Australia, which used its proximity to China to become one of its chief suppliers of iron ore and coal over the past decade, is feeling the deepest and most immediate effects of China’s slowdown.BHP Billiton/The Canadian Press
It's rough out there for iron ore producers, and Cliffs Natural Resources embodies the struggle.
This week the miner announced some pretty drastic decisions, temporarily suspending its Bloom Lake and U.S. Iron Ore operations in order to hoard cash.
The news comes after Cliffs announced brutal quarterly earnings a few weeks back, with net income plummeting 86 per cent from the year prior. Following the latest news, the stock is now down about 30 per cent in one month, and over 50 per cent this year.
Keep in mind that this is the same company that bought Consolidated Thompson Iron Mines Ltd. for $4.9-billion as the commodity supercycle revved up in early 2011. That deal isn't looking so smart now.
But Cliffs isn't the only victim. The iron ore sector in general is struggling because the booming Chinese demand everyone depended on isn't so huge anymore.
Now that Cliffs has delayed its expansion at Bloom Lake and idled two of its four production lines in its U.S. Iron Ore segment, analyst Matthew Gibson at CIBC World Markets notes operating costs at the eastern Canadian operations (read: the Consolidated Thompson assets) are in the spotlight, having risen 21 per cent last quarter.
Tim Kiladze