Cliffs Natural Resources (NYSE: CLF) is warning that it may temporarily idle its Pinnacle coal mine in Pineville, W.Va., if market conditions do not improve.
In a June 25 regulatory filing, the Cleveland-based coal miner warned that deteriorating conditions in the metallurgical coal market could force it to close the mine in 60 days. The mine employs 575 people.
“We felt compelled to provide as much advance notice as possible to our employees, the United Mineworkers, and the state of West Virginia,” Patricia Persico, Cliff’s director of global communications, elaborated in an email to The Northern Miner.
“Due to deteriorating conditions in the metallurgical coal market, Cliffs has undertaken measures to improve operational and cost performance at the mine,” the company stated in the regulatory filing. “The persistent depressed pricing and oversupply in the metallurgical coal market for the past year has put cost pressures on the business. The company’s senior leadership team will monitor industry and business conditions over the next two months.”
The Pinnacle mine produced 2.8 million tons in 2013.
Aldo Mazzaferro and Luke McFarlane of Macquarie Research see the decision as positive “both from a 2H cash-burn standpoint and for the seaborne metallurgical coal market.” The analysts estimate that if the company idles operations, it could save as much as $15 million to $20 million in earnings before interest, taxes, depreciation and amortization in the last six months of 2014.
“We estimate that Cliffs should recapture $100 million in working capital as inventories at the mine are sold down, with the cost to idle being between $30 million to $50 million.”
“Pinnacle’s product is a low-vol met product, and despite being one of Cliff’s low-cost operations, low pricing realizations are touted as the reason for closure,” they said.
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