Cliffs Natural Resources Inc. has announced it will write down its coal and iron ore assets by $6 billion over weak Q3 demand. Non-cash charges, according to officials, will increase their debt-to-capital ratio beyond the 45% set by creditors.
Coal prices have fallen by half since 2011, while iron ore prices have collapsed 40% this year alone, owing to excess supplies and slackening Chinese steel demand, according to analysts; Cliffs representatives added they will sell off all underperforming assets.
In Q2, Cliffs forecast seaborne iron ore and met coal prices to remain weak in the near term, reducing revenue in most of its businesses. The company’s eastern Canadian iron ore business shouldered most of the losses, especially Bloom Lake iron ore mine, according to analysts; the Quebec project was acquired through a 2010 takeover of Consolidated Thompson Iron Mines Ltd.
Cliffs delayed the asset’s 2012 write-down, while assuming a $1 billion associated goodwill write-down agreement. Cliffs added it would not use a $1.25 billion revolving credit facility on September 30, and expects to close Q3 with $250 million in cash.