http://www.duluthnewstribune.com/
A bad year is nearly in the rear-view mirror for Cliffs Natural Resources, but the view through the windshield doesn’t look great, either.
The Cleveland-based mining company with a huge presence on Minnesota’s Iron Range has seen its stock value evaporate in 2014, the price for its iron ore halved and Wall Street confidence in its ability to thrive reach rock bottom. How bad was 2014?
In the past 12 months:
- Cliffs’ stock has fallen from $27 per share to about $6, and some analysts say it may go lower. That’s for a stock that hit $100 per share in 2011 and $75 as recently as 2012.
- Cliffs’ management team was ousted in late July when the company became the victim of a hostile takeover by the New York hedge fund Casablanca Capital. Casablanca, which called Cliffs’ old guard an “incompetent and entrenched” board that had “destroyed shareholder value” by expanding too fast and ringing up debt at the expense of profit, said it would downsize the company and sell off many or all of its foreign holdings.
- Cliffs permanently shuttered its Wabush iron ore mine and shipping facilities in Newfoundland and Labrador early in the year. Then in November it announced it was seeking “exit options” to shut down its Bloom Lake operations in Quebec if a buyer didn’t come forward. So far, no buyer has emerged, and the operations appear doomed, at least in the short run. Ironically, closing the plant will cost Cliffs millions more.
- Cliffs’ credit rating was dropped to junk status in October by Standard & Poor’s, and the company took a $5.7 billion write-down on its mining assets.
- Cliffs announced earlier this month that it would sell its struggling Logan County coal operations in West Virginia to Coronado Coal LLC for $175 million and use the money to help pay off some debt. Cliffs said it expected to write off a $425 million fourth-quarter loss on the sale.
- Iron ore price in a free fall
Perhaps most dire for Cliffs, and a host of other mining companies, is that the price for the iron ore they produce has dropped from nearly $200 per ton a few years ago to less than $70 per ton today. That’s below what it costs some companies to operate, industry analysts note, and some Australian mines already are closing.
Cliffs’ situation is so dire that Credit Suisse analyst Nathan Littlewood last week downgraded its stock price estimate from $10 to just $1. Cliffs’ debt is just too high to overcome even with the new management team’s best intentions to shed debt and production costs, Littlewood wrote. Furthermore, he blamed rapid expansion plans in recent years — what Credit Suisse calls “a failed empire-building attempt by prior management” — for a mountain of debt that even the company’s new management remains unable to solve.
While Credit Suisse said they were impressed with moves by Cliffs’ new managers to shed costs, including jettisoning the Canadian ore and U.S. coal operations, “the downward pressure on iron ore prices” may be too much to overcome, especially for a company with $2.8 billion in debt. (The same report also predicted bleak times ahead for both Essar Steel and Magnetation, both of which are spending big money on new Iron Range facilities written on business plans with iron ore prices of $80 per ton or higher.)
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