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CORRECTED-UPDATE 3-Cliffs Natural to take $6 bln charge on coal, iron ore assets

* Charge to raise debt-to-capital ratio, breaching covenant

* Charge to raise debt-to-capital ratio, breaching covenant

* Says working with bankers to amend the covenant

true

* Shares fall as much as 7.7 pct

By Anannya Pramanick

Oct 17 (Reuters) - Cliffs Natural Resources Inc said it would write down the value of its coal and iron ore assets by $6 billion due to weak prices, putting it in breach of debt covenants and sending its shares down as much as 6.8 percent.

Cliffs said the non-cash charge would increase its debt-to-capital ratio over the 45 percent threshold set by its credit facility, and it was working with bankers to amend the covenant.

"... We believe this will result in higher interest rate on revolver borrowings going forward," FBR Capital Markets analysts wrote in a note.

Cliffs said the third-quarter charge was related to iron ore for export and coal used in steel-making.

Coal prices have halved over the past three years, while iron ore prices have dropped about 40 percent this year alone due to excess supplies and sluggish steel demand from China.

Cliffs replaced its chief executive in July and said it would sell underperforming assets after New York-based fund Casablanca Capital triumphed in a proxy battle.

"It essentially confirms ... that the vast bulk of the company's investments in the last decade prior to the appointment of new CEO Lourenco Goncalves was misspent," BMO Capital Markets analyst Tony Robson wrote in a note.

Cliffs said in May it expects seaborne iron ore and metallurgical coal prices to remain weak in the near term, which would reduce revenue in most of its businesses.

FBR Capital Markets said it believed the biggest contributor to the writedown would be the Eastern Canadian iron ore business, including its Bloom Lake iron ore mine in Quebec.

Cliffs said in February it could idle, sell or work out a deal with a strategic partner at Bloom Lake.

It bought Bloom Lake as part of its takeover of Consolidated Thompson Iron Mines Ltd in 2010 but higher-than-expected costs at the mine have weighed on Cliffs' earnings.

Cliffs delayed expansion of the mine in 2012 and took a $1 billion goodwill writedown related to the deal.

Cliffs has a debt-to-capital ratio of 25.1 percent, according to Thomson Reuters StarMine. Debt-laden coal miners Arch Coal Inc and Walter Energy Inc have ratios of over 50 percent.

The company said it had no drawings on its $1.25 billion revolving credit facility as of Sept. 30 and expects to have closed the third quarter with about $250 million of cash.

Cliffs is expected to post a quarterly loss of 1 cent per share on revenue of $1.29 billion when it reports on Oct. 27, according to Thomson Reuters I/B/E/S.

"Depending on the final level of the impairment charge, plus the extent of a likely loss in Q3, shareholders' funds may well be wiped out and could even end up slightly negative," said BMO's Robson.

The company's shares hit a low of $8.77 before recovering a little to $8.91. They have more than halved this year. (Editing by Don Sebastian)

Reuters
Copyright:
Reuters
Published on:
October 17, 2014
Source url:
http://feeds.reuters.com/~r/reuters/USenergyNews/~3/WEOMD8lLRyw/story01.htm
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