Even amid bidding war for Noront, challenges encircle Ring of Fire mining project

Australia’s BHP Group Ltd, one of the world’s largest miners, on Wednesday offered 75 cents in cash for each share of Toronto’s Noront Resources Ltd., as a bidding war erupts for control of the mineral claims on land around northern Ontario’s remote James Bay lowlands, colloquially known as the Ring of Fire.

That offer beats a bid of 70 cents per share that Wyloo Metals Ltd, backed by Australian billionaire Andrew Forrest, placed on Monday.

Even as BHP offers $419 million in cash for Noront — and Wyloo could still raise its own offer before  Nov. 9 when shareholders must vote on which proposal to accept — a larger question looms about whether its projects in the Ring of Fire would ever be developed into mines.

Although Noront’s stock reached 81 cents per share on Wednesday afternoon, the company had turned in a lackluster performance in recent years, and was trading at 19 cents per share in January as investors weighed the many challenges and obstacles its projects in the Ring of Fire face.

Cutoff from the rest of Canada, its projects would require billions of dollars in investments in roads and other infrastructure — with taxpayers expected to foot some of the bill. Plus, an array of First Nations hold claims to the land, and there is growing opposition in some communities to the project. Lastly, there are questions about whether the mineral deposits would be profitable to mine.

As the threat of shovels hitting the ground becomes more imminent, we’ll be at a crisis point

Kate Kempton

“This is obviously an early stage project and it’s going to take many years to develop,” Johan van Jaarsveld, chief development officer for BHP, told the Financial Post on Wednesday. “There’s a lot of remote infrastructure needed to enable this whole basin to become productive and obviously a lot of stakeholders to manage including communities, First Nations and various governments, and then of course a significant investment of capital.”

But BHP, which has a market capitalization of US$146.5 billion, operates in 90 locations and produces a range of commodities including metallurgical coal, copper and nickel, has a history of weighing projects carefully.

Before it gave final approval earlier this year to move forward with Jansen, a proposed potash mine in Saskatchewan, BHP had invested more than $4 billion in its infrastructure. BHP chief executive Mike Henry told the Financial Post in 2020 that although “many (investors) would regret the dollars that have been spent” on Jansen, he was prepared to walk away from the project if the economics did not make sense.

Now, both BHP and Wyloo have said they are most interested in Noront for its potential nickel deposit: Roughly a decade ago, Noront produced a report that concluded its Eagle Nest Deposit could produce 15,500 tons of nickel concentrate per year, plus copper and other metals, with an initial mine life of 11 years, and indications that it could run for longer.

Nickel is a vital component in most lithium-ion batteries, and is expected to see increased demand during the next two decades as battery-powered electric vehicles displace conventional internal combustion engine vehicles.

In recent years, Indonesia and the Philippines have invested heavily to grow nickel production and ranked as the first and second largest producers of nickel in the world, accounting for 29.1 per cent and 10.1 per cent, respectively, to global production in 2019, according to Statistics Canada.

But not all nickel is the same. The nickel in Indonesia and the Philippines is derived from laterite ore, and Noront has identified a nickel sulfide ore deposit, which is believed to be cheaper to convert into a form that can be used in batteries.

That is the biggest risk — if somebody finds a way, or technology to convert laterites at a similar cost

Johan van Jaarsveld

“That is the biggest risk — if somebody finds a way, or technology to convert laterites at a similar cost,” BHP’s van Jaarsveld said. “From time to time you see articles saying someone has made a breakthrough in doing that, but it remains a challenging conversion to do that at scale.”

Given the sheer amount of nickel production from laterites, any such breakthrough “would flatten the nickel cost curve substantially,” he said.

That would undermine the economic rationale for investing heavily to build roads, electricity infrastructure, a mine and a smelter to develop Noront’s assets.

It is still only a small percentage of nickel being used for batteries, accounting for just four per cent of total supply in 2019, according to Statistics Canada. As electric vehicle sales take off and battery production grows, there is expected to be more investment in methods to convert nickel derived from laterite ore into battery material.

Plus, there is growing opposition from some First Nations’ communities in the James Bay Lowlands. In April, the Attawapiskat, Fort Albany, and Neskantaga First Nations in the James Bay lowlands declared a moratorium “on any development in or to facilitate access to the Ring of Fire area,” saying mining would permanently desecrate the land.

Earlier this month, in a judicial review case filed in the Ontario Divisional Court that has implications for Noront’s claims, Kate Kempton, a lawyer representing Attawapiskat First Nation, sought to invalidate two provincial mineral exploration permits, granted to Toronto-based Juno Corp., for land in the James Bay lowlands.

Kempton said existing treaties and laws mean her client should have been consulted about the environmental impacts of the permits, but it was not.

During the hearings, she presented expert testimony that the whole James Bay lowlands area represents the second largest intact peatlands in the world, and its development could have significant impacts on climate change.

The case, which has not yet been decided, raises significant legal questions about First Nations’ rights to consultation under existing treaties and also whether environmental reviews in Canada need to address a project’s comprehensive and cumulative effect on an environmental region, including the impacts on climate.

Kempton predicted that ultimately, efforts to advance the Ring of Fire, because of its scale would provoke more litigation and protests, and also have ramifications in the financial community among investors that would bring clarity to these issues.

“As the threat of shovels hitting the ground becomes more imminent, we’ll be at a crisis point,” said Kempton. “This is going to be one of those events that will be critical and help determine which way we’re going to go. I think the Ring of Fire is going to have that level of importance to First Nations’ rights and climate change.”

For his part, BHP’s van Jaarsveld said that his company had operated in the Canadian north in the past, including the EKATI diamond mine near Yellowknife. Already, he said the company has held “introductory” meetings with a few First Nations communities in the James Bay lowlands, though he did not say which ones.

“We’re quite confident that we can manage all the different stakeholders,” said van Jaarsveld.

Clarification: Shareholders must tender their vote by Nov. 9.

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