Cliffs Natural Resources Inc. (CLF) has announced that it is executing exit options for its Eastern Canadian iron ore operations which might lead to the closure of the Bloom Lake mine.
According to Cliffs, the expansion of the Bloom Lake mine will require an investment of $1.2 billion, which is not achievable within the time frame acceptable to the company. The company expects to incur costs in the range of $650 million to $700 million over the next five years if the mine is eventually closed. As the project is no longer viable, Cliffs has decided to switch its focus on pursuing an exit option for Eastern Canadian operations that reduces the cash outflows and related liabilities.
Cliffs also stated that its subsidiary, Cliffs Quebec Iron Mining Limited, along with Bloom Lake General Partner Limited and The Bloom Lake Iron Ore Limited Partnership recently lost an arbitration claim filed against a former Bloom Lake customer associated with the Aug 2011 termination of an iron ore sales agreement. Damages of roughly $71 million were awarded to the former customer.
Cliffs’ shares tumbled around 20% on the news to close at $8.17 yesterday.
Cliffs released its third-quarter 2014 results last month. Sales from Eastern Canadian iron ore segment declined 12% year over year to 2.3 million tons, reflecting reduced shipments from Wabush Mine, which was idled in first-quarter 2014.
Revenues per ton for the segment decreased 33.5% year over year to $70.91. Cash cost per ton dropped 12.4% to $81.71.
Cliffs reported net loss of $5.9 billion, or $38.49 per share in the third quarter, against a net income of $104 million, or 66 cents per share, in the year-ago quarter. The bottom line was hit by impairment charges of around $5.7 billion associated with its coal and iron ore assets.
Excluding the impairment charge and other items, adjusted net income came in at 21 cents per share, outpacing the Zacks Consensus Estimate of 5 cents.
Sales for the quarter came in at $1,298.2 million, down 16.1% from $1,546.6 million in the prior-year quarter. Sales, however, exceeded the Zacks Consensus Estimate of $1,277 million. The decline was due to significantly lower market pricing for iron ore and metallurgical coal.
Cliffs currently carries a Zacks Rank #3 (Hold).
Other mining companies with favorable Zacks Rank include Banro Corporation (BAA), Lake Shore Gold Corp. (LSG) and MAG Silver Corp. (MVG). All of these stocks carry a Zacks Rank #2 (Buy).
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