Billions Lost in Canada Iron Dream Shows Metals Destruction

The Bloom Lake iron-ore mine in Quebec shows just how much value is being destroyed in the commodity meltdown.

Cliffs Natural Resources Inc. acquired the mine as part of a $4.3 billion takeover of Consolidated Thompson Iron Mines Ltd. in 2011 when iron-ore prices topped $190 a metric ton. On Friday, a unit of Champion Iron Ltd. agreed to buy it and other assets for C$10.5 million ($7.6 million) and C$42.8 million in liabilities as iron ore falls below $40.

In January, Cliffs suspended Bloom Lake production and sought creditor protection for an operation that as recently as 2013 was considered a critical part of the Cleveland-based company’s strategy to boost exports and mitigate its dependence on U.S. customers. The mine employed about 600 people when it was operational.

The sale follows announcements this week from Anglo American Plc and Freeport McMoRan Inc. of deepening cutbacks as producers grapple to preserve cash amid the lowest metals prices in six years.

“Those are three very strong indicators that we are now in a point of severe distress for the industry,” Garrett Nelson, a Richmond, Virginia-based analyst at BB&T Capital Markets, said by telephone Friday.

Cliffs was founded as the Cleveland Iron Mining Co. in 1846 to produce the commodity, which had just been discovered in Michigan’s Upper Peninsula. While the company has also sold timber, uranium, copper and oil in its history, it divested non-iron-ore assets during economic slumps, according to business historian Hoover’s Inc.

CEO Changes

The company expanded with coal mines and a chromite resource and in 2011 bought Thompson to expand in Eastern Canada. The ill-timed foray cost former CEO Joseph Carrabba his position. His successor, Gary Halverson, was ousted after six months when activist Casablanca Capital installed Lourenco Goncalves after a successful proxy battle.

Goncalves has vowed to return the company to profitability by selling iron ore mined domestically to North American steelmakers. He placed coal mines and overseas assets up for sale, while putting Canadian assets including Bloom Lake and its Wabush assets into court-supervised debt restructuring.

Iron ore has plunged 46 percent this year as consumption in China, the biggest consumer of the steelmaking raw material, has slowed while miners from Australia to Brazil have boosted output.

Ore with 62 percent content delivered to Qingdao dropped 4.3 percent this week, falling to $38.30 a dry metric ton on Friday, a record low in daily prices compiled by Metal Bulletin Ltd. going back to May 2009.

Champion also announced fundraising including a share offering to raise up to $25 million for the acquisition and working capital. The company anticipates being able to cut costs and increase output with a new mine plan.

“This buyer got a tremendous deal on this asset,” Nelson said. “They probably bought it for less than liquidation value. They were paying for the mine and rail assets and got the iron ore for free.”

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