Frank Smeenk was direct in his appraisal of Cliffs Natural Resources ending up on the wrong end of an acrimonious proxy fight with a New York hedge fund.
“I thought they deserved everything that befell them,” said the president-CEO of KWG Resources. “They haven’t been easy to get along with at all.”
There’s no love lost between the Toronto junior and the Ohio miner, but a change in leadership and corporate philosophy in Cleveland may signal the thawing of a frosty relationship.
The head of KWG wasn’t at Cliffs’ July 29 shareholders meeting to gloat over the demise of the old guard at the 167-year-old mining giant, but it was a get-acquainted opportunity to meet the new blood as Casablanca Capital seized control of the board of directors.
Casablanca has vowed to make good on its promise to carve off Cliffs’ costly international projects, including its mothballed Ring of Fire chromite properties, like the Black Thor deposit, from its core U.S. mines.
“I’m trying to persuade them that KWG can be the (development) vehicle,” said Smeenk, “that it might be opportune for (us) to be their partner of choice.
“There are any number of ways to do this, but a company that has the combined chromite assets can raise some real money in New York.”
KWG has an adversarial 30/70 stake joint venture relationship with Cliffs on the Big Daddy chromite deposit in the James Bay region.
Once close development partners, the companies became warring factions over an access corridor by KWG to reach the remote camp.
KWG has the most advantageous route to the Ring by virtue of staking a 330-kilometre-long corridor of mining claims, set aside for a future north-south railroad. It became a legal flashpoint with Cliffs when KWG denied them surface access to those claims to build a road.
KWG won a victory in September 2013 at a provincial mining tribunal denying Cliffs access to those claims, but an Ontario Divisional Court set aside that ruling in late July, leaving it up to Minister of Natural Resources and Forestry Bill Mauro to make a ruling.
The government’s decision may be a while in coming, since the matter is before the courts again as KWG announced it was appealing this latest decision.
With a different vibe at Cliffs, Smeenk believes the province will stop pandering to one mining company and real progress can finally be made in the Ring, possibly attracting other international players to the scene.
“I think (Cliffs) had a monopoly on the ear of the Ontario government.”
KWG has often accused the McGuinty and Wynne governments of being too cozy with Cliffs, and that’s caused Far North development planning to stall.
Cliffs countered that KWG held the entire mining camp “hostage” by blocking the best north-south access route.
The onus is now on the Wynne government with its Ring of Fire development corporation and $1-billion infrastructure treasury to kick-start momentum in the dormant camp.
KWG has been championing a not-for-value Ring of Fire transportation authority. The concept involves First Nation participation and logistical support from the Ontario Northland Railway. Financing for a railway would be raised entirely in the global markets.
Noront Resources president-CEO Alan Coutts believes his company’s proposal for an east-west access road will be incorporated into the development corporation.
He isn’t necessarily convinced that a possible exit of Cliffs means other major miners will make their move.
“I think the international players will likely sit on the sidelines and say, let’s see if Ontario is really open for business.”
Noront has positioned itself as the leading player in the Ring, promoting its advanced stage Eagle’s Nest nickel project as having a smaller environmental footprint in the region. The Toronto junior is also leading the way in garnering support from area First Nations.
“We’re leading the fight and if we can get up and running with support from the province and the feds, it’ll send a strong message to investors, which would probably be good for those big players coming into the Ring on the chromite side.”
Coutts had a muted reaction to the Casablanca takeover preferring to “see how the dust settles” before Cliffs initiates any process around the sale of its Ontario assets.
In May, after Noront acquired Cliffs’ exploration camp assets in the Ring, Coutts expressed a keen interest in picking up their chromite properties as well.
“We’re interested in watching how this unfolds, but it will take a bit of time for things to become apparent. But for sure, if there’s going to be a process initiated around the Cliffs assets in the Ring, that’s our stomping grounds. That’s where we’re playing and developing, so of course we’re interested.”
Although no talks have taken place, Noront has the backing of an equity ownership group with Baosteel Group, one of China’s largest steel makers, and Resource Capital Fund, which has cashed up to $2 billion this year for mining investments.
Bill Boor, Cliffs’ vice-president of corporate development, contended that, unless directed otherwise, his sole focus remains proving up the value of the project.
He offered no direct comment on Noront’s ambitions, but responded that companies with viable Ring of Fire projects should be working together.
“We’ve got the same objective and making highly speculative statements isn’t all that productive.”
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