Cliffs to produce 5.5 million tons of coal in 2015 – from mines on the sale block

Cliffs Natural Resources Inc. (NYSE: CLF), which is selling off coal mines and shutting iron ore mines as part of a plan to work out its financial issues, reported progress on various fronts in its Feb. 2 earnings statement.

Lourenco Goncalves, Cliffs’ Chairman, President and Chief Executive Officer, said: “The execution of our strategy is starting to show results. We have demonstrated our discipline and commitment to fix Cliffs by exiting unprofitable operations, divesting non-core mines, reducing a significant amount of debt and focusing on cost reductions at all levels of the business. The new Cliffs is a differentiated mining company, fully committed to satisfying the requirements of our domestic customers in the United States and a lot less dependent on the iron ore trade with China. While other mining companies will continue to suffer the consequences of an oversupplied seaborne iron ore market, Cliffs is focused on its core business in the United States.”

On Jan. 27, Cliffs announced that Bloom Lake General Partner Limited and certain of its affiliates, including Cliffs Quebec Iron Mining ULC commenced restructuring proceedings in Montreal, Quebec, under the Companies’ Creditors Arrangement Act (Canada) (CCAA).  The initial CCAA order will address the Bloom Lake Group’s immediate liquidity issues and permit the Bloom Lake Group to preserve and protect its assets for the benefit of all stakeholders while restructuring and sale options are explored.

During the fourth quarter of 2014, Cliffs recorded impairment charges attributable to Cliffs’ shareholders of $1.2bn, including approximately $940m related to Eastern Canadian Iron Ore and driven by the previously-announced exit of these operations. The impairment charges also included approximately $250m related to Asia Pacific Iron Ore, which was driven by reduced benchmark price assumptions over the remaining life of mine. These charges resulted in tax benefits totaling approximately $180m.

During the fourth quarter of 2014 the company completed the sale of its Cliffs Logan County Coal assets in southern West Virginia for $174m in cash and the assumption of certain liabilities, of which $155m has been collected. The company recorded a loss on the sale of these assets of $420m.

For the fourth quarter of 2014, North American Coal sales volume was 1.9 million tons, a 9% increase from 1.8 million tons sold in the prior year’s comparable quarter. The increase was primarily driven by higher thermal sales from Cliffs Logan County Coal, which was removed from the portfolio during the quarter as a result of the sale, and increased sales from the Pinnacle longwall mine, which works a split of the Pocahontas metallurgical coal seam in southern West Virginia.

Fourth quarter 2014 cash production cost per ton in North American Coal was $57.28, down 30% from $81.78 in the prior year’s fourth quarter. The decrease was primarily driven by increased production and efficiencies, as well as balancing employment and related costs while reducing external service spend.

Cliffs’ full-year 2015 North American Coal expected sales and production volume is about 5.5 million tons of low-vol metallurgical coal from the two remaining mines, Pinnacle and Oak Grove. Oak Grove is an underground mine in Alabama. This expectation assumes no additional divestiture of this business in 2015, which may or may not occur.

Cliffs’ full-year 2015 North American Coal revenues-per-ton outlook is $70-$75. Cliffs has about 41% of its expected 2015 sales volume committed and priced at approximately $77 per ton at the mine.

Cliffs’ full-year 2015 North American Coal cash production cost expectation is $65-$70 per ton. The company’s cash cost of goods sold per ton expectation is $70-$75. Full-year 2015 depreciation, depletion and amortization is expected to be approximately $2 per ton.

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.