Replies to post #4356 on The Rising Influence of Rising Affluence

[Democritus_of_Abdera]

Re: Partner for CLF Chromite Project...

Perhaps CLF will have a partner to share the costs of its chromite project (consistent with Dewophile’s suggestion of Feb 18; i.e. #msg-72286090); see quotes from Thursday’s conference call below.

I also thank Dewophile for raising my awareness of the significant electricity draw in chromite production.... It seems that CLF projects that it will have a significant competitive advantage over the mines in South African because of the relative power costs.

Michael Gambardella (JPMorgan Securities LLC):
I had a question on what you know right now looking at the two projects, Bloom Lake and then the chromite project. What has the greater returns, from what you know right now?

Joseph Carrabba (CLF CEO):
What we know right now, Mike, is if you stay in today’s universe, it would certainly be Bloom Lake and iron ore. You see the iron ore pricing continues to strengthen from the first of the year, and I see the spot’s a little bit again today. And if you think about where we’re at right now from – we’re almost – the next expansions are somewhat I’ll call them brownfield. They’re not the infrastructures in place. We’ve already got two modules. So iron ore would certainly at these current levels give us the greatest return. Let me just say on the chrome business, what I think you have to think about, Mike, and again, as we said, we will give a lot more color around the economics of the project as soon as we get out of pre-feasibility and into feasibility. We will it be able to shrink those margins of error, if you will, around estimates a lot closer. You’ve got to think about 2015 when this project would come on, and particularly with what’s going on with the power situation in South Africa and the cost position they’re going to be in with power rates and the lack of power in 2015. So I think the modeling that’s done today is going to look quite different given the South African situation in 2015.

Michael Gambardella:
And then just on the chromite project, are you considering taking a partner on that?

Joseph Carrabba:
We’re considering. I think that’s the nice thing about this project, is it has a lot of off ramps right now, and we’re certainly thinking about partnerships as we go forward. This is a big CapEx, as you know, and a new business for us, so any security and derisking we can do is certainly a large part of the consideration as we go through pre-feasibility.

[DewDiligence]

CLF Makes ‘Go’ Decision on Chromite Feasibility Study in Ontario

[The stock has been hammered of late, and the decision to spend $3.3B of cap-ex in the next few years on a project that might never pan out could be part of the reason. One might think management should get the benefit of the doubt; however, during periods of fear, which seems to be the dominant investor emotion now with respect to commodity producers like CLF, a major capital-eating development project is not the ticket to a higher share price, evidently. I’ve expressed my doubts regarding the chromite project on many occasions, most recently in #msg-72282431.

There has been speculation on this message board that CLF will take on a partner to develop these assets if it has not been acquired itself (#msg-73339832, #msg-73340280), but there is as yet no hint from CLF regarding such an approach.

CLF’s own PR on the chromite decision is at http://ir.cliffsnaturalresources.com/releasedetail.cfm?ReleaseID=671849 .]

http://www.reuters.com/article/2012/05/09/cliffs-idUSL1E8G972W20120509

›May 9, 2012 12:46pm EDT
By Julie Gordon

TORONTO, May 9 (Reuters) - Cliffs Natural Resources Inc said on Wednesday that its board approved plans to conduct a feasibility study for its proposed $3.3 billion chromite project in the Ring of Fire region of Northern Ontario.

The Cleveland-based miner also announced plans to build a ferrochrome processing facility in Sudbury, a nickel mining hub that is home to major Xstrata Plc and Vale Sa operations.

Morningstar analyst Daniel Rohr said the project would make Cliffs one of the largest chromite producers in the world [no kidding]. The company estimates it will produce of some 600,000 tons of ferrochrome a year and 1 million tons of chromite concentrate for export.

South Africa, Kazakhstan and India are top global producers of the metal, a key ingredient in stainless steel.

Cliffs did not say when it expects to complete the feasibility study, but said it expects the majority of capital spending for the project to occur in 2014 and 2015. Its stock was slightly higher at $56.96 on the New York Stock Exchange.

The company will not make a final decision until it has both environmental approvals and agreements with aboriginal groups [something that might involve years of litigation, judging by the experience of other companies].

The mine has the potential to open up the Ring of Fire, a remote swath of mineral-rich land some 1,500 kilometers (900 miles) northwest of Toronto, to development. Numerous small mining companies are exploring metal deposits in the region.

"Ontario is very committed to ensuring this development and recognizes it will be opening up that part of Ontario to future development and opportunities," the province's Ring of Fire coordinator Christine Kaszycki told Reuters.

But a serious lack of infrastructure in the region will be major hurdle. Developers must likely build hundreds of miles of all-season road south to a highway to Sudbury, along with power and other basic infrastructure.

Cliffs said it is working with the province to address the infrastructure issues.

Some analysts worried that overall development costs, which have already more than tripled to $3.3 billion from an earlier estimate of $1 billion, could rise further.

"I don't expect this to be a $6 billion project, but I think you could certainly see further cost pressures of probably 10 to 20 percent above current levels, just based on what we're seeing with other projects," said Dahlman Rose analyst Anthony Young.

Ontario has backed the development, which it expects to create some 750 mining, milling and transportation jobs, plus up to 450 jobs at the ferrochrome processing facility.‹