Cliffs Natural Resources Inc announced projected full-year 2012 capital expenditures expectations. Cliffs plans to invest approximately USD 1 billion comprised of approximately USD 300 million of sustaining capital and USD 700 million of growth and productivity improvement capital.
Cliffs' 2012 capital budget represents an expected 12% increase over the Company 2011 capital expenditures of approximately USD 880 million. Cliffs indicated this amount was less than its previous estimate of USD 900 million and an original 2011 budget of USD 1 billion.
While plans will continue to be reviewed and adjusted in response to changes in market conditions and other factors, Cliffs 2012 capital budget is primarily intended to fund the organic growth pipeline the Company has acquired through the completion of a number of strategic transactions in recent years. These transactions have meaningfully diversified Cliffs' business and provided the Company significant exposure to customers outside of its historical North American steelmaking customer base.
In addition to the anticipated USD 300 million of 2012 sustaining capital listed below are the significant growth and productivity projects earmarked within each of Cliffs' business segments.
1. US Iron Ore
In its US Iron Ore business segment, Cliffs anticipates spending USD 60 million in 2012 related to its previously disclosed project to extend the life of Empire Mine to 2015. This project is expected to allow Empire to continue producing at a rate of approximately 3 million tons of iron ore annually through its remaining mine life.
2. Eastern Canadian Iron Ore
In its Eastern Canadian Iron Ore business segment, Cliffs anticipates spending the following amounts related to growth of its operations:
I. USD 470 million related to Bloom Lake's Phase II expansion to 16 million tons
II. USD 45 million related to port and rail upgrades in Eastern Canada
3. Asia Pacific Iron Ore
In its Asia Pacific Iron Ore business segment, Cliffs anticipates capital spending of approximately USD 40 million related to the ongoing capacity expansion of the Koolyanobbing Complex in Western Australia to 11 million tons.
4. North American Coal
In its North American Coal business segment, Cliffs anticipates capital spending of approximately USD 50 million related to growing high-volatile metallurgical coal production capacity from its continuous mining operations in West Virginia.
As previously disclosed Cliffs controls three large chromite deposits in Northern Ontario, Canada. With a timeline to begin production in 2015 from its wholly owned Black Thor deposit, Cliffs is currently in the prefeasibility study phase of the project. As part of prefeasibility, the Company continues to evaluate many factors, scenarios and strategic alternatives that may ultimately impact future investment and timing of the project.
At the time of Cliffs' initial investment in chromite assets in 2009, the Company predicated preliminary comments for capital requirements on a baseline expectation of a project annually producing approximately 600,000 tons of ferrochrome. Subsequently and after significant additional prefeasibility work, Cliffs now anticipates an expanded project annually producing 1 million tons of export chromite ore concentrate in addition to the original 600,000 tons of ferrochrome.
Preliminary capital estimates for the project, based on prefeasibility work completed to date, include the following major engineering components:
I. Mine development approximately USD 150 million
II. Near-mine Concentrating Plant approximately USD 800 million
III. Ferrochrome Processing Facility approximately USD 1.8 billion
Cliffs also estimates that an integrated transportation system, including an all-weather road servicing the project, would require further investment totalling approximately USD 600 million which was not included in Cliffs' initial investment estimate. However, because this transportation system is provincial infrastructure required for the general use of remote northern communities and other Ring of Fire mining projects, Cliffs anticipates its commitment to invest in the all-weather road would be partial, with the balance to be contributed by other industry participants and government entities.
Cliffs indicated that, although it believes the chromite deposits it controls are world-class, a number of additional studies including feasibility and other project milestones need to be achieved before the Company begin allocating a significant portion of capital to the project construction. Based on the completion of these, Cliffs anticipates a majority of the project anticipated capital requirements would be made in 2014 and 2015 with an early works program initiated prior to 2014 to maintain project execution timeline. More information about the project will be provided upon completion of the prefeasibility study in the first half of 2012.
