Cliffs to sell its 45% interest in Australian coal mining venture

Cleveland-based Cliffs Natural Resources (NYSE: CLF) (Paris: CLF) has trimmed its coal mining presence back to West Virginia and Alabama, announcing July 10 thar subsidiary Cliffs Australia Coal Pty Ltd. has entered into a definitive share and asset sale agreement to sell its 45% economic interest in the Sonoma  joint venture coal mine in Queensland, Australia, to QCoal Sonoma Pty Ltd.

The assets to be sold include Cliffs’ interests in the Sonoma mine along with its ownership of the affiliated wash plant. Upon completion of the transaction, Cliffs expects to collect approximately A$141m in cash proceeds. The company anticipates the transaction to close during the fourth quarter of 2012.

In addition to QCoal, the Sonoma joint venture has three other participants: JS Sonoma Pty Ltd., CSC Sonoma Pty Ltd. and Watami (Qld) Pty Ltd. Subject to terms of the existing joint venture agreement, each participant has the right to acquire their pro rata share of Cliffs’ interest in the Sonoma joint venture on the terms and conditions of the sale agreement under which QCoal has made its offer to acquire. The participants have 60 days from the date the notice is given to accept the offer. To the extent that the other participants do not exercise their right to acquire their pro rata share of Cliffs’ interest, QCoal will acquire those pro rata interests.

Joseph Carrabba, Cliffs’ Chairman, President and CEO, said about why this deal was done: “Cliffs continues to make capital allocation decisions through a process focused on driving top-quartile Total Shareholder Return for our shareholders. This transaction reinforces our strategy to direct management and capital resources towards long-lived expandable assets where Cliffs has operational control.”

Cliffs purchased its 45% economic interest in Sonoma in 2007. On a 100% basis, Sonoma’s 2011 production and sales volumes totaled 3.5 million and 3.1 million tonnes of coal, respectively. The product mix was about two-thirds thermal coal and one-third metallurgical coal. The existing mine manager, Sonoma Mine Management, will continue to be responsible for overseeing the operation with no disruptions.

This sale would leave Cliffs, a major producer of iron ore, with its U.S. coal mines as its remaining coal interests. Those mines are located in southern West Virginia (including the Pinnacle longwall mine) and in Alabama (Oak Grove longwall mine). The Oak Grove mine extracts coal from the Blue Creek seam, which is recognized as one of the premier coking coals in the world. Pinnacle works a split of the Pocahontas seam, also recognized as one of the top met coals in the world.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.