Cliffs Natural Resources Inc announced 2011 and 2012 outlooks for its Bloom Lake Mine, an iron ore operation acquired as part of its recent acquisition of Consolidated Thompson Iron Mines Limited. Cliffs also announced an update for its North American Coal business segment.
Outlook for Bloom Lake Operations (metric tons)
As previously disclosed, Cliffs completed its acquisition of Consolidated Thompson on May 12th 2011. The production ramp-up at Bloom Lake Mine is progressing as planned and the operation is anticipated to reach an 8 million ton annualized production rate by the end of 2011. For the approximately seven and a half months Cliffs will own Consolidated Thompson during 2011, the Company anticipates selling approximately 4.8 million tons of Bloom Lake iron ore concentrate.
Revenue per ton of Bloom Lake iron ore concentrate for 2011 is expected to be USD 170 to USD 175 (FOB Eastern Canada) based on the assumption that the April 15, 2011 Platts iron ore spot price of USD 181 per ton (CIF China) is maintained through the end of 2011. Cost of goods sold, excluding approximately USD 10 to USD 15 per tonne of non cash inventory valuation step-up costs, are expected to be USD 60 to USD 65 per tonne. This is comprised of cash costs per ton of USD 50 to USD 55 and depreciation, depletion and amortization of approximately USD 10 per tonne.
Capital expenditures related to the Bloom Lake operation for the remainder of 2011 are expected to be approximately USD 300 million. This amount includes capital earmarked for Bloom Lake's capacity expansion to 16 million tonnes.
For the full year 2012, Cliffs said it anticipates Bloom Lake iron ore concentrate sales and production volume to be approximately 8 million tons, with a revenue rate of approximately USD 170 to USD 175 per tonne, based on current iron ore spot prices. With the additional volume expected and resulting fixed cost leverage, Bloom Lake's 2012 cash costs per ton are anticipated to decline to USD 45 to USD 50.
In addition, Cliffs anticipates 2012 capital expenditures related to Bloom Lake to be approximately USD 350 million, including sustainable and expansion capital.
Update for North American Coal Business Segment (Short tons)
As the result of previously disclosed severe weather damage to the preparation plant and overland conveyor system at the Company's Oak Grove Mine in Alabama, Cliffs anticipates the operation to produce salable coal during the latter part of the fourth quarter of 2011. At this time, underground operations are fully functional and the Company is stockpiling raw coal in anticipation of completing the repair and refurbishment work at the preparation plant over the next five to seven months. Cliffs expects to receive insurance settlement proceeds related to the severe weather, which is expected to cover capital needed in relation to the preparation plant.
Cliffs also indicated that sporadically over the last two weeks higher than ambient levels of carbon monoxide have been detected in a section of its Pinnacle Mine in West Virginia. As a result, underground operations at the mine have stopped and Cliffs has begun working, in collaboration with the Mine Safety and Health Administration, on the execution of a remediation plan. Additionally, force majeure notices have been issued to the affected customers. The remediation plan includes the intentional flooding of the mine section where elevated gas levels were detected. While there is not absolute certainty the remediation plan will lower reading levels to a point that allows production to resume, it is anticipated that the planned actions will produce the desired results and, based on the current remediation plan, Cliffs expects to return to underground production at Pinnacle Mine on or about July 1st 2011.
Prior to the recent events at the Pinnacle and Oak Grove mines, Cliffs anticipated its North American Coal business would sell 6.5 million tons of coal in 2011. The Company is reducing this outlook to approximately 5.1 million tonnes. Revenue per ton in this business segment is anticipated to be USD 125 to USD 130, with cost of goods sold of approximately USD 110 to USD 115 as comprised of USD 90 to USD 95 cash costs per ton and depreciation, depletion and amortization costs of USD 20 per tonne.
