Dew,
CS summed it up pretty good:
Lights Off at Bloom Lake
¦ Bloom Lake Closure; Not As Bad As It Looks. We had breakfast with
management earlier today. Although we can see why the market's initial
response to guided $650-700mn in Bloom Lake closure costs is negative
(we think consensus was in the $300-400mn range), $650-700mn in closure
costs should be considered a worst case scenario, and significantly 'less negative' scenarios remain very possible. CEO Lourenco Goncalves will be presenting at a competitor conference today after lunch and meeting investors throughout the day.
¦ Closure cost guidance of $650-700mn assumes that CLF does not
pursue a CCAA (Canadian equivalent of Ch.11) of its Canadian subsidiary
and that CLF does not break-contract with rail provider IOC. Nor does it
include potential proceeds from plant and equipment sales. The amount
assumes the company pays its $150mn p.a. rail take-or-pay commitment for
the next 3 years before having the option under the existing contract terms to exit the contract at no cost (i.e., 3-yr notice requirement). $200-250mn in rehabilitation and remediation costs is also included.
¦ It was always when, not if. We've been anticipating the closure of this project for nearly two years now, and are relieved that CLF's new
management (unlike the previous) are now putting an end to the Bloom Lake disaster. By the time it is exited, CLF will have spent $7.0-7.5bn on Bloom Lake. It is yet to generate a single cent of free cash flow.
¦ On $70/t IO Bloom Lake would have been generating a ~$50/t operating
loss or perhaps $350mn p.a. This is an improvement on the $150-200mn
p.a. in flagged exit costs, therefore the cash flow outlook has improved.
