Cliffs books $5.9bn loss on iron-ore, coal asset write-downs

28th October 2014 By: Henry Lazenby

TORONTO (miningweekly.com) – US miner Cliffs Natural Resources reported a third-quarter net loss of $5.9-billion, or $38.49 a share, after booking a $5.7-billion write-down of its iron-ore and coal assets.

The Cleveland, Ohio-based company, who came under new management in July, following activist shareholder Casablanca Capital’s victory in a proxy contest, wrote down $4.5-billion related to the Bloom Lake iron-ore project, in Quebec, $28-million related to the shuttered Wabush iron-ore mine, in Labrador, $390-million related to its Asia Pacific Iron Ore (APIO) business segment and $539-million related to its North American Coal assets.

The company also booked a $254-million charge on its chromite assets, after indefinitely pulling out of Ontario’s Ring of Fire earlier this year.

Excluding the one-off charges, the company reported an adjusted profit of $33-million, or $0.21 a share, compared with an adjusted net income of $144-million, or $0.88 a share, in the same three-month period ended October 30 a year earlier.

Consolidated revenues of $1.3-billion were 16% lower year-on-year, mainly owing to iron-ore pricing sliding 32% in the past year, while metallurgical coal pricing declined 17%.

Wall Street analysts had on average expected an adjusted loss of $0.03 a share, on revenue of $1.28-billion.

For the third quarter, adjusted earnings before interest, taxes, depreciation, and amortisation (EBITDA) was $233-million, down 45% from the prior-year quarter.

"The core of our business, United States Iron Ore (USIO), demonstrated remarkable strength in the third quarter as it continues to generate more EBITDA than the company on a consolidated basis. Additionally, our USIO and APIO businesses generated a combined $295-million in adjusted EBITDA,” Cliffs' chairperson, president and CEO Laurenco Goncalves said.

Bloom Lake was once seen by analysts as a key growth project for Cliffs, but the mine's first phase had been plagued by higher-than-expected costs, and Cliffs shelved plans for building a second phase on its own.

The expansion of the Bloom Lake iron-ore mine the firm acquired through its buyout of Consolidated Thompson in 2011 was delayed in 2012, which resulted in a $1-billion goodwill impairment.

Goncalves on Monday noted that despite continued cost-cutting progress at Bloom Lake, the Phase 1 expansion was not feasible. “By the end of this year, we will have a solution for Bloom Lake,” he affirmed.

The activist shareholder had long advocated the spin-off of Bloom Lake, together with its Asia Pacific assets, to create ‘Cliffs International’, while it would focus on its domestic US iron-ore assets.

Meanwhile, the impairment charges increased the debt-to-capital ratio over the 45% threshold agreed to in its debt facility, prompting the company to amend terms with its lenders to remove the current maximum balance sheet leverage ratio, which was a covenant introduced in June, and replace it with a maximum leverage ratio of secured debt to EBITDA that would not exceed 3.5 times.

The interest coverage ratio requirement would also be reduced from 3.5 times, to 2 times, after the company had satisfied certain collateral requirements. The amendment also reduced the size of the existing unsecured facility from $1.25-billion, to $1.13-billion and included a security agreement.

After shedding $0.39 a share during normal trading hours, Cliffs’ NYSE-traded stock fell by another $0.02 to $9.25 apiece in after-hours trading. The stock had slid 62.72% since the start of the year, battered by low prices for its commodities.