Franco-Nevada Corp. (
TSX: T.FNV,
Stock Forum) Chief Executive Officer David Harquail said Monday he still sees value in Ontario’s Ring of Fire region.
Located about 500 kilometres northeast of Thunder Bay, Ontario, Ring of Fire is estimated to have $60 billion worth of untapped mineral value locked up in base metals, platinum and palladium, in addition to the largest chromite deposit in North America. (Chromite is used to make stainless steel).
But due to the Ring of Fire’s highly remote location, governments, aboriginal groups, and mining companies face substantial hurdles as they consider how to transfer any future mineral production to global markets.
On Monday, U.S. mining giant
Cliffs Natural Resources Inc. (
NYSE: CLF,
Stock Forum) indicated that it isn’t sticking around to find out how these hurdles can be overcome.
Instead, it has elected to sell its Ring of Fire chromite assets to
Noront Resources Ltd. (
TSX: V.NOT,
Stock Forum) for $20 million.
In a terse statement, Cliffs said the sale of the chromite deposits and associated mining claims further demonstrates the execution of Cliffs’ strategy which includes divesting non-core assets and focusing on being a major supplier of iron ore pellets to the North American steel industry.
The sale appears to put another dent in Ontario’s plan to make the Ring of Fire a hub of economic development.
However by helping Noront fund the deal with a US$22.5 million loan,
Franco-Nevada Corp. (
TSX: T.FNV,
Stock Forum) has indicated that it is prepared to take a more patient view.
“We are taking a long term perspective,’’ said Harquail.
In return for the loan, Franco-Nevada will receive a 3% royalty over the Black Thor chromite deposit and a 2% royalty over all of Noront’s properties in the region with the exception of the Eagle’s Nest high-grade nickel, copper, platinum and palladium project, which is excluded.
US$22.5 million is obviously chump change for a company like Franco-Nevada, which has a market cap of $10.2 billion, after seeing its stock price rise 0.90% to $64.89 on Monday.
Speaking to Stockhouse from Toronto, Harquail said the sale ends a “tug of war” over what should be developed first, the nickel or the chromite.
But acquiring the Cliffs’ Ring of Fire assets, he said Noront becomes THE major player in the region, and therefore a single focus for government, aboriginal groups and other stakeholders as they try to figure out the transportation logistics.
Investors appeared to agree with that view, sending Noront shares up 39.4% to 49.5 cents, leaving a market cap of 114.8 million, based on 231.8 million shares outstanding. The 52-week range is 70 cents and 24.5 cents.
Also, Harquail said he sees similarities between the geology of the Ring of Fire region and the Raglan nickel belt in Northern Quebec. “We expect to see more nickel discoveries [in the Ring of Fire area], Harquail said.
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