See, when Mario touches the star he’s invincible, but only for a little while. (IMAGE: Game Informer)
If Iron Range mines were Super Mario, they’d be blinking while knocking off Goombas left and right. More on that below.
This week brought quarterly earnings reports from the two biggest mining companies on Minnesota’s Iron Range, U.S. Steel and Cliffs Natural Resources.
Both companies show significant improvement from a dismal 2015.
Cliffs posted a profit for the quarter and put itself in the black for the year so far, reports Business North. Company CEO Lourenco Goncalves reported a $147 million income for the company in the first half of 2016, compared to an $800 million loss in the first half of 2015.
Cliffs stock is gradually crawling out of the bomb shelter, posting gains last week. United Taconite in Eveleth will resume production in just a few days. Cliffs will begin making the “Mustang” pellet there, a specialty taconite pellet made for ArcelorMittal.
U.S. Steel also increased its revenue, but remains in the red after reporting a $46 million loss in the second quarter. U.S. Steel owns the only Iron Range taconite plant still idled: Keewatin Taconite.
The tone of the U.S. Steel call was optimistic but much more reserved than Cliffs. That’s not just because Goncalves is a more bombastic CEO, either.
U.S. Steel mines ore for its own steel mills, what they call an integrated steelmaker. Cliffs sells raw materials, processing ore to the specifications of a wide variety of customers. At least two analysts have told me that’s where you can still make money in 21st Century iron ore.
So that brings me to my “Super Mario” theory. In the Nintendo game “Super Mario Brothers” (and its many variants and sequels) Mario becomes invincible by capturing a star. The effect only lasts a few seconds, but during that time he can plow through enemies, avoid fireballs, even survive a hot lava bath.
As I wrote last week, the steel tariffs advanced by the Obama Administration are working. The added attention to blocking Chinese steel is giving North American mines and steelmakers protected access to the domestic marketplace.
In other words, the mines that had struggled all last year caught their Super Mario star, and now exceed reasonable predictions from the beginning of the year.
But in the Cliffs earning call, Goncalves indicated he worried that China might try shipping its subsidized steel out through countries not included in the trade protections, including Vietnam. U.S. Steel’s CEO Mario Longhi (no relation to Nintendo’s Mario) also tipped that his company is closely monitoring trade issues.
Indeed, you can count on China trying to move steel any way it can. You can also count on the world’s steelmakers, in general, to become more nimble and specialized. That means you can count on the Super Mario star to wear off.
That seems to put greater emphasis on Northern Minnesota’s need to add value added iron ore products, like the one proposed by Cliffs at the old Butler site in Nashwauk. That project is currently tied up in Essar’s bankruptcy.
One interesting comment from Goncalves was that Cliffs has reduced its U.S. cost of production to just over $46. That’s a $10 savings from last year — a huge cut in costs. U.S. Steel indicated that it seeks to cut similar costs from its production. All that pressure on cost will affect the Iron Range in one way or another.
I’m not trying to pour water on the good news from Cliffs and the OK-to-good news from U.S. Steel. Market conditions are, indeed, much better. Nevertheless, people who live here, particularly those tied to mining or the mining economy, must realize that the changing iron ore business has yet to reach its next stage.
If only there were some kind of mushroom …
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