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Cliffs may close its Bloom Lake iron ore mine in Canada.
Cliffs Natural Resources (NYSE:CLF) is selling some of its coal assets in Southern West Virginia to Coronado Coal II LLC for $175 million, which will sale to repay debt.
Connecticut-based Coronado not only will buy Logan County Coal. It also agreed to assume certain liabilities. The deal is expected to close by the end of the year, pending regulatory approvals.
Cliffs, the U.S.’s biggest iron ore miner, said the sale won’t affect its Pinnacle mine in West Virginia and its Oak Grove mine in Alabama.
“This transaction is another important step in executing our strategy to transform Cliffs into a stronger, pure-play U.S. iron ore supplier,” Chief Executive Lourenco Goncalves said in a statement.
The miner warned it is expecting a $375 million to $425 million loss on on the sale of its Logan County assets in West Virginia in the fourth quarter.
Positive move: Citi
In a note to investor, Citi analyst Brian Yu said he sees the move as positive, considering the current environment. However Citi believes a significant portion of the sale price represents replacement costs for the surface infrastructure (prep plant and unit-train load out).
“The Logan County assets are relatively new and various operations commenced 2005-2008. While a positive step, the $175 mln sale itself does not materially move the needle on their $3.2 bln in debt, and the major issues remains the low iron ore price and their high-cost Canadian assets (preliminary closure cost estimate of $650-$700 mln), maintaining Sell/High Risk rating, he said.
In October, Cliffs took a $6bn charge related mainly to the ill-timed purchase of its Canada, Quebec-based Bloom Lake iron ore mine, which was supposed to supply the then-booming Chinese steel market. Now, Cliffs mulls closing the operation.
The announcement came only a month after the company notified the provincial government of Newfoundland and Labrador it was closing Wabush Mines, which had been idle since February.
The miner, in a transition period after a board coup this year staged by activist hedge fund Casablanca Capital LP, has seen its stock fall almost 70% this year.
Comments
Brian R. McCaughrin
The Former Cliffs Natural Resources Board, put them into this mess to begin with. The Canadian purchase was the worst buy Cliffs has made. But I, would not of sold this Coal mine so cheaply till the market were more favorable…This tell me 2 things, 1> They are short on cash for its operations, or 2> They are burning through more cash then first expected…and they should seriously consider filing bankruptcy, and cut there high level loss for the long term. At this point their are simply giving away the store at fire sale prices, and that is sad. Good luck