Quebec Open to Buying Cliffs Assets to Rescue Iron-Ore Mine

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Quebec is prepared to buy a rail line and port facilities that service a shuttered Cliffs Natural Resources Inc. iron-ore mine to pave the way for the operation to reopen under new owners.

The government also is open to buying 20 percent of the Bloom Lake mine to facilitate a deal, Economy Minister Jacques Daoust said. Purchasing the rail and port facilities could lower the mine’s operating costs by as much as $20 a ton, he said.

“We’re trying to ensure the survival of the mine,” Daoust said Friday in an interview at Bloomberg headquarters in New York. “If the last 20 percent is a problem, I will fix it.”

Cliffs suspended production at Bloom Lake in January and sought creditor protection for the operation. That put pressure on the Quebec government, which wants to boost economic activity in Cote-Nord, a region with 10.7 percent unemployment. Bloom Lake employed about 600 people when it was operational, according to Investissement Quebec, a government agency.

As recently as 2013, Bloom Lake was considered a critical part of Cleveland-based Cliffs’ strategy to build its export business to mitigate its dependence on U.S. customers. The largest U.S. iron-ore producer bought the mine in 2011, when prices topped $190 a ton. Prices have since plunged to as low as $47.08 a ton last month, according to Metal Bulletin.

Bloom Lake has never been profitable since its acquisition by Cliffs, according to a Jan. 26 court filing.

Port Capacity

Selling Cliffs’ foreign assets was a key plank in an activist campaign led by hedge fund Casablanca Capital LP that succeeded in replacing the miner’s board. Lourenco Goncalves, who was backed by Casablanca, took over as chairman and chief executive officer in August.

The assets Quebec would buy include a 32-kilometer (20-mile) rail line that connects the mine to another railway. Cliffs also owns storage and loading facilities at Pointe-Noire on the Saint Lawrence River, and has rights of use and access to a dock under an agreement with the local port authority.

Because of the dock’s limited capacity, iron ore was often loaded onto smaller ships that ferried the mineral to ocean-going vessels in the Bay of Sept-Iles for transport overseas. The last iron-ore shipment left Pointe-Noire in January, according to the Jan. 26 filing.

Cliffs, which has already spent $1.6 billion on Bloom Lake, estimated another $1.2 billion would be required to bring the mine to full operation, according to the court filing.

Having a group of mining companies owning Bloom Lake “is the way to go,” Daoust said, while declining to identify possible suitors. “You need at least one strategic partner that is knowledgeable in the mining business. You need an operator. Otherwise you won’t be as efficient, as competitive on costs.”

Cliffs didn’t immediately respond to an e-mail and telephone message seeking comment on the possible sale of assets to Quebec. The shares rose 12 percent to $6.58 at the close in New York, the biggest one-day gain since Nov. 21.

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