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Just a couple days ahead of its 2013 financial results, Cliffs Natural Resources (NYSE:CLF) has announced that it will lay off about 500 employees and significantly reduce spending.
The US-based iron ore producer will cut capital expenditures to between $375 and 425 million – a reduction of more than 50% compared with last year.
The company also announced that it will idle Canada’s third largest iron ore mine, Wabush, in Newfoundland and Labrador.
“Sharper capital allocation must drive our decisions,” CEO Gary Halverson said in a statement. “Today’s announcement to reduce overall capital spending is an important first step.”
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The Wabush decision, to be implemented by the end of the first quarter of 2014, will affect about 500 employees, both at the Wabush Scully Mine and the Pointe Noire rail and port operation in Québec, though the port will remain open.
With fourth-quarter 2013 cash costs of $143 per tonne, operations costs at Wabush are “unsustainably high,” Cliffs wrote.
The company announced last spring that it would idle the pellet plant at Pointe Noire.
“Over the past three years we have seen pricing drop and Wabush Mine’s costs escalate all while we have made significant capital investments into the operation,” Halverson said.
“This is a regrettable but necessary decision. We simply cannot continue operating a high-cost mine while pricing and freight markets are so volatile.”
Idling the mine will cost about $100 million in 2014 and will result in impairment charges of about $183 million which will be reflected in Thursday’s fourth-quarter results.
Bloom Lake is in phase one of production and is expected to produce and sell between 5.5 and 6.5 million tonnes in 2014, which is in line with full-year 2013 results.
Phase two expansion has been indefinitely suspended and the company has indicated that it would idle phase one if pricing significantly decreased for an extended period of time.
The reduction in capital expenditures “is driven by a significant reduction in the Company’s expansion and tailings and water management capital spending” at Bloom Lake, Cliffs wrote.
The American miner – which had the dubious honour of being named the S&P 500’s third worst performing stock of 2013 – was up 4.5% on the New York exchange on Tuesday, trading at $21.50 per share.
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