Cliffs CEO basks in company's comeback
Lourenco Goncalves was back in northern Minnesota on Friday for a victory lap of sorts, a chance to bask in the glow of his company's rebirth. Goncalves, the outspoken CEO of Cliffs Natural Resources, came to Minnesota to receive the Laurentian C...
Lourenco Goncalves was back in northern Minnesota on Friday for a victory lap of sorts, a chance to bask in the glow of his company's rebirth.
Goncalves, the outspoken CEO of Cliffs Natural Resources, came to Minnesota to receive the Laurentian Chamber of Commerce's "Business of the Year" award in Virginia, but first stopped in Duluth to chat with reporters and brag a little on camera.
He also took the chance to warn Minnesota against "fly-by-night" operations that are promising jobs and new projects on the Iron Range - namely ERP Iron Ore and Mesabi Metallics - which he said would only produce excess pellets that compete with Cliffs and threaten Cliffs' jobs in Minnesota
While his company has a 170-year history, he warned that newcomers to the Iron Range would leave Minnesota with few added benefits.
"You should be careful. Things are not as good as they seem," Goncalves warned, speaking both of ERP's effort to revive the bankrupt Magnetation operations and Mesabi Metallics' effort to revive the bankrupt Essar Steel Minnesota project half-built in Nashwauk.
Goncalves predicted neither operation will be able to find customers because the domestic steel industry already has adequate sourcing for iron ore - namely, Cliffs. He said he will beat back any effort to steal away business. And without customers and contracts, he predicted neither firm will successfully emerge from bankruptcy.
"Clients that are good, clients that are big, are all taken," Goncalves said, saying added capacity will only damage the industry and cost jobs on the Iron Range.
Goncalves even took a personal shot at Tom Clarke, owner of ERP Iron Ore, who purchased two coal mines from Cliffs last year.
"You still owe me money," Goncalves said. "I am going after you."
Goncalves took over at Cleveland-based Cliffs in August 2014, just before the bottom dropped out of the global iron ore business. He was installed as part of a hostile takeover by investors who wanted to change the company's direction. Not only was their product not selling, but Cliffs carried a huge burden of debt from a decade of what Goncalves called irresponsible growth.
He sold off assets at fire-sale prices, or simply closed them, to stop hemorrhaging cash, getting out of coal and Canadian iron ore altogether.
Now, other than a small but profitable Australian iron ore mine, Cliffs is a U.S.-focused company, just as Goncalves promised more than three years ago.
Somehow he rode out the deepest crash in iron ore prices and domestic steel demand in decades. He closed two of his three Minnesota operations, bided time until U.S. government sanctions stemmed the tide of foreign steel, and then reopened his mines in 2016 to the glee of Iron Range politicians and cheering Steelworkers. Even Minnesota Gov. Mark Dayton has befriended Goncalves, praising the Brazil native as a corporate leader who keeps his promises to create, or at least restore, Minnesota jobs.
"I tell the truth. I don't lie," Goncalves said Friday,
Cliffs' importance to the regional economy is clear. The company has some 1,800 employees at the three Minnesota plants - Hibbing Taconite, United Taconite in Eveleth/Forbes and Northshore Mining in Silver Bay/Babbitt - with a payroll of more than $250 million annually. It also operates the Tilden mine in Michigan's Upper Peninsula.
Even Wall Street is taking notice of Goncalves' work. Cliffs' stock price was over $10.70 per share Friday, up from a low of $1.67 early in 2016. (It's still nowhere near the $80 per share seen in 2012 before the global iron ore market crashed in 2014.)
Iron ore prices have indeed rebounded globally, nearly doubling from just over $40 per ton one year ago to about $87 on Friday. While U.S. iron ore demand is less tied to the global market, which is dominated by China, it does affect sales for companies like Cliffs that sell all of their product to other companies rather than using it in their own steel mills.
Cliffs, the nation's largest supplier of taconite iron ore, cashed in on the recovering domestic steel industry in 2016, posting a net income of $199 million compared to a net loss of $748 million in 2015. Goncalves remains bullish that the domestic steel and iron ore industries will continue to improve in 2017, noting the price of hot rolled steel has jumped from $490 per ton to $630 per ton over the past three months - showing demand is up even as production increases.
Cliffs credited tough U.S. sanctions on foreign government-subsidized steel that regulators agreed was being "dumped" below cost into the country. With that flow of foreign steel slowed, demand for U.S.-made steel increased, and so did demand for its basic ingredient - taconite iron ore.