The road to nowhere: Claims Ontario’s Ring of Fire is worth $60-billion are nonsense – The Globe and Mail

Ontario Premier Doug Ford has talking points hes fond of repeating over and over again and one of his favourites is a pledge to build a billion-dollar road to a boggy, remote region of Northern Ontario known as the Ring of Fire.

When asked about the promise by a reporter at a plowing match in September, Mr. Ford repeated almost verbatim an infamous tweet from last years provincial election campaign: "If I have to hop on a bulldozer myself, were going to start building roads to the Ring of Fire.

Youre going to see me on that bulldozer, Mr. Ford declared, with a confident chuckle.

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The declaration by the Ontario premier is just one example of the big talk over the past decade by politicians of all stripes about the Ring of Fire.

DeBeers Victor

diamond mine

JOHN SOPINSKI/THE GLOBE AND MAIL

SOURCE: noront resources; geology.com

DeBeers Victor

diamond mine

JOHN SOPINSKI/THE GLOBE AND MAIL

SOURCE: noront resources; geology.com

DeBeers Victor

diamond mine

JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE: noront resources; geology.com

The Ontario government has repeatedly played up the prospects for the region with breathless assertions about the supposedly stratospheric value of minerals in the ground, and an apparent bonanza of jobs and economic benefits that lie in wait for locals.

In a throne speech nine years ago, then-premier Dalton McGuintys Liberal government zeroed in on the Ring of Fire as one of the keys to reviving Ontarios sputtering economy.

In 2013, his successor, Kathleen Wynne, started claiming the mineral deposits were worth upwards of $60-billion.

That same year, Tony Clement, then federal minister responsible for northern Ontarios economic development, likened the financial impact of the Ring of Fire to Albertas oil sands. In an interview with Huffington Post Canada, Mr. Clement claimed the riches could generate as much as $120-billion for the economy.

During the 2018 provincial election campaign, Mr. Fords Progressive Conservatives promised to "finally, open up the incredible resources of our North, starting by cutting through the special-interest and bureaucratic delays blocking us from developing the Ring of Fire.

Theres only one problem with all these grand pronouncements about this crescent-shaped mineral discovery about 550 kilometres northeast of Thunder Bay: Its mostly aspirational hogwash.

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The financial case for heavily indebted Ontario to invest in the Ring of Fire has always been questionable.

In 2014, the Wynne government pledged to spend $1-billion of taxpayers money to build an access road connecting the deposits to a provincial highway 300 kilometres to the south. But at least another $1-billion is needed for added industrial infrastructure such as bridges and electrical power. At the moment, nobody is willing to pick up that tab.

More importantly, there is no evidence that minerals in the Ring of Fire mostly chromite, which is used to make stainless steel, but also nickel, copper, palladium and platinum are worth anything near $60-billion. In fact, there may not be much of anything worth mining, for that matter, beyond one moderately promising nickel project.

No comprehensive study has ever been done that analyzes the costs of extracting minerals from the Ring of Fire and, ultimately, whether there is an investment case to do so. Despite years of boosterism from politicians and regional business leaders, industry experts say its highly unlikely it will ever live up to even a fraction of the hype.

Global demand for new sources of chromite, experts say, ranks between low and non-existent. And the company that holds more than three-quarters of the mining concessions in the Ring of Fire, tiny Noront Resources Ltd., has raised concerns about its ability to continue as a going concern.

CHROMITE WORLD MINE PRODUCTION AND RESERVES

RESERVES (SHIPPING GRADE)

THE GLOBE AND MAIL, SOURCE:BARCHART;

U.S. GEOLOGICAL SURVEY

WORLD MINE PRODUCTION AND RESERVES

RESERVES (SHIPPING GRADE)

THE GLOBE AND MAIL, SOURCE:BARCHART;

U.S. GEOLOGICAL SURVEY

CHROMITE WORLD MINE PRODUCTION AND RESERVES

RESERVES (SHIPPING GRADE)

THE GLOBE AND MAIL, SOURCE:BARCHART; U.S. GEOLOGICAL SURVEY

Patrick Ryan, a mining consultant with Mining For Facts, who has followed the chromite market for four decades, says the world is awash in the commodity, with no need for any new product from the Ring of Fire, or anywhere else.

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Its incomprehensible that this was ever a viable project, says Mr. Ryan. No one in their right mind would put a dime into it.

This past summer, it became clear that neither Premier Ford, nor anyone else, will be jumping on any bulldozers any time soon. In August, the Ontario government announced that a five-year effort to reach a framework agreement with a large group of First Nations on the sharing of economic benefits and the construction of a road to the Ring of Fire had failed. The province will instead try to reach accords on a piecemeal basis with nine individual First Nations, a process that will likely bog down the project for years to come.

Prime Minister Justin Trudeaus government hasnt shown much enthusiasm for investing in the Ring of Fire, either.

But at Queens Park, Mr. Fords government insist that all systems are still go. Even more committed to the cause is teetering Noront, with CEO Alan Coutts vowing in an interview with The Globe and Mail that 100 years of prosperity lie ahead for Ontarians.

The key to unlocking everything is a gravel road that is about 300 kilometres long, he says.

Alan Coutts, CEO of Noront Resources, seen here on Oct. 24, 2019, vows that '100 years of prosperity' lie ahead for Ontarians.

Christopher Katsarov

Its hard to think of a more hostile place in the country to operate a mine than the dense boreal forest and vast swampland around the James Bay Lowlands in Ontarios Far North. There are no access roads to the Ring of Fire and no power, and the tiny First Nations communities in the vicinity rely on airstrips for access to the outside world.

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Due to the extremely remote terrain, the area had been largely unexplored for much of its history. In the early 2000s, geologists looking for diamonds accidentally stumbled upon a kind of rock that typically houses base metals. In 2007, Noront discovered a rich nickel deposit, and the following year found what appeared to be a vast chromite deposit.

The company christened the region the Ring of Fire because it vaguely resembled a ring, and Noront employees had an affinity for the hit song of the same name by Johnny Cash. The discoveries prompted a kind of hysteria, as scores of prospectors engulfed the area. In 2009, about 100 junior mining companies had staked more than 8,000 claims. It was the biggest staking frenzy in Canada since the diamond rush of the early 1990s in the Northwest Territories.

Mohan Srivastava, a Toronto-based geostatistician, remembers the hype in the late-2000s as a kind of breathless excitement about how Ontario was destined to become a world hub for a rare and strategically important commodity."

In 2009, a large U.S. mining company took a big swing. Cleveland-based Cliffs Natural Resources Inc. (now Cleveland Cliffs Inc.) outmanoeuvred Noront and paid $350-million to win a takeover battle for a junior producer with the three most promising chromite finds in the region.

Over the next few years, Cliffs invested a further $200-million on the development, and vowed to spend about $3-billion to build a giant chromite mine and a smelter to process the ore. The company planned to use the chromite in its core stainless steel business. But it was soon under pressure from all sides: escalating costs, falling commodity prices, a failure to score a cheap electricity deal and the inability to get environmental permits amid opposition from First Nations.

Cliffs had also hoped both the Ontario government and the federal government would participate in a public-private partnership to help fund the more than $2-billion needed to build the critical road link and infrastructure, but the funds never materialized.

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Five years in, Cliffs threw up its hands, and sold its Ring of Fire assets at a 95-per-cent discount to Noront in 2014. Cliffs CEO, Lourenco Goncalves, told The Globe and Mail he had no hope the Ring of Fire would be developed in the next 50 years, calling it beyond the point of no return.

Around the time Cliffs was giving up, the Ring of Fire got an unexpected boost from an unlikely source: James Franklin, a respected geologist. The former chief scientist for the Geological Survey of Canada (GSC) mused that the Ring of Fire could contain $60-billion worth of minerals. He mentioned the figure in a talk at the 2013 Prospectors & Developers Association of Canada (PDAC) convention, a popular international mining conference held every year in Toronto.

Geologist Jim Franklin, seen here on Oct. 25, 2019, mused that the Ring of Fire could contain $60-billion worth of minerals.

Justin Tang

Mr. Franklin said he came up with this astronomical number by looking at all the public companies that had published resource estimates of their Ring of Fire discoveries. He simply added up the total projections for minerals in the ground from these reports, and calculated the value if the metals were sold at market prices.

But Mr. Franklin also readily admits the figure contained no analysis of costs or potential return, and no insight on whether any project should be developed.

"There might well be $60-billion worth of metal sitting in the ground, but it might cost you $80-billion to get it out, he said.

Even the most promotional of mining companies wouldnt dare print such a figure in a regulatory document, because it would be misleading to investors.

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If any company did the same kind of thing, they would have gotten slapped down by regulators," said Mr. Srivastava.

In the mining industry, geologists categorize deposits based on how sure they are that the metals found underground can be mined economically. Proven and probable is the highest bar, meaning metal that can be mined for a profit.

The vast majority of mines around the world are built off of a proven and probable resource. One notch below proven and probable is measured and indicated, a far less certain category in which economics have not been proved. Inferred is the lowest tier, essentially an educated guess.

No one sober would build a mine off an inferred resource, said Mr. Srivastava.

Mr. Franklin says about 70 per cent of his Ring of Fire estimate came from the inferred category, with the rest coming from measured and indicated. Now, he has second thoughts about including any of the inferred in his calculation.

I [did something] that youre not supposed to, he said.

Despite its shaky foundation, that $60-billion figure had a big impact on the public imagination. The number has been cited in scores of news articles and other media (including The Globe and Mail), rarely explaining how it was calculated or attributing its source.

The Ontario Chamber of Commerce in 2014 released studies predicting Ring of Fire would create 5,000 new jobs and a $9-billion boost to GDP, and said over its first 32 years of its development, it would generate more than $25-billion in economic activity across numerous sectors in Ontario.

Mr. Franklin says he has tried to stop the rampant use of the $60-billion figure, and raised concerns with a senior official in Ontarios Ministry of Northern Development, Mines and Forestry.

I contacted [them and said], You guys should do your own evaluation of this. You should not be using some number that I came up with at PDAC because we all know the unreliability of my number,' Mr. Franklin said. Its just not proper.

The $60-billion number does appear to have been dropped from most Ontario government statements in the past year or two, but officials havent pulled back their estimates or added context.

Mr. Franklin says if he could do his PDAC talk over again, he would have made it much clearer what the potential downsides and risks are of trying to develop the Ring of Fire. As someone who has worked as a consultant for Noront, and been to its mining camp, he has no illusions about the harsh realities of operating there.

Its an area thats just terrible to work in because its the worlds largest swamp, he said.

When youre [working on the ground] youre just gradually sinking into the swamp. Its hard to know where the lake stops and the land begins, Mr. Franklin said. Its about the worst place you can think of to try to work.

Noronts CEO, Mr. Coutts, isnt interested in talking about any potential downsides. Hes adamant the company will eventually have three mines in production, build a smelter in Sault Ste. Marie and employ hundreds of people -- all told, an investment of several billion dollars.

The reality is Noront doesnt have the money to do any of this. In fact, the company is in dire financial shape. It has US$47.8-million in debt, but is holding only US$4.1-million in cash. A US$32.8-million loan from Franco Nevada Corp. is coming due in April of next year. While Noront has held talks with Franco about an extension, in August it warned investors there is no assurance it will be able to repay or refinance the loan.

They need huge amounts of money, and they cant attract any money," said Mr. Ryan.

Theyre walking around talking about this stuff as if its real. I mean, its a penny stock. Why does anyone take them seriously?"

Heres another harsh reality Noront must face: Even if an access road into the Ring of Fire appeared tomorrow, it isnt in a position to move forward on any of its projects, because it hasnt proved they are viable. In its marketing materials, Noront flaunts a feasibility study conducted in 2012 on a nickel-copper-palladium project called Eagles Nest, which Mr. Coutts says will be its first mine.

Yet in the same breath, Mr. Coutts acknowledges that feasibility study is no longer valid. A lot has changed since 2012, including copper and nickel prices. The company assumed materially higher prices for both.

Mr. Coutts is optimistic that Eagles Nest could still be profitable, especially in light of significantly higher palladium prices, used in the manufacture of catalytic converters for autos. But the company has to conduct a new study to prove the investment case.

As for the much-hyped chromite deposits, while Cliffs once planned to build a massive chromite mine, called Black Thor, Noront has drastically scaled back its ambitions. Instead, it hopes to eventually develop a much smaller one, called Blackbird, and then possibly Black Thor. But the timeline for all of this is uncertain, and Noront has no proof that any of it is feasible.

Lost in all the hullabaloo is the harsh reality that there doesnt appear to be a broader economic case for building a chromite mine in the region, or any other place in the world, for that matter.

According to a May report by the U.S. Geological Survey, there are already enough proven chromite reserves in the world to last for centuries. South Africa and Kazakhstan dominate the production side of the market, and they provide China, which controls much of the worlds stainless steel market, a steady supply of cheap raw ore.

Mr. Coutts says the companys plan is to sell ferrochrome -- smelted chromite ore -- to the much smaller U.S. market. But even he admits that breaking into that market will be tough for an untested and unknown producer.

Youve got to establish yourself in the chrome world. You got to understand it. You got to prove yourself as a consistent high-quality producer, he said.

"[The Americans] are getting product right now from other suppliers that theyve taken for 20 or 30 years. Theyre comfortable with that. So theyre going to all of a sudden turn around, and the South African product that theyve been getting for the last 20 years from a consistent supplier, and go, Oh yeah, Ill buy it from Noront, who Ive never heard of, up in the Ring of Fire.

Another point of contention is whether building the much-vaunted road into the Ring of Fire would even suffice. Mr. Franklin says that trucks carrying heavy chromite would quickly wreck a gravel road. Only a railroad could support the weight, but a railroad would likely cost orders of magnitude more.

The all-season road will work just fine for nickel and base metals but it will not work for chromite, said Mr. Franklin. You just wouldnt do it by truck.

Mr. Coutts dismisses this as nonsense, and says that the road can easily handle the transportation of the chromite.

Doug Fords point man on the Ring of Fire is Greg Rickford. The Kenora-Rainy River MPP is Ontarios Minister of Energy, Northern Development and Mines. Hes also Minister of Indigenous Affairs. By all accounts, he should know the project well. He succeeded Mr. Clement as the minister who oversaw economic development in northern Ontario in Stephen Harpers government, and then served as Minister of Natural Resources.

While out of office from 2015 to 2018, Mr. Rickford served on Noronts board. (He says he has since sold his shares in the company.) He has also worked as a nurse and lawyer in the remote First Nations communities near the Ring of Fire, something he says gives him a window on the regions need for hope and jobs.

Mr. Rickford acknowledges the wild claims over the past decade including the promise of tens of billions of dollars in riches have raised expectations to dizzying heights.

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The road to nowhere: Claims Ontario's Ring of Fire is worth $60-billion are nonsense - The Globe and Mail