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Cliffs Natural Resources’ First HBI Plant: What You Need to Know

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Jun. 19 2017, Updated 3:35 p.m. ET

Plant logistics

The estimated investment needed for Cliffs Natural Resources’ (CLF) HBI (hot briquetted iron) plant is ~$700 million. Cliffs mentioned in a recent press release that it is in discussions with “several passive financial partners” about the plant’s financing.

The company expects to break ground for the construction of the plant in early 2018. Commercial production is expected to start in 2020. Cliffs mentioned in the press release that it considers its chosen site in Toledo, Ohio, to be a “premier location” due to its proximity to several of its future customers, logistics advantages, affordable gas availability, and access by multiple rail carriers.

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Next growth opportunity

Cliffs’ Asia-Pacific operations are near the end of their economic mine lives, with ~2.5 years remaining. This figure is in line with the current management’s vision of exiting the volatile seaborne iron ore market (PICK). Cliffs believes that this market is driven by the decisions of the top three iron ore players, BHP Billiton (BHP), Rio Tinto (RIO), and Vale SA (VALE). At this plant, Cliffs will focus on its preferred market—the US—while providing its next leg of growth.

Previous bids

Investors should note that Cliffs has made attempts to take control of the Essar Minnesota Facility. The company has made a cash offer of $100 million for Essar Steel Minnesota’s assets. But there has been a competing offer from Chippewa Capital Partners of $350 million.

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