By Stephen Bell
PERTH--The chief executive of Cliffs Natural Resources Inc.
(CLF) urged global iron-ore miners to rethink plans to ramp up
supply of the steel-making commodity aggressively, saying the
consequences for Australia could be especially severe.
Iron-ore prices have roughly halved to US$58 a metric ton over
the past year because of increased exports from Australia's Pilbara
region. The downturn has been exacerbated by weaker demand in
China--the world's biggest importer of iron ore.
Cliffs CEO Lourenco Goncalves said a further fall in iron-ore
prices to about US$30/ton could lead to "Australia going out of
business as a country, because this is the most important
commodity."
Big, low-cost Australian exporters such as Rio Tinto PLC (RIO)
and BHP Billiton Ltd. (BHP) have been ramping up production from
the Pilbara in spite of the falling iron-ore price, prompting some
critics to argue their strategy is to undercut higher-cost
competitors at home and abroad.
BHP and Rio Tinto counter this view by saying that if they don't
raise production then their rivals will, and higher exports deliver
better economic returns for their shareholders.
"I respectfully disagree," said Mr. Goncalves. "I call it
self-destruction. We are not just talking about an app that you
delete from your iPhone and it's gone."
Still, Mr. Goncalves said that he doesn't believe the Australian
government should step in to force companies to change their
approach. Instead, he believes the big miners' shareholders will
press for a shift in strategy.
"If iron ore continues to deteriorate, the history of Australia
as a country will be changed, so we need to think about this
consequence, before we just assume it is business like business,"
he said on the sidelines of a conference in Perth, Western
Australia state.
"They will have to keep this price down forever, because even if
Fortescue Metals Group (FMG.AU) and everybody else in Australia go
broke it doesn't mean that the assets will not be bought by someone
later and restarted," he added.
Since taking over as Cliffs' CEO in August, Mr. Goncalves has
been restructuring the company to focus on supplying iron ore from
its U.S. mines to domestic steel producers, while moving away from
the seaborne trade.
This strategy includes a potential sale of Cliffs' Koolyanobbing
mine in Western Australia, where mining can only continue for a
further five years at current rates before its iron-ore reserves
are exhausted, Mr. Goncalves said.
The Koolyanobbing mine is up for sale and "even if someone came
in to shut it down that is fair game," he said. Still, he expressed
a preference for selling it to a company which would keep the
operation running.
Several parties have visited a data room set up by Cliffs, he
said. He declined to identify any of potential bidders.
-Write to djnews.sydney@dowjones.com
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