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Cliffs VP makes case for Ring of Fire road

May 24, 2013
by Norm Tollinsky
In: News

Volume, cost and safety taken into consideration

Ken Pavlich, vice-president, operations, global ferroalloys, Cliffs Natural Resources.

A senior executive with Cliffs Natural Resources offered a detailed explanation of the company’s position in favour of road access to the Ring of Fire at a standing room only session on the final day of the PDAC in March.

“We looked at a lot of different options,” said Ken Pavlich, vice-president of operations for the company’s global ferroalloys business. “After eliminating the obvious non-starters like trying to get to James Bay or Hudson Bay, we decided that the only viable options for our project began at the concentrator and ended at the CN Rail line.

“From that, we looked at three different rail zones and two different road zones and, within each, we looked at multiple routes trying to figure out what would work.

“This was not a two-week or a two-month project,” said Pavlich. “It was more like a two-year project. We put a lot of time and a lot of effort into it because this is going to be the most difficult part of the project in terms of construction.”

Environmental assessment

Cliffs initiated an environmental assessment for the development of its Black Thor chromite deposit in 2011 and is in the latter stages of a feasibility study. The property, Pavlich told his audience, “is in the middle of nowhere – 285 kilometres from Nakina and the CN Rail line, 290 kilometres south of the closest point on Hudson Bay, 270 kilometres west of the closest point on James Bay, 300 kilometres north east of Pickle Lake, 540 kilometres north east of Thunder Bay and 1,135 kilometres northwest of Toronto.”

The company plans to mine 3.7 million tonnes of ore per year at a life of mine strip ratio of 10:1. A concentrator at the site will take the 3.7-million tonnes of material and convert it to 2.3 million tonnes of chromite concentrate. Approximately half of the concentrate would be shipped to a proposed $1.8 billion ferrochrome processing facility in Sudbury, with the remainder destined for export markets.

The low-lying, waterlogged terrain through which a road or rail line will have to be constructed poses major engineering challenges.

The eskers in the area really dictate where the route will go, said Pavlich. “It’s not rocket science. You need to stay as high and dry as you can.”

Cliffs looked at several potential routes for a rail line.

“One is the same route that KWG Resources has been talking about. It’s about 330 to 340 kilometres,” said Pavlich. “We also looked at another route that would connect with the Fernlie siding on the CN Rail line. It’s about 348 kilometres, and we looked at a route that would take us down to the Pickle Lake area to the Savant Lake siding. That one is about 500 kilometres.”

The 340-kilometre north-south route along the eskers staked by KWG Resources was one of several possibilities Cliffs looked at for a road to the Ring of Fire. This route, which would link up to an existing road and only require 265-kilometres of new construction, would terminate at the Cavell siding, 25 to 30 kilometres west of Nakina.

“The east-west route makes sense if you don’t have huge volumes of material, but it’s a much longer route requiring 282 kilometres of new construction and a total distance of 526 kilometres to get down to Savant Lake – 280 kilometres away from where we’d be if we ended up at Cavell,” said Pavlich.

The volume of material to be shipped was one of the factors weighing in favour of a road.

“I know 2.3 million tonnes sounds like a lot,” said Pavlich, “but 20, 30 or 40 million tonnes a year is what you need for a viable railroad based on the work we’ve done and what we’ve seen around the world.”

Cost was another factor.

“When you look at the weighted average cost of capital to a company like Cliffs and you look at the interest on the incremental capital cost for a rail line, it turns out that the interest alone would exceed the cost of truck haulage and road maintenance on an annual basis. What that means,” Pavlich contended, “is the incremental investment for us never pays back on a rail, so a road is the way to go.”

Safety

Pavlich also raised the issue of safety.

“We’re going to be building across a very difficult area and we’re going to have differential compaction and settling characteristics which favour a more forgiving road option.

“Differential settling on a road results in a bump or a swale. You send a grader out with some crushed stone and you repair it.”

Road maintenance as a result of settling can be performed without disrupting truck traffic, said Pavlich.

“Differential settling on a rail line is a derailment, which is from a safety standpoint, an environmental standpoint and an operational standpoint, a somewhat catastrophic event and it’s one we prefer not to have to be involved in.”

The east-west route via Pickle Lake to the CN Rail line 280 kilometres west of the Cavell siding was rejected both because of the increased distance and the fact that much of the route – from Pickle Lake onwards – is a paved highway that Cliffs would have to share with existing vehicular traffic.

“It wouldn’t allow us to operate over the road tractors hauling two trailers with 35 tonnes of material in each trailer,” unlike the north-south route, which could be designated as a private road.

The north-south route, he added, would also allow for the use of non-tax fuel.

The Cliffs vice-president didn’t offer a cost estimate for the road or share any thoughts on who would actually pay for it, but a study commissioned by KWG Resources estimated a cost of $1 billion for a road, and $1.5 billion for rail.

Power, another infrastructure challenge, would be supplied locally at the mine site using compressed natural gas, said Pavlich.

Grid power

Proposals for grid power don’t support Cliffs’ project timing, “and some of them don’t even lower our cost of power,” he noted. “And even if we did have a grid, we would still build full backup capabilities because of the remote nature of the operation. It’s just too far away to assume that the line will always be up and running.”

Cliffs also considered wind and solar, but rejected them “because the sun doesn’t shine as much as you’d like and the wind doesn’t blow as much as you’d like.” Furthermore, without the Ontario grid, there’s no feed-in tariff, Pavlich noted.

“We do think, however, that there’s a great opportunity for low-head hydro developments through First Nation joint ventures once the grid is in place.”

The chromium deposits in the Ring of Fire are bound to be developed at some point, but there is still considerable uncertainty about when and by whom, given Cliffs’ recent financial troubles, timeline extensions and musings about taking on a partner.

Meanwhile, an application by Cliffs for an easement over the claims KWG Resources has staked along the north-south route is still to be ruled on by the Ontario Mining and Lands Commissioner, and lobbying for a rail line continues apace.

www.cliffsnaturalresources.com

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