Cliffs removes last obstacle in way to ‘better times’

VANCOUVER (miningweekly.com) – US-based iron-ore producer Cliffs Natural Resources has repaid its notes due in 2018 during the September quarter, which, combined with a $500-million debt reduction, eliminates the last obstacle in the way of the company's "way to better times”, states president and CEO Laurenco Goncalves.

Cleveland, Ohio-based Cliffs has redeemed all of its 2018 notes, of which $284-million was outstanding. The total payment to holders of the 2018 notes was about $304-million, including accrued and unpaid interest. The debt extinguishment was funded primarily from the proceeds of the August 2016 common share issuance – a $288-million net cash inflow.

Cliffs had net debt of $2-billion at the end of the third quarter, compared with $2.5-billion of net debt at the end of the prior-year comparable quarter.

“Our flawless operational performance, commercial accomplishments and financial execution during the last two years have earned the respect of investors and banking institutions, allowing us to execute in Q3 another important transaction: the early repayment of the 2018 notes.

“With that, we have eliminated the last obstacle in our way to better times,” Goncalves noted on Thursday, adding that Cliffs looked forward to finishing out the year strong in the fourth quarter, in what management anticipated would be a quarter with “substantial” cash-flow generation.

The company swung to a third-quarter net loss of $28-million, compared with net income of $6-million recorded in the prior-year quarter. The net loss included an $18-million loss on the extinguishment/restructuring of debt, primarily attributable to the full redemption of the senior notes, due January 2018, compared with a $79-million gain on extinguishing/restructuring debt in the prior-year third quarter.

For the third quarter of 2016, adjusted earnings before interest, taxes, depreciation and amortisation (Ebitda) were $62-million, compared with $60-million reported in the third quarter of 2015. Cliffs noted that the third-quarter 2016 adjusted Ebitda includes $20-million in expenses related to idled mines, a $12-million noncash accrual as a reserve for potential retroactive electric power surcharges, and a one-time $4-million charge associated with the new labour contract signing bonus. Excluding these expenses, Cliffs' adjusted Ebitda would have been $98-million, it advised.

Consolidated revenue of $553-million was 7% lower year-on-year.

OPERATIONS
US iron-ore pellet sales volume in the third quarter amounted to 5.3-million long tons, a 6% decrease when compared with the prior-year period. The decrease was driven mainly by the termination of a customer contract in the fourth quarter of the prior year, which was reinstated in June for fewer nominated tons.

Third-quarter 2016 Asia Pacific iron-ore sales volumes decreased 4% to 2.8-million metric tons, from 2.9-million metric tons in the third quarter of 2015. The volume decrease was driven by the timing of shipments related to adverse weather conditions at the port at the end of September, according to Cliffs.

Cliffs is maintaining its full-year 2016 capital expenditure guidance of $75-million.

The company also maintained its full-year sales volume guidance of 18-million long tons, as well as the production volume guidance of 16.5-million long tons.

Cliffs also reaffirmed its cash production cost per long ton guidance of $50 to $55 and the cash cost of goods sold per long ton of $55 to $60.

Meanwhile, the board has appointed Eric Rychel as an independent director to the board, effective immediately.

Cliffs’ NYSE-listed stock got pummelled by investors Thursday, losing nearly 18% in early trading down to $5.10 a share.