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Why Cliffs doesn’t have any recourse from Bloom Lake

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Restructuring Bloom Lake

Cliffs Natural Resources (CLF) announced the restructuring of Bloom Lake (or BL) on January 27. Bloom Lake Group started the restructuring proceedings in Montreal and Quebec—under the CCAA (Companies’ Creditors Arrangement Act).

Recently, the Bloom Lake Group suspended operations. For several months, it has been exploring options to sell some of its Canadian assets—among other initiatives.

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Associated liabilities

Among the Bloom Lake liabilities, there’s more than $90 million owed due to a court decision in a lawsuit over contractual delivery obligations. Also, there’s $450 million over three years to be paid to a rail subsidiary of Iron Ore Company of Canada.

Impact

It effectively means that Cliffs ring fenced its Bloom Lake iron ore mine into bankruptcy. Cliffs doesn’t have any obligations to fund Bloom Lake’s free filing liabilities.

The liabilities associated with Bloom Lake’s exit will be funded by cash on hand in the Bloom Lake Group. It will also be funded by the proceeds realized from the sale of assets of the Bloom Lake Group under the CCAA process. It won’t be funded by cash from Cliffs.

Cliffs’ CEO, Lorenzo Goncalves, mentioned during the call that Bloom Lake’s liabilities now stand at zero. This is in contrast to the initial liabilities of $650–$700 million estimated by the company.

The company expects to complete the Bloom Lake asset sales and bankruptcy process by the end of this year.

The action reflects the current restructuring and consolidation efforts in the metals and mining space. Recently, ArcelorMittal (MT) sold its Gallatin operations to Nucor Corporation (NUE). AK Steel (AKS) acquired Dearborn operations from Severstal.

Together, Cliffs, U.S. Steel, AK Steel, and Nucor form 13.28% of the SPDR S&P Metals and Mining ETF (XME). XME invests in metals and mining companies.

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