Iron-Ore Producer Cleveland Cliffs
Mines Field of Depressed Steelmakers
public.wsj.com
By Clare Ansberry
Staff Reporter of The Wall Street Journal
October 17, 2001
CLEVELAND -- Iron ore has only one use: making steel. That's a hard fact for Cleveland Cliffs Inc., which manages half the nation's iron-ore production and faces one of its bleakest periods in decades.
Even before the Sept. 11 terrorist attacks that tipped the slowing economy toward recession, the steel industry was floundering. About a third of Cliffs' customers are in bankruptcy proceedings. The latest casualty was Bethlehem Steel Corp., which filed a Chapter 11 bankruptcy petition this week.
And yet, from Cliffs' perspective, this is also a time of great opportunity. Because many big iron mines are at least partly owned by cash-strapped steel companies, those mines are up for grabs.
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Cliffs manages 50% of the nation's iron-ore production but owns less than 20%; the rest is in the hands of the steel industry, as it has been for the past 100 years. But these days, many steelmakers need to raise cash and are willing to sell off their iron-ore assets to do so. WHX Corp.'s Wheeling-Pittsburgh Steel was the first.
Last year, the steelmaker filed for Chapter 11 bankruptcy protection and needed, among other things, to unload its 12.5% stake in a Michigan mine. Cliffs stepped in, paying no cash, but assuming the mine's liabilities. Next, LTV closed its iron mine in Hoyt Lakes, Minn., which employed 1,400. Cliffs bid for the operation, including a strategic 74-mile rail line, a loading dock and a processing plant. LTV approved the sale, and its bankruptcy court is expected to do the same next week. Then Bethlehem Steel , losing money and scrambling to arrange bank loans, announced earlier this year that it would sell its 70% stake in another Minnesota mine.
National Steel Corp. also put its iron-ore operations on the block. Together, the two operations would double Cliffs' share of North American production. There's been no official word yet on whether Acme Metals Inc. or Algoma Steel Inc., both in Chapter 11 proceedings, are selling their shares in mines. But given the steel industry's current woes, Cliffs' Mr. Brinzo considers nearly all of steelmakers' ownership interests in North American iron mines to be for sale. And he has spoken with every mine-owning steel company, except USX-U.S. Steel Group , which has invested heavily in its own mine and isn't interested in selling. He says he is "confident" he will make some deals by year end.
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Cliffs idled several mines this year for several weeks to limit production while it reduced its inventory. More employee furloughs may be ahead. But while it's hard to justify laying off mine workers in one operation while trying to buy other mines, there is widespread agreement in Iron Country that Cliffs is in better shape financially than the steelmakers to keep the mines open over the long term and greater numbers of people employed. |
