Cliffs Natural Resources (NYSE: CLF) and London Mining (LSE: LOND) have become the latest casualties of falling iron ore prices, with Cliffs warning that it expects to record a US$6 billion non-cash impairment charge in the third quarter on its iron ore and coal assets, and London Mining placed into administration.
London Mining says it will try to work with its administrator, PwC, to maintain its Marampa iron ore mine in Sierra Leone as a going concern, while Cliffs is working with its banking group to get an amendment that will eliminate the debt-to-capitalization covenant of 45% currently present in its revolving credit facility, as the non-cash impairment charge will increase the debt-to-capitalization ratio over that threshold.
Iron ore prices have fallen to five-year lows and are down about 40% so far this year at about US$80 per tonne. Prices from Jan. 1 to Sept. 30 this year averaged US$104 per tonne, down from the full year average in 2013 of US$136 per tonne. Last month the average price fell to US$82 per tonne, but slipped just below US$80 per tonne in late September.
Credit rating agency Moody’s Investor Services warned in a report released on Oct. 17 that downward rating actions for iron ore producers could result as it “reassesses the impact of a protracted pricing weakness,” and said it anticipates “pricing pressure and low prices to continue over the next several years.”
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