Replies to post #8105 on The Rising Influence of Rising Affluence

[Democritus_of_Abdera]

Re; CLF 4Q13 CC...

Dew, you might be right that nothing new was revealed on the CLF CC today. However, if not new, it did highlight a commitment by management to partner or dispose of Bloom Lake which I had not remembered.

To quote Gary Halverson in response to a question by Mitesh Thakker of FBR Capital Markets (see full quote below):

...but if I look at the longer term, we’re not going to be running Phase I forever either. This is a transition period to look at opportunities from a strategic partnering and up to and including a sale, just to give the range.

Also, the CC did clarify (for me) the current relationship with WISCO regarding Bloom Lake..

In particular,

Rather than continuing to support 25% of the Bloom Lake project, WISCO reduced thier percentage ownersip to 17%.

and,

WISCO has no firm commitment and no lock on volume with respect to iron ore from Phase II of Bloom Lake. They do have a 3.7 million ton commitment for Phase I.

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Relevant CC exchanges:

With respect to Bloom Lake Committment:

Gary B. Halverson, President & Chief Executive Officer (prepared remarks)

We will continue to operate the first phase given the current pricing environment. We will not spend capital for the sake of increasing volume growth. Maximizing our free cash flow and reducing net debt is our first priority. Bloom Lake is an ore body well-suited for a global market that increasingly values quality. However, it also requires time and capital to be properly developed, built out and operated to its full potential. Accordingly, we will only spend the minimum required capital, until we develop the path that extracts the highest value from Bloom Lake for our shareholders. We are examining every alternative for this asset, which could include a range of outcomes from strategic partnering to a sale.

Question by Mitesh Thakkar, FBR Capital Markets:

Can you just talk a little bit about Bloom Lake Phase II and throw out some incremental color in terms of how should we think about tailings CapEx this year, next year and like I said, if Bloom Lake Phase I doesn’t work, how should we think about some of the other options which you might have?

Gary Halverson - CLF CEO:

Sure, Mitesh. Yeah, Phase II, I think we made it pretty clear that we’re not going ahead with Phase II on our own. We’ve determined that the Phase I with reduced capital spend and focusing on operating cost performance is where we have to stay right at this point. I think the guys have further work to do in that in the short-term, but if I look at the longer term, we’re not going to be running Phase I forever either. This is a transition period to look at opportunities from a strategic partnering and up to and including a sale, just to give the range. It’s too early to say what that will turn into or for us, at this point, but we’ve had interest from financial partnering, from customer interest, and Kelly may add further to that, but overall, the focus here is to reduce and get better performance out of Phase I right now, while we look at those strategic options.

On the tailings side, the spend on tailings have been dropped about $65 million. The main driver for that is the structure in the tailings pond was really focused around a 12 million ton to 14 million ton annual capacity. I changed that to focus on what we have right in front of us on Phase I, which is 6 million tons to 7 million tons. Because of not having as large a basin, that’s actually allowing us to run a more minimized capital spend in that. That doesn’t mean that you wouldn’t have to spend more money on capital with Phase II, but that’s too early right at this point. We’re looking just at Phase I and looking at how we can convert this asset into better value for our shareholders.

With respect to WICO relationship:

Question by Tony Rizzuto, Cowen Securities LLC:

I have several questions here, one is with regard to Bloom Lake, what level of interest have you guys been receiving as you engage with WISCO and other Chinese parties?

Kelly Tompkins, CLF Exec VP External Affairs & President Global Commercial:

Yeah. Tony, this is Kelly. We have continued a very good relationship with WISCO. We have, as I think you know, a long-term commercial relationship with WISCO and they are also still a partner in the mine. Late this year, WISCO did determine to contribute a portion of their equity back into the partnership. So their percentage ownership interest is down from 25% to about 17%, but we are an in active dialog with them about our strategic options for this asset. And we’ve also just with the inroads we’ve made in other Asian markets who have a very strong appetite for this Bloom Lake product, some of these current and prospective customers could be potential partners down the road. But, again, we’ve got a range of things we’ll look at, and again, there’s a real validation of the quality of this ore body and the marketplace and we’re seeing as you are seeing I’m sure in the market, this growing spread in terms of Fe quality premium that Bloom Lake plays into as well.

Question by Sal Tharani, Goldman Sachs & Co.:

Okay. The other thing is the WISCO contract for iron ore. How is that set up? What portion of Phase I they’re taking out? Are they taking the whole Phase I and would there be – are they also entitled for Phase II and of course that would be part of your strategy decision if you want to sell it, that contract will be rolled over to the new buyer?

Kelly Tompkins, CLF:

Yeah. So, WISCO has a right around $3.5 million ton, $3.7 million ton commitment for the Phase I for Bloom Lake. They have no firm commitment for Phase II volume. It’s certainly – if we were to bring on Phase II at some point as part of a strategic alternative, WISCO would be a potential customer, but they have no lock on that volume. So, there really, it’s – they’re in there for 3.7 million tons as part of Phase I and we have an outstanding commercial relationship with WISCO and they’ve been a very key partner in terms of marketing and technical-based opportunities with other Chinese-centered market customers as well.

Terry Paradie, CLF CFO:

Yeah. And, Sal, and that contract WISCO was a market-based contract as well.