Mining company Cliffs Natural Resources (CLF) expects a significant reduction in its full-year 2014 capital expenditures to $375 million–$425 million from full-year 2013 capital spending of $862 million. Capital expenditures for 2014 include roughly $100 million in cash-carryover capital, with the balance mainly comprising sustaining and license-to-operate capital.
The more than 50% year-over-year decline in capital spending will be driven by curtailed Phase II expansion at Cliffs’ Bloom Lake Mine in Quebec and reduced water management capital spending at the mine. The decrease will also result from Cliffs’ decision to idle production at its Wabush Scully Mine in Newfoundland and Labrador by the end of the first quarter of 2014.
However, Cliffs will continue to run Phase I operations at the Bloom Lake Mine and expects to produce and sell 5.5–6.5 million tons in 2014, in line with full-year 2013 results. If the current pricing environment deteriorates significantly, Cliff has plans to idle Phase I operations as well. Full-year 2014 capital expenditures for Bloom Lake Mine are expected to be roughly $200 million which include $65 million in carryover capital spending from 2013.
Unsustainably high costs have led to the decision to idle operations at Wabush Scully Mine. Wabush Mine’s Pointe Noire pellet plant was idled in Jun 2013. Both the suspensions are expected to impact roughly 500 employees at the mine.
Cliffs expects to incur idle costs of around $100 million in 2014 associated with the Wabush Mine. An impairment and write-off charge of roughly $183 million is expected to reflect in the fourth-quarter 2013 results due to idling of the mine. However, the company will continue operating the port at Pointe Noire.
Any additional cash generated in excess of consolidated capital expenditures and dividend payoffs will be utilized to lower Cliffs’ net-debt position in 2014. The company is looking forward to find out alternatives options to the use of capital, all of which must have attractive return rates and boost shareholder value in the long term.
Cliffs, which currently carries a Zacks Rank #3 (Hold), will release its fourth-quarter and full-year 2013 results on Feb 13 after the market closes.
Other companies in the mining industry with a favorable Zacks Rank are Stillwater Mining Co. (SWC), Denison Mines Corp. (DNN) and Rio Tinto plc (RIO). While Stillwater Mining retains a Zacks Rank #1 (Strong Buy), both Denison Mines and Rio Tinto carry a Zacks Rank #2 (Buy).
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