How Will the Sale of Coal Assets Impact Cliffs Natural Resources?



Sale of coal assets

On December 22, 2015, Cliffs Natural Resources (CLF) announced the sale of its remaining coal assets, Pinnacle Mine in West Virginia and Oak Grove Mine in Alabama, to Seneca Coal Resources. The transaction price is $268 million, which involves the assumption of liabilities associated with this business by the buyer. It does not involve any other cash inflow to Cliffs Natural Resources except for a potential $50 million earn-out contingent upon the terms of a revenue-sharing plan, which extends through 2020.

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No cash flow involved in the transaction

This transaction doesn’t materially change Cliffs Natural Resources’ position, as no cash flow is involved. It will only save on the selling, general, and administrative expenses and capital expenditure associated with these coal assets.

Separately, in December, the Bloom Lake iron ore mine in Canada was sold off through the CCAA (Companies’ Creditors Arrangement Act) process to Champion Iron for $8 million in cash and $31 million in liabilities. It was acquired by Cliffs Natural Resources (CLF) as part of a $4.3 billion takeover of Consolidated Thompson Iron Mines in 2011. CLF subsequently suspended operation at Bloom Lake due to cost escalation and sought creditor protection in 2015.

US-centric approach

With these sales, Cliffs Natural Resources (CLF) is left with only one non-US-based division, the APIO (Asia Pacific Iron Ore) division. CLF continues to look for buyers for this division. In the meantime, it continues to operate the APIO division for cash.

Cliffs Natural Resources’ core focus is now on the US domestic steel market, but even that is not insulated from the global iron ore and steel glut. China and other countries are diverting their excess steel capacity to the United States and the rest of the world to offset weak domestic demand. This, in turn, is impacting US (SPY) (IVV) steelmakers, including United States Steel Corporation (X), AK Steel Holding Corporation (AKS), Nucor Corporation (NUE), and ArcelorMittal (MT).


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