Nearly a year after going bust, the troubled Bloom Lake Mine in Eastern Canada has a new owner.
On Friday Champion Iron Ltd., (TSX:CIA), an iron ore explorer with offices in Canada and Australia, said it will step up to buy the Bloom Lake operation along with its rail assets.
The mine’s former owner, Cliffs Natural Resources (NYSE:CLF), shuttered production in late 2014 as part of a greater plan to exit its money-losing Canadian operations. Cliffs, the biggest U.S. iron ore miner, purchased the mine for US$4.9 billion in 2011 at the top of the market for iron ore. However the company struggled to make a go of the operation and it sustained quarterly losses until Cliffs finally gave up on it turning a profit, as the price of iron ore tumbled. According to the Financial Post, cash costs at the mine were $91.54 a tonne in 2014; the price of iron ore is currently below $40/tonne.
The mine located in northeastern Quebec was put on care and maintenance and placed into creditor protection to protect Cliffs from future closure costs. The deal was approved by the Québec Superior Court as part of restructuring proceedings.
“Bloom Lake is considered an exceptional opportunity for Champion, and one that would not have presented itself without the challenges of the current downturn in bulk commodities. The tough market conditions have meant that we have been able to negotiate a competitive and successful bid,” said Champion chair and CEO Michael O’Keeffe, in a press release.
Champion will be getting a substantial discount on the price paid by Cliffs. According to the deal, Champion’s subsidiary company Québec Iron Ore Inc. will pick up Bloom Lake for CAD$10.5 million, although it will also have to assume reclamation liabilities assessed at about $41 million. Champion plans to raise $25 million through a private placement, with much of that money coming from O’Keeffe and another undisclosed party, who combined will invest $15 million. O’Keeffe agreed to buy 46.875 million shares, bringing his ownership stake up to 19.95 percent.
On Friday investors endorsed the agreement, bidding up the penny stock 30 percent to 19.5 cents a share at the close of trading in Toronto.
According to Champion, it has a plan to keep the mine on care and maintenance, at reduced costs, for up to two years should the climate of low iron ore prices prevail. If market conditions allow for a restart, the firm also says it has identified ways to improve mine capacity at Bloom Lake. Through a new mine plan and improved recoveries, Champion said it plans to boost annual production from 6 million tons of iron fines at 66% iron content, to 7 Mtpa at similar grade. It also said its review of the mine prior to the sale indicates the potential for cost reductions, and that commodity traders and steel mills are interested in buying the mine’s output.
Champion’s flagship property is the Fire Lake North Deposits located in Eastern Quebec, 250 kilometres from the port of Sept-Îles.
2 Comments
Altaf
A cheap buy for Champion. Cliff paid 4.9 billion while Champion is paying only 10 million upfront (and servicing 40 million liabilities) So the cash cost will be very low for Champion compared to 91 per ton for Cliff.
More over the price of 40 per ton quoted is for 62% Fe content where as the output at the mine is 66% Fe content which quotes higher. Even these figures dont support production now. Its good that they are prepared to wait 2 years.
Ricardo
So they basically lost 99% of their investment…. I don’t feel that bad now with the return on my stocks portfolio… 30% down is much better than 99%…