Cliffs Natural Resources (CLF) may be compelled to delay its crucial chromite project at the Black Thor deposit in the Ring of Fire. The project had already been delayed last quarter to the end of 2016 from an earlier target of 2015. Now the company says that many factors would have to come together to meet the official timeline. It is quite possible that the project will get pushed even beyond 2017.

The various factors expected to contribute to the delay are the building of a 350 km long all-weather road from the main railway line to the mining site, construction of a 300 MW smelter near Sudbury to process the ore, negotiations over electricity prices, and negotiations with local First Nations communities who have apprehensions about the project, The Chronicle Journal explains.

Cliffs claims that it remains committed to having a feasibility study and environmental assessment review for the project completed by next year, according to The Sudbury Star. Any decision about moving forward with the project will be based on the study's findings, industry conditions, its cash position and outlook.

Cliffs Natural Resources has a world-class chromite asset in the form of Black Thor in Canada. It is expected to produce 600,000 tonnes of ferrochrome once production begins in 2016. The company will be spending close to $3.3 billion on this project as capital expenditure. Ferrochrome is used mostly in the production of stainless steel and there are very few mines in the world with large deposits of chromite from which it is made.

Cliffs has suffered a setback in recent times due to plummeting iron ore prices which has dented profits and cash flow. As a result of economic conditions in the Eurozone and a slowdown in demand from China, iron ore is trading at significantly lower prices in the international markets than in the corresponding quarter last year. Cliffs' North American iron ore and coal divisions' revenues are highly dependent on a few customers. ArcelorMittal (MT), Algoma and Severstal together constitute about 35% of Cliffs' total revenues. A loss of sales to any of these existing customers could have a substantial adverse impact on the company's revenues and profitability. Keeping in mind the volatile pricing environment, management wants to focus on executing the Phase II expansion at Bloom Lake and maintaining its cash dividend and investment-grade rating.

In light of the above, it is possible that the company is simply being cautious not to commit to a large-scale project like Black Thor when capital to be deployed is scarce and other projects are competing for it. If the market outlook changes, the project could be prioritized. Cliffs is considering taking a financial partner for the project, which may be another reason why it is going slow.

On the other hand, there could be factors beyond the company's control. First Nations are autonomous aboriginal communities who live in the adjoining areas and are concerned about jobs, business opportunities and improved infrastructure. There are also environmental groups seeking answers from Cliffs about the environmental impact of the Black Thor project.

Our price estimate for Cliffs Natural Resources is $46, which is at a premium to the market price.