Noront goes all in on the Ring of Fire

VANCOUVER — Toronto-based junior Noront Resources (TSX: NOT; US-OTC: NOSOF) has emerged as a leader in Ontario’s controversial Ring of Fire mineral belt over the past eight years, and on March 23 the company solidified itself as the largest player in the region following a US$20-million deal with Cliffs Natural Resources (NYSE: CLF) that will see it pickup an additional 103 claims.

Upon closing, Noront will hold 360 mining claims totaling 800-sq.-km, or roughly 65% of the Ring of Fire, located 500 km northeast of Thunder Bay. The transaction includes the acquisition of a 100% interest in the Black Thor chromite deposit; a 100% interest in the Black Label chromite deposit; and a 70% interest in the Big Daddy chromite deposit. Noront will also pick up an 85% interest in the McFauld’s Lake copper-zinc resource.

There’s a definite tinge of irony to the proceedings considering Cliffs outbid Noront for the Ring of Fire chromite assets back in 2009, when the U.S.-based producer forked over US$240 million for the land package. Cliffs suspended the project in 2013 following numerous delays and unproductive negotiations with the Ontario government and regional First Nations communities.

Cliffs said in a release that the deal aligns with a “strategy that includes divesting non-core assets and focusing on being the major supplier of iron ore pellets to the North American steel industry.” The deal is subject to bankruptcy court approval since Cliffs’ Quebec iron mining operations are undergoing restructuring.

The Ring of Fire sale is the latest domino to fall in Cliff’s complete exit from Canada. The Ohio-based producer shocked the industry when it shut down its Bloom Lake iron ore mine in northeastern Quebec late last year after it spent roughly US$6 billion on the project. The company also shuttered its its Wabush mine in Newfoundland, which had been in operation for more than 40 years.

For Noront the deal could be viewed as a win considering the price tag. The Ontario government estimated the Ring of Fire could have an economic value of as much as $60-billion during the commodity boom. The region looks to be a long way from production, however, due to significant infrastructure challenges that include lack of road access and power.

Cliffs’s solution included the construction of a north-south road to remove chromite ore from the mine site, but the concept failed to gain traction. By comparison, Noront is proposing an east-west route it says will help connect First Nations communities across the region.

“This purchase underscores Noront’s long-standing belief and commitment to the region,” said Noront President and CEO Alan Coutts in a statement. “We have made significant investments in the Ring of Fire and our team has become experts in the region from both a technical and social point of view. We also believe in the considerable exploration upside which we are eager to develop.”

In order to finance the deal Noront will borrow US$22.5 million from royalty and streaming outfit Franco-Nevada (TSX: FNV; US-OTC: FNV). The loan will have a five-year term and carry a 7% interest rate. Franco will also receive a 3% royalty at Black Thor and a 2% royalty on all of Noront’s other properties in the Ring of Fire, with the exception of the Eagle’s Nest nickel-copper deposit.

Noront is planning on developing a mine at Eagle’s Nest before tackling the much-larger chromite assets. The company is waiting for the Ontario government to begin its provincial environmental assessment process and hopes to start construction by mid-2015.

According to a feasibility study published in 2012 Eagle’s Nest will costs US$609 million in initial capital and carry a US$543 million after-tax net present value at a 5% discount rate and a 28% internal rate of return.

Noront has traded within a 52-week window of 25¢ and 70¢, and jumped around 66%, or 24¢, following news of the Cliffs deal en route to a 58¢ per share close at the time of writing. The company maintains 232 million shares outstanding for a $137 million press time market capitalization and reported a cash position of $7.4 million at the end of October.