Cliffs Wins Freewest’s Chromite

Noront Resources’ (NOT-V) failed hostile takeover bid for Freewest Resources Canada (FWR-V) last month jolted Cliffs Natural Resources( CLF-N)out of complacency — prompting the world’s largest iron ore pellet supplier to acquire the junior’s chromite-rich deposits before anyone else tries to make another pass at them.

Cliffs believes Freewest’s high-grade Black Thor, Black Label and Big Daddy deposits in the remote “Ring of Fire” metals district of northern Ontario will support a relatively low-cost mine that can supply markets in Europe, North America and Asia for decades to come.

In a conference call announcing the acquisition, Cliffs’ president and chief executive, Joseph Carrabba, said the company believes the chromium assets are world-class deposits with the potential to support an open-pit mine producing 1 to 2 million tonnes per year for more than 30 years. The ore will be further processed into 400,000-800,000 tonnes of ferrochrome.

Under the terms of the deal, Cliffs will acquire Freewest and its 100%-owned Black Thor and Black Label deposits, plus 50% of the Big Daddy deposit, which is a joint venture with Spider Resources (SPQ-V) and KWG Resources (KWG-V). Cliffs already owns 19.9% of KWG Resources, which holds a 25% stake in the Big Daddy deposit.

“Ferrochrome is imported by the world’s fastest-growing steel markets and many countries have categorized it as a strategic metal resource,” Carrabba said. “We believe this discovery represents one of the premier chromite deposits in the world. Given the operation’s unique location, our objective will be to supply ferrochrome to stainless steel producers around the world.”

Cliffs has been involved in the development of these deposits for most of the year and in June acquired a significant position in Freewest through a private placement. Currently Cliffs owns 6.9% of Freewest’s outstanding shares and owns warrants, which if exercised, would increase its ownership to 9.75%.

Under the definitive agreement, each Freewest shareholder will receive a fraction of a Cliffs share representing a fixed value of 55¢, and one share of a new company, Freewest Resources (or “New Freewest”), which will hold the junior’s current portfolio of non-chromite exploration properties, estimated by Freewest to have a value of 15¢ per share, for a total estimated value of 70¢ per Freewest share.

Market reports estimate that four countries — South Africa, Kazakhstan, Finland and Turkey — control nearly 80% of the world’s 24 million tonnes of chromite ore production.

Cliffs believes Freewest’s deposits can make up between 6% and 11% of the global supply of chromium.

In 2008, ferrochrome consumption in the U.S. reached 7 million tonnes. In Asia, consumption reached 4.6 million tonnes and in Europe, 1.9 million tonnes. Cliffs notes there was a deficit of 4.6 million tonnes in the U. S. and Europe last year.

In 2008, the price of chromium reached US$1.75 per lb. This year, the metal is US82-88¢ per lb.

But operating an open pit with such high-grade chromium should put Cliffs in the bottom third of the cost quartile, Carrabba said.

“If you want to compare the current deposits (in the Ring of Fire) with classic chromite deposits in South Africa,” Carrabba said, “the big difference is the larger seams and an open-pit versus underground scenario, which gives you a very good cost advantage.”

Cliffs expects to complete the permitting process in three years and start commercial production by 2015.

Capital costs for the project are estimated at about US$800 million, but that number excludes the cost of building a 300-km railroad spur to hook up with the CN line somewhere near the town of Nakina in the James Bay lowlands. A smelter will most likely be located somewhere on the northern shore of Lake Superior, the company says.

Some highlights from Freewest’s drilling at Black Thor include intercepts of 43.7% chromium oxide over 48 metres (in hole 74), 40% chromium oxide over 38 metres (hole 69), 42.3% chromium oxide over 35 metres (hole 73), and 40.5% chromium oxide across 23 metres (hole 58). The deposit remains open along strike and at depth. (Black Thor was tested over a strike length of 2,600 metres and to a depth of 400 vertical metres.)

The drilling has delineated a potential mineral deposit at Black Thor ranging from 50 million to 60 million tonnes and grading between 31% and 38% chromium oxide, Freewest says. In addition to chromite, the Black Thor occurrence has the potential to host between 278,000 and 406,000 oz. of platinum, and between 260,000 and 381,000 oz. of palladium, according to Freewest. The company expects that a National Instrument 43-101- compliant resource on Black Thor will be completed before the end of the year.

Big Daddy, about 4 km southwest of Black Thor and about 5 km northeast of Noront’s Blackbird One and Two discoveries, is open at depth, as well as along strike in both directions. On Nov. 16, the Freewest joint venture reported that since the start of the project in 2006, chromite mineralization had been established over an inferred strike length of 1,300 metres.

In January 2009, the joint venture published the results from the final two holes in its 2008 exploration program. Highlights include an intersection in one of the holes of 42.08% chromite over 34.8 metres and in the other, 34.96% chromite over 42 metres.

At presstime, Freewest was trading at 63¢ per share. The junior has a 52-week trading range of 12- 68¢ per share. Cliffs, meanwhile, was trading at US$42.54 in a 52- week trading range of US$11.80- 44.83.