By Ron Brochu
Facing a difficult market for taconite pellets, Cliffs Natural Resources must increase its financial discipline, President and CEO Gary Halverson said last week in Virginia.
Even though Cliffs’ regional properties will operate at full production during 2014, the company is temporarily shutting down its Wabush mine and curtailing investment in its Bloom Lake property, two high-cost operations in Eastern Canada.
“We’ve made some mistakes in the past, and in a downward market, you can’t afford to make mistakes,” Halverson told area executives at the annual briefing. “You’ve got to make sure you’re successful” in every new project, he said.
His remarks echoed recent statements Cliffs has released in the face of criticism from Casablanca Capital, a New York-based hedge fund that has acquired more than 5 percent of the corporation’s shares. Casablanca contends Cliffs has not done enough to reverse a steep decline in share value.
Halverson would not directly address the Casablanca issue, but he noted Cliffs has taken several steps during 2013 to improve its financial standing:
• Cash flow doubled, exceeding $1 billion.
• Debt was reduced from $3.3 billion to $2.7 billion.
• EBITA (earnings before interest, tax, amortization) reached $1.5 billion.
“We must make sure financial discipline is our cornerstone,” he said, along with creating long-term value for customers, shareholders and employees.
For now, Cliffs will focus on its core business – iron ore – rather than pursuing new ventures. For instance, Halverson explained, the company has no immediate plans to produce large quantities of direct reduced iron (DRI), even though its test run at Northshore Mining Co. was successful. Shipping DRI to existing electric arc steel (EAS) plants in the southern United States would be too expensive, he said. Cliffs won’t enter that market until a DRI customer builds an EAS plant in the Great Lakes region, he said.
The company’s Bloom Lake property will not be further developed unless Cliffs can secure a partner for the project, Halverson said. Some or all of the asset might be sold if the opportunity arises. Cliffs’ chromite project in the Ring of Fire region of Canada also has been put on hold.
“We want to make sure we’re protecting the core – make sure we’re improving our balance sheet,” he said, so the company is in a position to act when profitable new opportunities arise.