Why did Cliffs file for restructuring of Bloom Lake mine assets?
Preview: Cliffs to release 4Q14 and fiscal year 2014 earnings results (Part 4 of 7)
Restructuring of Bloom Lake
Cliffs Natural Resources (CLF) announced the restructuring of Bloom Lake on January 27. Bloom Lake General Partner Limited and certain of its affiliates, including Cliffs’s Quebec Iron Mining ULC (collectively, the Bloom Lake Group), commenced these restructuring proceedings in Montreal, Quebec, under the Companies’ Creditors Arrangement Act (or CCAA).
The Bloom Lake Group recently suspended operations. For several months, it has been exploring options to sell certain of its Canadian assets, among other initiatives.
Financial impact of restructuring
The financial impact of the move is yet unknown. During the company’s 3Q 2014 earnings call, the CEO (chief executive officer) said there’s “no risk of contamination to the parent company in the event that we need to do something specific about Canada. Everything would be within the parent company that holds the Bloom Lake assets.”
Cliffs’s current estimate of the closure costs and liabilities is in the range of $650 million to $700 million. If the company is able to follow in the footsteps of U.S. Steel (X), there could be a savings of more than $600 million for the parent company.
In September 2014, U.S. Steel sought creditor protection from its money-losing Canadian operations. The CCAA is a Canadian law that allows a company facing insolvency to avoid complete bankruptcy or foreclosure and instead work out a restructuring plan. This law will permit U.S. Steel to deconsolidate its Canadian subsidiary from its financial statements. The company will then be free from liabilities on its Canadian subsidiary’s books.
Such an action is a reflection of current restructuring and consolidation efforts in the metals and mining space. Recently, ArcelorMittal S.A. (MT) sold its Gallatin operations to Nucor Corporation (NUE). AK Steel Holding Corporation (AKS) acquired Dearborn operations from Severstal.
Together, Cliffs, U.S. Steel, AK Steel, and Nucor form 13.61% of the SPDR S&P Metals and Mining ETF (XME), which invests in metals and mining companies.
Read more about U.S. Steel’s move and its parallel to Cliffs.
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