Cliffs optimistic even as other Iron Range mines struggle

Cliffs' United Taconite production plant in Forbes, south of Eveleth (formerly Eveleth Taconite).

Cliffs’ United Taconite production plant in Forbes, south of Eveleth (formerly Eveleth Taconite).

UPDATE: Post amended to add Cliffs plant shutodown in Michigan.

We’ve spend an exhausting amount of digital ink and radio blathering on the struggles facing Iron Range mines amid a global contraction in steelmaking and iron ore. U.S. Steel properties in Northern Minnesota are preparing for shutdown that could last the rest of the year, while Mesabi Nugget and Magnetation are dealing with troubles of their own.

With all of this happening, I’ve been questioning if and when Cliffs Natural Resources mines (Hibbing Taconite, United Taconite, Northshore Mining) would face the music that comes with low global ore prices. Typically, what happens to U.S. Steel happens to Cliffs, too. Case in point, during the recession of 2008 and 2009, all of the Iron Range mines were down at one point, regardless of the business models of their respective owners.

Well, the Iron Range mining industry can breath at least one sigh of relief as Cliffs Natural Resources CEO Lourenco Goncalves declared yesterday he had plenty of business for Cliffs mines through the rest of 2015 and most of 2016.

Indeed, the price of iron will settle low. Cliffs also announced a 25 percent reduction in its headquarters staff in Cleveland. But the company signed some shrewd long term contracts for pellets while announcing development of value-added direct-reduced-iron (DRI) products that fit newer electric arc furnaces. Cliffs, in particular, will also benefit from a modest short-term iron ore price rebound going on now as companies look to get their hands on cheaper ore for the rest of the year.

UPDATE: All that being so, the company also announced April 29 that Cliffs would idle its Empire Mine in Northern Michigan through the summer affecting 350 workers. That plant had already been targeted for a 2016 closure, which is still the case. Its ongoing contacts with Arcelor Mittal are what’s saving it from shutdowns in Minnesota. Without market improvement next year it faces the same pressures as the rest of the industry.

The story from WDIO is worth a read, thought it helps to temper the statements with an air of context. This information came from an investor’s call, the kind of place where CEOs don’t announce negative predictions.

I recall a conversation I had with an investment researcher a couple years back. He said he thought companies like Cliffs that sold varieties of iron ore would be OK, but he worried about U.S. steelmakers. What seems to be happening during this pricing collapse is that the big steelmakers and the small producers are taking big hits, but Cliffs (at least, according to Cliffs) is weathering the storm.

As I said on the radio a couple days ago, we on the Iron Range need to get used to cheap iron for a good long while. Cliffs seems to be entering this period in a stronger position than many of its neighbors on the Iron Range.

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