Activist hedge fund-controlled iron ore and coal producer Cliffs Natural Resources Inc. (CLF) said Wednesday that it's looking at exit options for its Eastern Canadian iron ore operations, including possibly closing its Bloom Lake mine.
Lourenco Goncalves, which Donald Drapkin's Casablanca Capital LP hedge fund installed as president and CEO after taking control of its board in July, said in a statement that despite potential equity partner interest in Bloom Lake and its "high quality" ore, the potential investment isn't achievable within an acceptable time frame.
"With expansion no longer viable, we have shifted our focus to executing an exit option for Eastern Canadian operations that minimizes the cash outflows and associated liabilities," he said.
Cleveland-based Cliffs previously said that phase two development of Bloom Lake — which would cost $1.2 billion — was necessary to make it viable. If the company closes the mine, it estimates the costs at $650 million to $700 million over the next five years.
A spokeswoman didn't respond to a request for more information about a potential sale/closure of Bloom Lake.
Cliffs' stock fell almost 15% on the news, to $8.72 per share, in mid-morning trading.
Evan Mann, an analyst at bond research firm Gimme Credit LLC, wrote in a note that Cliffs' cost estimates for closing the mine appear to be on the high side. "The closing of the money-losing Bloom Lake mine should be a positive development by eliminating its drag on Ebitda and cash flow from operations. However, the $650 million to $700 million cost of closing this mine is troublesome for a company that produced a $237 million free cash flow shortfall (cash flow from operations less capital spending) after dividends for the first nine months of 2014," he said. "We look for credit ratios to continue deteriorating for at least the next few quarters on the weakness of iron ore and metallurgical coal pricing."