Cliffs Cutting Spending
CLEVELAND – Mining- Cliffs Natural Resources Inc. (NYSE: CLF) (Paris: CLF) announced today it expects its full-year 2014 capital expenditures to be in a range of $375 – $425 million, a greater than 50% year-over-year reduction from its full-year 2013 capital spending of $862 million. This decrease is driven by a significant reduction in the Company’s expansion and tailings and water management capital spending at its Bloom Lake Mine in Québec. Cliffs also announced that it will idle production at its Wabush Minein the Province of Newfoundland and Labrador by the end of the first quarter of 2014.
Gary Halverson, president and chief operating officer, said, “Sharper capital allocation must drive our decisions. Today’s announcement to reduce overall capital spending is an important first step.” Mr. Halverson further noted that, “Bloom Lake’s ore body is well suited for a global market that increasingly values quality and diversification of supply, but it also requires time and capital to be properly developed, built out, and operated to realize its full potential. Ultimately we must extract the highest value from Bloom Lakefor our shareholders and operating Phase I preserves all possible options for this asset. Given the wide range of outlooks for iron ore prices, we reduced our 2014 capital expenditures at Bloom Lake Mine as we evaluate the best alternatives for this asset as part of our overall focus on enhancing value for shareholders.”
Bloom Lake Mine
In the current pricing environment, Cliffs expects to produce and sell 5.5 – 6.5 million tons from Bloom Lake Mine’s first phase in 2014, which is in line with full-year 2013 results. Cliffs expects Bloom Lake Mine’s full-year 2014 cash costs to be $85 – $90 per ton versus fourth-quarter 2013’s results of $89 per ton. Cliffs indicated that it would idle Phase I if pricing significantly decreased for an extended period of time. With the Phase II expansion indefinitely suspended, the Company has made adjustments to various components of the mine plan, largely in the project’s tailings and water management strategy. This has enabled Cliffs to defer and lower its year-over-year capital spending while continuing to operate Phase I.
Cliffs expects Bloom Lake Mine’s full-year 2014 capital expenditures to be approximately $200 million. This is comprised of $65 million in carryover capital spending from 2013, with required license-to-operate and sustaining capital expenditures making up the remainder.
Cliffs’ Wabush Scully Mine in Newfoundland and Labrador will be idled by the end of the first quarter of 2014. With costs unsustainably high, including fourth-quarter 2013 cash costs of $143 per ton, it is not economically viable to continue running this operation. As previously disclosed, Cliffs idled Wabush Mine’s Pointe Noire pellet plant in June of 2013. Approximately 500 employees at both the Wabush Scully Mine and the Pointe Noire rail and port operation in Québec will be impacted by these actions.
Gary Halverson continued, “Over the past three years we have seen pricing drop and Wabush Mine’s costs escalate all while we have made significant capital investments into the operation. This is a regrettable but necessary decision. We simply cannot continue operating a high-cost mine while pricing and freight markets are so volatile. We do value the hard work of all our employees and are committed to easing the transition for the people and communities, including providing severance and other support services as a result of this decision.”
Cliffs anticipates incurring idle costs related to Wabush Mine of approximately $100 million in 2014. Also, due to the idling of Wabush Mine, Cliffs’ will record impairment and write-off charges of approximately $183 million, which will be reflected in its fourth-quarter 2013 results. Cliffs will continue operating the port at Pointe Noire in Sept-Îles, Québec.
2014 Capital Allocation
Cliffs expects its full-year 2014 consolidated capital expenditures to be $375 – $425 million. This includes approximately $100 millionin cash-carryover capital, with the remainder primarily comprised of sustaining and license-to-operate capital. The first priority for any additional cash generated in excess of consolidated capital expenditures and dividend payments during the year will be to lower the Company’s net debt position. Cliffs is in the process of evaluating a range of options for the next best use of the capital, all of which must have attractive return rates and drive long-term shareholder value.
Mr. Halverson added, “We will adhere to a return-driven approach to allocating capital. This will establish a prudent balance among key priorities relating to liquidity management, business investment, and capital allocation initiatives that provide for a more direct return to enhance long-term shareholder value.”
Conference Call Information
As previously disclosed, Cliffs Natural Resources Inc. intends on announcing its fourth-quarter and full-year 2013 results after-market close on Thursday, Feb. 13, 2014. Cliffs will host a conference call to discuss the results at 10:00 a.m. ET on Friday, Feb. 14, 2014. The call will be broadcast live and archived on Cliffs’ website: www.cliffsnaturalresources.com.