UPDATE 2-Miner Cliffs to slash 2014 capital spending, cut 500 jobs
Feb 11 (Reuters) - Under pressure from an activist shareholder, Cliffs Natural Resources Inc said on Tuesday it will slash capital spending, forego a planned expansion at a key Canadian mine and shut another mine in Canada, cutting about 500 jobs.
Cliffs, a Cleveland-headquartered iron ore and coal producer, said it plans to reduce its capital spending in 2014 by more than 50 percent to between $375 million and $425 million as it cuts back its Bloom Lake Mine expansion and idles production at its Wabush Mine.
The miner has recently been targeted by an activist shareholder who wants the company to be broken up and Cliffs to spin out its "riskier" international operations, including the Bloom Lake and Wabush mines, into a separate business from its strong cash-generating U.S. operations.
Cliffs acquired Bloom Lake as part of its takeover of Consolidated Thompson Iron Mines Ltd in 2010 but higher-than-expected costs at the mine have weighed on Cliffs' earnings. Cliffs delayed a planned expansion in 2012, and a year ago took a $1 billion goodwill writedown related to the Consolidated Thompson deal.
Globally mining investors have soured on big, expensive mining projects over the past two years after a series of high-profile cost blowouts, and as metals prices have dropped.
"Sharper capital allocation must drive our decisions. Today's announcement to reduce overall capital spending is an important first step," Gary Halverson, Cliffs' president and chief operating officer said in a statement.
Cliffs said it has "indefinitely suspended" the second phase of its planned expansion at Bloom Lake in Quebec and has made adjustments to parts of the mine plan, notably its tailings and water management strategy.
The company also said it would idle the first phase of expansion "if pricing significantly decreased for an extended period of time".
Weakness in the steel market has hit relatively high-cost iron ore suppliers like Cliffs hard.
Cliffs said the "wide range of outlooks for iron ore prices" had prompted its decision to cut back Bloom Lake's expansion. In the current pricing environment, it expects to produce and sell 5.5 million to 6.5 million tons from Bloom Lake's first phase in 2014, flat on 2013.
The company now expects to spend about $200 million at Bloom Lake this year, which includes $65 million to be carried over from 2013.
Cliffs also said it plans to close its Wabush Mine in Newfoundland and Labrador by the end of the first quarter after "unsustainably" high costs made it uneconomical to operate. About 500 employees at the Wabush Scully Mine and Pointe Noire rail and port operation in Quebec will be affected.
Cliffs last year idled its Wabush Pointe Noire pellet plant in Quebec, blaming high production costs, but said it would continue to produce iron ore concentrate from the mine.
Costs related to the idling of the Wabush Mine are expected to be about $100 million in 2014. As a result, Cliffs will record impairment and write-off charges of about $183 million in its fourth-quarter results, it said. Cliffs is due to report its results on Thursday.
The company's stock rose 4.5 percent to close at $21.50 on the New York Stock Exchange before the news.