An international partnership deal to help finance and develop a northwestern Ontario iron ore mine has fizzled.
Northern Iron Corporation announced in late May that a potential deal with Ontario Iron Mining, a private group of Chinese commodity handlers, to buy two iron ore properties near Red Lake will not proceed.
It forced the Vancouver-based junior miner to place its project on indefinite care and maintenance. “It's a temporary setback,” said Northern Iron president-CEO Basil Botha. “With today's markets, people are afraid right now.”
In June, iron ore prices were stalled at eight-month lows as the raw material used to make steel joined a wide spectrum of other commodities suffering from oversupply and slowing demand from China, the world's biggest consumer of iron ore.
Botha has been searching for investors and off-take agreements, primarily in China, to finance their mine complex which would include the production of hot briquetted iron (HBI), a value-added iron product for steel makers.
The deal to sell off the El Sol and Whitemud iron properties to Ontario Iron would have fattened Northern Iron's coffers by $5 million and helped pave the way to make strategic inroads into Asia. “They were the conduit to the big money,” said Botha.
The company has five iron ore properties in the Red Lake mining district near the town of Ear Falls, which contain a combined historic resource of more than 500 million tonnes.
The flagship properties are the Karas and the former Griffith mine, the latter being an open pit once mined by Stelco from the late 1960s to mid-1980s. It produced iron ore pellets and sponge iron to feed its Hamilton and Nanticoke steel works.
The El Sol and Whitemud properties were about 80 km northeast of the Griffith.
“The Chinese saw those as long-term strategic projects and combined with (Northern Iron's) central processing plant the idea was to bring them in together with Griffith,” said Botha.
After an initial asset purchase agreement was signed last November, Botha had an uneasy feeling when Ontario Iron asked for an extension during the due diligence phase. It expired May 31.
“Unfortunately, as I've discovered in my business career, the longer a deal takes to do the more chance it's got of going away.”
While the company is debt-free, Botha said they've decided to preserve cash. Salaries are being cut and key staff are being laid off, including vice-president of corporate development Michael Hepworth, vicepresident of exploration Raul Sanabria, and operations boss Cameron Tymstra.
“You can't continue to spend money at this stage,” said Botha. “It would be suicide.”
A $3-million field exploration program scheduled for this year has been cancelled along with the next phase of dewatering of the Griffith pit.
Disappointed but not deterred, Botha is continuing his investor search and might have found a potential dance partner in Texas.
Austrian steelmaker Voestalpine has plans to build a two-million tonne per annum HBI plant in Corpus Christi to feed its steel mills in Europe.
County commissioners there approved $25 million in tax breaks over 10 years for Voestalpine to build a (US) $700 million iron ore processer at the Port of Corpus Christi, scheduled to come online in 2016. “We have met with them,” said Botha.
“They asked for a lot of technical information for our project, comparing our project costs to theirs and we're kind of in the same ballpark.”
Botha said it's conceivable Northern Iron could potential supply them with iron ore or a value-added product or the company could find another partner.
“We haven't stopped talking to other people who are both traders and steel producers that use scrap, direct reduced iron and HBI in electric arc furnaces.”
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