UPDATE 1-Cliffs to take $1 bln charge on Thompson Iron buy

Thu Jan 24, 2013 11:30am EST

* To take non-cash charge in the year-ended Dec. 31

* Shares down 2 percent

By Krishna N Das and Swetha Gopinath

Jan 24 (Reuters) - Cliffs Natural Resources Inc said it would write down the value of Consolidated Thompson Iron Mines Ltd by $1 billion as it expects lower volumes and higher costs in the business bought for more than $4 billion two years ago.

Rival miners Rio Tinto Plc and Vale SA have recorded billion-dollar charges over the past two months on weak demand for commodities such as iron ore, coal and aluminum, and analysts expect BHP Billiton Plc and Anglo American Plc to follow.

"There's been a lot of consolidation in the past two years, commodity prices have moderated and global growth is lower than what people expected," said CRT Capital Group analyst Kuni Chen. "So, you're beginning to see people writing down their investments."

Cliffs, the largest North American producer of iron ore pellets used in making steel, said on Thursday the goodwill impairment charge will be recorded as a non-cash expense for the year ended Dec. 31, results for which will be announced on Feb. 13.

The company's net income for 2011 was $1.62 billion.

Cliffs's shares fell 2 percent to $36.40 in morning trade. The stock has shed 52.9 percent of its value since hitting a year-high of $78.85 in late January last year.

The acquisition of Consolidated Thompson, now known as Cliffs Quebec Iron Mining Ltd, gave Cliffs a mine and processing plant near Bloom Lake in Fermont, Quebec. Wuhan Iron & Steel Co , China's third-biggest steelmaker, owns a fourth of the property. ()

The Bloom Lake mine, located in the Labrador Trough mining region, has reserves of about 640 million tonnes of iron ore and an annual production capacity of 8 million tonnes.

Cleveland, Ohio-based Cliffs bought Consolidated Thompson to expand its capacity to feed the then growing hunger for iron ore in Asia.

Demand and prices, however, have fallen in recent months due to lower appetite for steel from China, the world's largest producer and consumer of steel.

Benchmark 62-percent grade iron ore is forecast to average $125 a tonne this year, compared with $128 last year, according to the median estimate of a Reuters poll of 17 analysts.

Cliffs said a weak demand-related delay in expanding the Bloom Lake mine added to the charge it is taking for 2012.

"I don't think (the charge) is a huge surprise to people, given that they changed their plan (in Bloom Lake) and delayed some of their capital spending. Plus you have lowered long-term iron ore price expectations," said Chen.

Cliffs expects to incur $100 million to $150 million of other charges related to its Eastern Canadian Iron Ore business, which derives its revenue from sales of iron ore pellets and concentrate to Asian steel producers.

The company said it expected to also record an impairment charge of $365 million in its fourth-quarter results in connection with the 30 percent stake it sold in an iron ore operation in Brazil earlier this month.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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