a stimulus program in China for causing the company to scrutinize and reassess its capital spending and project development in mapping out its 2013 business plan.
The delay should give Cliffs and the Ontario government much-needed time to work out their differences area First Nations on environmental assessment issues, and buys time for Cliffs and Queen's Park to find some deep-pocketed public or private partners to finance the project's transportation infrastructure.
The company is focused on the second phase of expansion at its Bloom Lake iron ore mine in Quebec where a concentrator is 60 per cent complete and the project appears on track to begin production in the first half of next year.
These are unsettling times for Cliffs which reported disappointing third-quarter earnings of $85.1 million, a precipitous drop from the $601.2-million mark the previous year.
Carrabba said conditions aren't as severe as during the 2008-2009 global market meltdown but “I want to remind everyone that we have several options and levers we can pull should the market change.”