As the economic crisis continues to squash demand for steel, Cliffs Natural Resources (CLF-N) is idling some of its metallurgical coal production in West Virginia and Alabama.
The Cleveland, Ohio-based company says its wholly owned subsidiary in West Virginia, Pinnacle Mining, has indefinitely shut down its Green Ridge No. 1 mine, and closed its Pinnacle mine for two months. The decision will affect a total of about 290 employees.
The Pinnacle and Green Ridge mines are both in Pineville and together produced about 2.4 million tons of metallurgical coal last year.
In Alabama, Cliffs Natural Resources’ subsidiary Oak Grove Resources is cutting output at its Oak Grove mine and Concord prep plant, which will result in the layoff of about 65 employees. The Oak Grove mine in Adger extracts coal from the Blue Creek seam, one of the premier coking coals in the world.
The production curtailments will put the 2009 operating rate at about 2.2 million tons.
The cuts are in line with the downturn in steel production. According to Scotiabank’s Toronto-based economist Patricia Mohr, crude steel production in February 2009 was 22% below production levels in February 2008 across sixty-six countries, with the exception of China and Iran, which posted year-on-year gains. Crude steel output in Japan for instance, the world’s largest metallurgical coal importer, fell 44.2% year on year.
In fiscal 2009, which starts in April, Mohr forecasts a price of about US$126-127 per tonne for Western Canada’s premium hard coking coal such as Elk Valley’s Elkview Standard brand. She based her estimate on the recently completed annual contract negotiations of Japanese Steel Mills, in which BHP Billiton Mitsubishi Alliance and Nippon Steel reportedly settled the price of Peak Downs and Saraji premium hard coking coals at about US$128-129 peer tonne — about 57% below the US$300 of fiscal 2008.
Despite the economic downturn, Cliffs Natural Resources posted strong results for 2008. Full-year revenues reached US$3.61 billion, an increase of US$1.33 billion, or 59%, from 2007.
Net income for the year totalled US$515.8 million, or US$4.76 per diluted share, compared with US$270 million, or US$2.57 per diluted share on a split-adjusted basis, in 2007.
At press-time in New York, Cliffs Natural Resources was trading at US$19.53 per share.
The company has a 52-week trading range of US$11.80-$121.95 per share and has 113.8 million shares outstanding.
Cliffs Natural Resources is the largest producer of iron ore pellets in North America, a significant supplier of direct-shipping lump and fines iron ore out of Australia, and a metallurgical coal producer.
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