June 20, 2012 / 12:51 PM / 6 years ago

Cliffs Resources mulls coal shift for steelmakers

(Reuters) - Coal and iron ore producer Cliffs Natural Resources (CLF.N) is considering upgrading coal into gas at one of its U.S. mines to deliver the fuel to the steel industry, Chief Executive Joseph Carrabba said this week.

The company, which sells metallurgical coal and iron ore to steelmakers and thermal coal to power utilities, could upgrade an existing mine for about $200 million to deliver gas for a steel-making process called direct-reduced iron (DRI), Carrabba told Reuters at the Steel Success Strategies conference.

“We’re looking at our mines to see how we can retool to enter that market. We see it as an opportunity,” he said.

Steel companies such as Nucor (NUE.N) have increased their use of the DRI process, which relies on electric arc furnaces (EAF) rather than the blast furnaces typically used by the industry.

That process has grown in popularity because vast new supplies of natural gas from shale fields have helped reduce the cost of operating those EAF plants.

Those shale fields are expected to yield decades of low-cost natural gas for the country, although Carrabba said he expected gas prices would climb from their current decade-low levels near $2.50 per million British Thermal units in the future.

Cliffs’ sales of thermal coal have been hurt by low natural gas prices, as power producers increasingly shifted electricity production from coal-fired plants to natural-gas fired plants.

Last week, Cliffs reduced its 2012 thermal coal sales and production volume expectations from 1.1 million tons to approximately 800,000 tons at its Toney Fork No. 2 surface mine in Man, West Virginia.

Thermal coal demand was “extremely soft and looks like its going to stay that way for a while,” Carrabba said.

He reiterated that the company, which has grown through asset acquisitions in recent years, was not likely to make any new purchases.

“We don’t have to go the 30 percent premium route now,” he said, referring to the typical price premium needed to complete acquisitions. “It’s time to harvest the opportunities we have.”

Cliffs, which had cut its North American coal revenues-per-ton forecast to $130 to $135 from $140 to $150 in April, was now seeing met coal prices stabilizing in a range between $130 and $150 per ton, Carrabba said.

Reporting By Matt Daily; Editing by Maureen Bavdek

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