February 3, 2015 / 5:29 PM / 3 years ago

UPDATE 2-Cliffs Canada unit rail contract will be renegotiated - CEO

(Recasts with CEO interview)

By Nicole Mordant

Feb 3 (Reuters) - An onerous transportation contract entered by Cliffs Natural Resources’ Bloom Lake iron ore operation in Canada will be renegotiated under Bloom’s creditor protection filing, Cliffs’ chief executive said on Tuesday.

Lourenco Goncalves said the contract with the Quebec North Shore and Labrador Railway (QNSL) that has Bloom Lake on the hook for $450 million has been stayed by a Quebec judge as part of Bloom Lake’s filing last week in Canada.

“It will be negotiated. When a contract is stayed it means it is no longer valid,” Goncalves said in an interview.

Asked if a renegotiation could help to make Bloom Lake’s assets more attractive to sell under the restructuring proceedings, he said: “This is the correct conclusion.”

The rail contract makes up more than half of Bloom Lake’s estimated closure costs of $650 million to $700 million. The QNSL line is a unit of Iron Ore Co of Canada (IOC), which in turn is controlled by global miner Rio Tinto.

IOC was not immediately available for comment.


Goncalves said he expects all or most of Bloom Lake’s assets to be sold under the creditor protection process, possibly this year.

Cliffs was approached by “several interested parties” and the Quebec government in the past two months over the sale of Bloom Lake outside creditor protection, Goncalves said on a conference call to discuss Cliff’s fourth-quarter results.

“All things being considered we are very confident the Bloom Lake Group will be done with CCAA within calendar 2015” he said.

The filing, which isolates Cliffs from losses in its Bloom Lake operations and protects shareholders, comes at a time of weak global iron ore prices.

He declined to give details of any potential buyers.

Cliffs said last October that it was in talks with three big steelmakers about selling a 30 percent stake in Bloom Lake. Goncalves had earlier this year identified the parties as U.S.-based Nucor and two Japanese steelmakers, according to a note by JPMorgan analyst Michael Gambardella.

But the sale process failed as the parties could not agree on structuring a quick deal.

Chinese steelmaker Wuhan Iron & Steel, known as Wisco, already owns a minority stake in Bloom Lake.

Bloom Lake is also looking to sell its idled Wabush iron ore mine in Eastern Canada but was not under pressure to sell it, Goncalves said.

Cliffs stock last traded down 3.3 percent at $6.74. (Reporting by Nicole Mordant in Vancouver; editing by Chizu Nomiyama and Meredith Mazzilli)

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