Cliffs may close iron ore mine in Quebec

Cliffs Natural Resources reported Wednesday that it may have to close its Bloom Lake iron ore mine in Quebec at a cost of $600 million to $700 million as it struggles to find investment to expand the project.
The company’s shares fell nearly 20 percent in trading Wednesday, and Cliffs’ CEO said the company may seek creditor protection in Canada to insulate itself from closure costs and liabilities at its Canadian operations.
Cliffs said last month that it was in talks with three “big steelmakers” to provide funding for a $1.2 billion expansion of the mine, which has more than 500 employees.
The expansion was expected to double Bloom Lake’s capacity to 14 million tons per year.
“The potential investment is not achievable within a time frame acceptable to Cliffs,” Lourenco Goncalves said in a statement Wednesday. “With expansion no longer viable, we have shifted our focus to executing an exit option for eastern Canadian operations that minimizes the cash outflows and associated liabilities.”
Goncalves, who took charge in August after Cliffs lost a proxy battle with hedge fund Casablanca Capital, wants the company to narrow its focus to iron ore mines in Michigan and Minnesota. Cliffs is a major player in Minnesota’s taconite iron ore business and among the largest employers in Northeastern Minnesota. The company owns United Taconite in Eveleth and Northshore Mining in Silver Bay and Babbitt, and is co-owner and operator of Hibbing Taconite. It also owns and operates the Tilden-Empire operations in Michigan’s Upper Peninsula.
Falling iron ore prices, which slid to their lowest level in more than five years on Wednesday, coupled with higher-than-expected costs at Bloom Lake, have left Cliffs in the red this year. The company’s shares have fallen more than 60 percent in 2014, and Standard & Poor’s cut Cliffs’ credit rating to junk status last month.
Goncalves told Reuters a creditor protection filing in Canada is “absolutely” on the table. The move would mirror the route  taken by U.S. Steel, which sought creditor protection for its money-losing Canadian operations two months ago.
Analysts said a creditor filing was one of the options on the table and that Cliffs’ closure costs and liabilities in Canada would be significantly smaller if it made that move. Credit Suisse said in a note to clients that it met with Cliffs’ management team Wednesday and that the $650 million to $700 million in closure costs were a worst-case scenario. “Significantly ‘less negative’ scenarios remain very possible,” it said.
Last month, Goncalves told analysts on a conference call that there was “no risk of contamination to the parent company in the event that we need to do something specific about Canada. Everything would be within the parent company that holds the Bloom Lake assets.”
Nearly two-thirds of the Bloom Lake closure costs are tied to early cancellation of a rail contract. Goncalves said Cliffs remained open to discussions about minimizing penalties it faces for not giving the required three years’ notice.
He said the company also was open to selling the Bloom Lake mine, but that he would only do so if a buyer was willing to take on the liabilities.
Cliffs wrote down the value of its coal and iron ore assets by $6 billion last month, including a $4.5 billion charge related to Bloom Lake, which it took over when it bought Consolidated Thompson Iron Mines in 2010.