Another global miner has been hit by an overzealous bet on runaway growth in China.
Nearly two years to the day after spending $4.9-billion to acquire Consolidated Thompson Iron Mines Ltd. in Canada's largest iron ore deal ever, Cleveland-based Cliffs Natural Resources Inc. on Thursday announced a $1-billion (U.S.) writedown on the asset.
Cliffs also said it was taking $900-million or so worth in other impairments, including up to $150-million in other charges related to its Eastern Canadian iron ore business. The writedowns come in addition to earlier announcements that Cliffs was selling its 30-per-cent stake in an iron ore project in Brazil's Amapa state.
Cliffs joins a growing line of global producers of iron ore, copper, gold and other resources that stumbled as commodity markets swooned on murky demand and industry costs inflated at a rate not seen in decades.
Cliffs bought Consolidated Thompson on Jan. 11, 2011, at a time when prices for delivery of iron ore to China – the world's largest consumer of the raw material – were near two-year highs amid booming steel production.
A major draw for the U.S. company was Bloom Lake, Consolidated Thompson's open-pit iron ore mine in the Labrador Trough iron range, which was planning an expansion and was slated to help bring Cliff's annualized production to 16 million tonnes. Last fall, however, Cliffs suspended Bloom Lake and its U.S. iron ore operations as a cash-preserving measure amid slumping demand for steel.
"The impairment is primarily driven by the project's anticipated lower long-term volumes and higher capital and operating costs," Cliffs said on Thursday, amid iron ore prices that have been slumping for much of the past year as Chinese demand softened.
The announcement also comes exactly a week after Rio Tinto PLC, the world's No. 3 diversified miner, announced a $14-billion writedown on assets acquired in 2007. At the same time it also ousted chief executive officer Tom Albanese, who led the company in the $38-billion acquisition of aluminum giant Alcan Inc. just before prices for the metal came off 35-year highs.
Toronto-based Barrick Gold Corp., the world's largest gold producer, ousted its chief executive in June, just before announcing a 60-per-cent rise in costs at a key development project in the southern Andes.
And in October Teck Resources Ltd., Canada's largest diversified miner, deferred about $1.5-billion in capital spending over the next year in order to mitigate rising costs and an unpredictable outlook for the global economy.
"I would expect further writedowns from the other companies for the year-end results, which we'll see in January and February," Tony Robson, an analyst with Bank of Montreal's investment arm in London, said after the Rio Tinto news last week.
In a research report on Thursday, he said the impairment at Cliffs Resources on the Consolidated Thompson assets come as "no surprise."
With files from reporter Bertrand Marotte in Montreal