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KWG CEO says rail access is the way to go

May 24, 2013
by Norm Tollinsky
In: News

“What we’re more concerned about is the use of the route to benefit our interests in the mineral deposits.”

Auger drilling to test soil conditions along the rail corridor staked by KWG Resources.

Frank Smeenk, president and CEO of junior miner KWG Resources, can’t think of one good reason to build a road to the Ring of Fire, a remote mineral-rich region in Ontario’s James Bay Lowlands.

“It never occurred to me that anyone would ever contemplate shipping hundreds of millions of tonnes of (chromite ore) over a period of decades if not centuries any way other than by railroad,” he declared in an interview with Sudbury Mining Solutions Journal.

KWG owns 30 per cent of the Big Daddy chromite deposit, and through subsidiary Canada Chrome Corporation, rights to a string of mining claims along an esker stretching some 330 kilometres through wetland terrain from the CN Rail line to the Ring of Fire. Cliffs Natural Resources, which owns 70 per cent of Big Daddy is currently undergoing an environmental assessment and feasibility study to develop its adjacent 100 per cent-owned Black Thor chromite deposit, potentially leaving KWG and its shareholders out in the cold.

KWG’s staking of the route along what it calls “a unique linear sand ridge that stands proud of the vast wetlands” was one way to preserve some leverage over Cliffs and generate returns for its shareholders.

The road versus rail debate is far from settled.


Cliffs, which is adamant about a road being the only viable means of access, is waiting for the Ontario Mining and Lands Commissioner to rule on its application for an easement over KWG’s claims. Meanwhile, KWG has teamed up with unions representing employees of the provincially-owned Ontario Northland Railway – currently on the chopping block – to lobby for a James Bay and Lowlands Port Authority, which would finance and develop a rail line to the Ring of Fire.

Smeenk claims the rail option is more environmentally acceptable, less expensive in the long run and safer.

“My conclusion early on – and it’s been reinforced subsequently – is that a road is never going to get buy-in from the environmental lobby, which is very well equipped both scientifically and financially,” he said. “A railroad, (by contrast), is a small narrow footprint on the land.

“I was flummoxed when Cliffs and Noront came forward with a road option, and I was totally taken aback at the lack of technical capacity within the various ministries of the Government of Ontario to (challenge the notion of road access.)”

In discussions with the Wildlands League, Smeenk says he learned that disturbance of a large wetland area for a road would release mercury into the watershed and open a highway for predators, especially wolves, that would have a deleterious effect on the endangered woodland caribou.

A railroad, in the long run, is also the more cost effective option, according to a KWG-commissioned study by Tetra Tech.

The capital cost for a railroad, according to Tetra Tech, would be significantly higher – $1.5 billion versus $1 billion for a road – but operating costs would be lower by a factor of six: $10.50 per tonne for rail versus $60.78 for a road.

Responding to Cliffs’ vice-president Ken Pavlich, who told a PDAC audience in March that the interest on the incremental capital cost for a rail line would exceed the annual cost of truck haulage and road maintenance, Smeenk argued that low interest rates and the longevity of the project suggest otherwise.

Interest Rate

“We’re unaccustomed to factoring in very low cost of money and a very long-lived asset,” he noted. “If it’s Cliffs borrowing the money, the cost might be five, six, seven, eight or nine per cent. If it’s the federal government borrowing the money through a Ports Authority, it might be two or 2.5 per cent.”

As for Pavlich’s claim that differential compaction or settling “favours a more forgiving road option,” and could result in “catastrophic” derailments if a rail line is built, Smeenk accused him of “grasping at straws.”

“The standards of construction and the scrutiny of third party review by environmental lobbies are such that it’s hard to imagine a railroad could be built which would suffer that flaw and still be licensed to operate.”

Turning the safety argument on its head, the Tetra Tech study concludes “rail transportation offers a higher level of safety, lower accidents and higher hazard protection in this region compared to truck traffic.”

The proposed James Bay and Lowlands Port Authority would be an ideal vehicle for creating an infrastructure asset for the Ring of Fires, claims Smeenk.

If the Government of Ontario is intent on divesting the Ontario Northland Railway, or parts of it, creation of a Port Authority would allow for the preservation and extension of the assets.

“We shouldn’t be tearing up railroads in Canada, particularly in this case when the ONR could be made productive and profitable (by extending service) to the Ring of Fire,” he said.

KWG proposes to “domicile” its subsidiary, Canada Chrome Corporation and its mining leases – “should we be succeed in bringing our claims (along the 330-kilometre route) to lease” – with a Port Authority through a trustee corporation.

KWG, said Smeenk, would benefit by having “something to say about how it was done” and could have some costs reimbursed, “but what we’re more concerned about is the use of the route to benefit our interests in the mineral deposits.”

Persuading Cliffs to develop Big Daddy instead of Black Thor would be one way to accomplish this, but isn’t very likely.

“We’ve also suggested to Cliffs that we would trade some of our interest in Big Daddy for some interest in Black Thor, but those conversations haven’t gone anywhere,” said Smeenk.

Black Horse

As an alternative, KWG has partnered with Bold Ventures Inc. to earn an interest in the prospective Black Horse chromite deposit on property optioned from Fancamp Exploration, which lies between the Big Daddy deposit and Noront Exploration’s Black Bird deposit.

“We’re drilling the Black Horse to see if it’s an extension of the Black Bird that was drilled off by Noront,” said Smeenk. “If it is, it may well be a deposit that can be most profitably mined.”

Smeenk was circumspect about commenting on Cliffs’ ability to follow through with its $3 billion proposal to develop Black Thor given its recent financial challenges and search for a partner, but if it doesn’t, KWG will be more than happy to pick up where Cliffs left off.

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