Leading U.S. iron ore miner, Cliffs Natural Resources (CLF), has agreed to dispose its Logan County Coal assets in southern West Virginia to coal operator – Coronado Coal II LLC – for $175 million in cash and assumption of certain liabilities. The company plans to use the cash proceeds from the divestment to repay debt.
Cliffs' other coal assets in the U.S. including the Oak Grove mine in Alabama and the Pinnacle mine in West Virginia are not affected by the proposed assets sale. The transaction will offer many of the existing Logan County Coal employees an opportunity to be a part of the Coronado Coal team.
The divestment is a part of Cliffs’ strategy to transition into a pure-play U.S. iron ore supplier. The company plans to continue to look for sale options for its other coal assets.
The deal, which is subject to regulatory clearances and other closing conditions, is expected to consummate by end-2014. Cliffs expects to register a loss of roughly $375 million to $425 million (before tax) from the assets sale in the fourth quarter of 2014. Deutsche Bank Securities Inc. served as financial advisor while Hahn Loeser & Parks LLP provided legal services to Cliffs on the deal.
Cliffs' shares went up roughly 5.4% to close at $8.60 yesterday. The company’s shares have taken a heavy beating this year (plunging around 66%) as it continues to be battered by falling iron ore prices.
Cliffs swung to a loss and saw a double-digit decline in sales in third-quarter 2014, hurt by significantly lower market pricing for iron ore and metallurgical coal. The company’s bottom line was also hit by impairment charges of around $5.7 billion associated with its coal and iron ore assets, mostly related to the Bloom Lake mine in Quebec, Canada.
Cliffs last month said that it is mulling closure of the Bloom Lake mine as the required investment of $1.2 billion for the mine’s expansion is not achievable within the time frame acceptable to the company. The news sent Cliffs' shares down by around 20%.
Cliffs is a Zacks Rank #3 (Hold) stock.
Other mining companies worth considering include Dominion Diamond Corp. (DDC), Solitario Exploration & Royalty Corp. (XPL) and Lake Shore Gold Corp. (LSG). All of them sport a Zacks Rank #2 (Buy).
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