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October 30, 2017

Northshore Will Upgrade Over Two Years to Make More HBI Pellets

by John Meyers
Duluth News Tribune

Cleveland Cliffs officials say they will upgrade their Northshore Mining operation in 2018 and 2019 to produce far more taconite pellets specially made for the company's proposed hot-briquette iron plant in Toledo, Ohio.

Cliffs said in the company's third-quarter corporate report earlier this month that they plan to bring the Toledo facility online in 2020, making HBI that can be used as feedstock in electric-arc steel mills that now control nearly two-thirds of the U.S. market.

Until now the company has produced almost entirely taconite pellets designed for traditional blast-furnace steel mills.

But to make the hot-briquette iron, which will replace imported pig iron from Russia and other countries, Cliffs will need more special-recipe pellets. Northshore's Silver Bay processing plant will begin makeovers in 2018 and 2019. The company plans to spend $270 million on the HBI project over that time, with about $75 million on the Silver Bay operations.

Until now the Northshore operation has produced only small batch HBI-ready pellets used by Nucor in its Trinidad iron and steel plant.

So far, however, Cliffs doesn't have a financial partner for the Toledo iron plant. CEO Lourenco Goncalves told industry analysts earlier this month that he will continue to move ahead toward construction of the facility which he called the future of the U.S. iron and steel industry.

The company is hoping an equity partner will help fund the project that could cost more than $500 million.

"We're going to take this business" of producing HBI, Goncalves told industry analysts in a conference call.

Cliff's end product would compete with the proposed HBI production plant in Keewatin by Chippewa Capital Partners, the company reviving the former Essar Steel Minnesota project. Chippewa hopes to have a new mine, taconite producing and iron producing operation up within three years, on about the same timeframe as Cliffs.

The Company recorded net income of $53 million in the third quarter, or $0.18 per diluted share.The Company reported consolidated revenues of $698 million, an increase of 26 percent compared to the prior year's third-quarter revenues of $553 million. This compares to a net loss of $28 million, or $0.12 per diluted share, recorded in the third quarter of 2016.

Cliffs reported a 15 percent increase in its cost of production and "softer than expected" orders for the fourth quarter, an announcement that sent the company's stock price down last week. J.P. Morgan downgraded Cliffs stock from "neutral" from "overweight" and lowered their expected target price from $9.50 to $7 per share.

Still, Goncalves said 2017 was a good year for Cliffs compared to 2016, when the company was emerging from the crash of the domestic iron and steel industries. Goncalves predicted an even better 2018, saying his customers, domestic steel producers, "are optimistic" that their production and sales will increase next year, leading to more demand for his taconite iron ore.