Mary River iron ore on Baffin Island, Nunavut.
Struggling with high labour costs, Cliffs Natural Resources Inc. will close its iron ore pellet plant in Quebec by mid-year and shift its focus to production at the Bloom Lake project nearby.
The Wabush Pointe Noire pellet plant in Sept-Îles, Que., currently employs 165 people. But for months now, management has signalled that the costs from this operation were too high for their liking because the Wabush operation was running at a loss. In just one quarter last year, cash costs per tonne jumped 21 per cent, eating into the bottom line.
"These measures address current market conditions and we look forward to advancing our work at Bloom Lake, which is key to Cliffs' future," chief executive officer Joseph Carrabba said in a statement.
However, even Bloom Lake has had its troubles. Just a few months ago, Cliffs incurred a $1-billion writedown related to its acquisition of Consolidated Thompson Iron Mines Ltd., the previous owner of the Bloom Lake project. Part of the writeoff stemmed from a delay to the expansion at Bloom Lake.
The question now is whether the Canadian operations will see much lower output. Last quarter, the company said it expected to sell between nine million and 10 million tonnes from its Eastern Canadian operations – 6.5 million to seven million tonnes from Bloom Lake and the rest from Wabush. That guidance is still intact, even though the Wabush mine will focus solely on iron ore concentrate in the second half of the year. Revenue projections also haven't dropped.
"We are surprised that remaining Eastern Canadian revenue per tonne has not fallen more, despite the removal of three million tonnes of premium product from the mix [pellets are priced at a premium] so assume there may be some "marking-to-market" of high [first quarter] iron ore prices to off-set" the lower production," noted Deutsche Bank analyst David Martin.
Even if revenue were to remains the same, BMO Nesbitt Burns analyst Tony Robson notes that "the Canadian division is likely to continue running at a loss in the short term."
(Tim Kiladze is a Globe and Mail Reporter.)
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Tim Kiladze