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Cliffs Natural Resources Inc.

Posted on: August 27th, 2013




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Profiles: IRON ORE PRODUCERS

Cliffs Natural Resources Inc. (NYSE: CLF), a Cleveland-based international mining and natural resources company, is a major global iron ore producer and a significant producer of metallurgical and thermal coal. In Canada, Cliffs operates iron ore mines at Bloom Lake and Wabush, Quebec. The Bloom Lake mine and concentrator are located approximately nine miles southwest of Fermont, Quebec. Wabush Mines, Canada’s third largest iron ore mine, began mining ore from the Scully Mine in Labrador in 1965. Its mine and concentrator are located in Labrador, Newfoundland, and the pellet plant and dock facility are located in Pointe-Noire at the port of Sept-Îles. In addition to its interests in these two producing mines, Cliffs owns various iron ore development properties elsewhere in the Labrador Trough, as well as undeveloped chromite deposits in the Ring of Fire area of northeastern Ontario.

Production from Bloom Lake and Wabush are sold primarily into the seaborne trade to Asian steel producers. Combined 2012 production capacity was 12.8 million tonnes, consisting of 7.2 million tonnes of concentrates and 5.6 million tonnes of pellets.

Cliffs’ Bloom Lake mine is 25 per cent owned by Wugang Canada Resources Investments Limited, a subsidiary of China-based steelmaker WISCO, with Cliffs owning the 75 per cent majority share. Wabush Mines is a wholly-owned subsidiary of Cliffs.

Operations

Operations at Bloom Lake consist of an open-pit truck and shovel mine, a concentrator, and an autogenous mill and gravity separator to produce iron ore concentrates. From the site, concentrate is transported by rail to Pointe-Noire, at the port of Sept-Îles. Bloom Lake’s phase II expansion program which was to take production capacity from 7.2 million tonnes per annum to 14.5 million tonnes, was suspended at the end of 2012, in view of poor market conditions. A decision to resume the project will be made before the end of 2013. Beyond phase II, a phase III expansion project has been under consideration, which could expand annual capacity to 24 million tonnes. As at the end of 2012, the Bloom Lake mine had proven and probable reserves of 1.03 billion tonnes grading 28.6 per cent Fe.

Operations at Wabush Mines consist of an open-pit truck and shovel mine, a concentrator, and an autogenous mill and gravity separator to produce iron ore concentrates which, until recently, were shipped via IOC’s QNS&L Railway from Wabush to Pointe-Noire to be pelletized for shipment via vessel to the United States and other international destinations (See ‘Outlook’ below). Additionally, concentrates may be shipped directly from Pointe-Noire for sinter feed. The project has an annual capacity of 6 million tonnes. As at the end of 2012, the Wabush mine had proven and probable reserves of 209 million tonnes grading 35.1 per cent Fe.

Financial

For the three months ended June 30, 2013, Cliffs sold 1.933 million tonnes of ore from its Canadian operations, producing revenues of US$213.9 million, and an operating loss of US$49.7 million. This compares with the sale of 2.37 million tonnes of product during the second quarter of 2012, which generated revenues of US$303.9 million, and an operating profit of US$11.7 million. During the second quarter of 2013, cash costs of US$114.43 were incurred to produce a tonne of iron ore, up from US$107.14 in the comparable period of 2012.

At Bloom Lake, cash costs were US$87/tonne, down 4 per cent from the year before, primarily because of improved production volumes. However, at Wabush, cash costs were up to US$200/tonne, up 51 per cent over 2012, primarily because of inventory valuation losses.

Outlook

In March, Cliffs announced that it would idle its Pointe-Noire pellet plant by the end of the second quarter of 2013, transitioning to producing an iron ore concentrate only product from its Scully mine. The Company indicated that its decision to idle its iron ore pellet operation was due to high production costs and lower pellet premium pricing.

The delay to implement phase II of Bloom Lake’ expansion has caused the management to lower its 2013 estimate of full-year eastern Canadian iron ore sales volumes for 2013 to between eight and nine million tonnes.

In addition, the company announced that it is temporarily stopping the environmental assessment for the $3.3 billion Ring Of Fire chromite project due to unresolved land rights and unfinished agreements with the Ontario government. Cliffs has a controlling position in three chromite deposits – a 100-per-cent interest in each of the Black Label and Black Thor chromite deposits and a 70-per-cent interest in the Big Daddy chromite deposit. Cliffs has completed a pre-feasibility study on the Black Thor deposit, the largest of the three deposits, and had been working on a feasibility study, which was to be completed by mid-2013.


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