Cliffs Natural Resources Prepares to be North America's Sole Chromite, Ferrochrome Producer

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Researched by Industrial Info Resources (Sugar Land, Texas)--Cliffs Natural Resources Incorporated (NYSE:CLF) (Cleveland, Ohio) is on its way to becoming North America's sole producer of chromite ore and ferrochrome. Cliffs acquired ownership in three chromite deposits in northern Ontario in late 2009 and 2010. Development of the deposits will make the company North America's only chromite producer. In addition, Cliffs plans to construct a ferrochrome production facility, which will be the only such facility in North America.

The major use for chrome is in the production of stainless steel. As Cliffs Vice President for Global Marketing Bill Hart said at the company's Analyst and Investor Day held last week at the New York Stock Exchange, the key to understanding the chrome market is to understand the stainless steel market. As with many resources, Asian markets are a key driver in demand growth. "This market is being driven by what's happening in China," said Hart. "China is now the largest producer of stainless steel. It accounts for 40% of the consumption of ferrochrome. But as we look forward toward stainless steel production worldwide...people are expecting a 30% increase in stainless steel production between 2010 and 2015. Obviously that's going to require significant amounts of chrome as input into this very favorable picture."

North America currently has no production of chromite or ferrochrome, the chromium-iron alloy used in stainless steel production, but Cliffs' Ontario operations will change this. The company is currently performing prefeasibility studies for the grassroot chromite mine and ferrochrome production facility. Prefeasiblity studies should be wrapped up by the end of this year, followed by feasibility studies in 2012. Construction is expected to kick on 2013, with production of both chromite ore and ferrochrome beginning in 2015.

The mine aims to produce 2.3 million tons per year of chromite ore concentrate. Cliffs estimates that upon completion of the project, North America will be producing approximately 10% of the world's chromite, making it fourth in global chromite production, behind South Africa, Kazakhstan and India. However, at the investor presentation, Bill Boor, Cliffs' senior vice president for Global Ferroalloys, emphasized that while the company is aiming initially for 2.3 million tons of capacity, the size of the deposit is not a constraining factor and that Cliffs would like to see this capacity increase at some point.

As there are no ferrochrome production facilities in North America and Western Europe, the company aims to produce approximately 600,000 tons per year of ferrochrome for these markets, while approximately 1 million tons per year of chromite ore concentrate will be shipped to Asian markets, where ferrochrome furnaces exist. Noting that power is the "key driver" of ferrochrome production, Boor said, "We're currently looking at multiple technology options, and we have the opportunity here to install state-of-the-art processes, which maximize the power efficiency of this operation."

A great deal of work is needed in addition to construction of the facilities. The deposits are located in an area with no existing infrastructure. Currently, the company plans to build approximately 160 miles of new all-purpose, all-season road to meet an existing roadway leading to Canada National Railway's (NYSE:CNI) (Montreal, Quebec) east-west line, from where the chromite and ferrochrome can be transported to ports or overland to North American locations.

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