Cliffs’ Asia Pacific Iron Ore Mine Life Will Reduce More



Cliffs’ iron ore

Cliffs Natural Resources’ (CLF) new management always considered US iron ore as its core business. It treated the rest of the businesses as non-core, particularly the ones exposed to the volatilities in the seaborne trade. Cliffs’ current direct exposure to the seaborne iron ore trade only remains in its APIO (Asia Pacific iron ore) division. Management wants to exit this division and region as soon as possible.

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Idling Windarling to reduce APIO mine life

Cliffs is idling Windarling—one of its three mines in Australia. This is a high-cost mine and shutting it down would lower the production costs for the Australian division. This will also expedite Cliffs’ exit from the Asia Pacific region, as the mine life reduces to 3.5 years—compared to 4.5 years with Windarling.

In this context, Cliffs’ CEO, Lourenco Goncalves, also questioned the feasibility of three major miners’ capex (capital expenditure) plans—including BHP Billiton (BHP), Rio Tinto (RIO), and Vale SA (VALE). He maintained that the announced iron ore expansion plans may not “materialize due to insufficient cash flow generation.” He said given the low rate of return at current iron ore prices, iron ore miners won’t invest billions of dollars.

APIO guidance upgraded

The volume guidance for the Australian business was maintained at 11 million tons. The cash cost guidance was lowered by $5 per ton to $35–$40 per ton. This is mainly due to the favorable Australian dollar to US dollar exchange rate of $0.77—compared to $0.81 previously. Due to an expectation of an increased lump premium going forward, Cliffs also increased its expectation of revenue per ton for APIO.

The SPDR S&P Metals and Mining ETF (XME) also invests in the metals and mining space. Cliffs forms 4% of its holdings.


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