Cleveland-Cliffs Sees Progress on Toledo Hot Briquetted Iron Plant Project

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Researched by Industrial Info Resources (Sugar Land, Texas)--Cleveland-Cliffs Incorporated's (NYSE:CLF) (Cleveland, Ohio) $700 million hot briquetted iron (HBI) ore project in Toledo, Ohio, is on time and on budget, company Chief Executive Officer Lourenco Goncalves said on Friday.

Located in the Port of Toledo, the plant will produce 1.6 million metric tons per year of HBI for electric arc furnace (EAF) steelmakers in the Great Lakes region, with the project's completion expected in mid-2020. Cleveland-Cliffs estimates the Great Lakes market at 3 million metric tons per year. That market has been supplied by imported commercial-grade pig iron and HBI, according to the company.

A groundbreaking ceremony for the new plant was held in April this year. The project will utilize Midrex Technologies Incorporated's (Charlotte, North Carolina) gas-based direct reduction process. For more information, see April 12, 2018, article - Cleveland-Cliffs Breaks Ground on Hot Briquetted Iron Plant.

Industrial Info is tracking $4.27 billion in project activity related to the production of HBI in the U.S. and Canada.

Click on the image at right for a graph showing U.S. and Canadian HBI project activity

The company plans to spend $175 million this year on the project, Chief Financial Officer Timothy Flanagan told investment analysts last week during Cleveland-Cliffs' third-quarter 2018 earnings conference call. Goncalves said more than 70% of the planned project expenditures have been contracted, adding he believes the project has progressed to the point that the risks of a cost overrun have been eliminated. For more information, see Industrial Info's project report.

Cleveland-Cliffs began receiving steel this month for the 400-foot-tall plant tower, Goncalves said.

The plant's Toledo location will enable it to receive iron ore pellets produced by Cleveland-Cliffs in Michigan and Minnesota, according to the company. Goncalves said the company will begin diverting 500,000 tons of iron ore pellets next year as inventory for the new HBI plant.

The company plans to spend $50 million this year on a pellet plant upgrade and optimization project at its 6 million-ton-per-year mining operation in Silver Bay, Minnesota. The project involves upgrading the 100,000-ton-per-year pellet plant to supply 2.5 million tons per year of taconite pellets to the HBI plant in Toledo. Lakehead Constructors Incorporated (Superior, Wisconsin) is the general contractor for the mine project. Completion is presently expected in mid-2019. For more information, see Industrial Info's project report.

Cleveland-Cliffs reported its third-quarter net income was $438 million, compared with $53 million in the prior-year third quarter. The company reported a $228 million gain in the just-ended quarter from the sale of its Asia Pacific Iron Ore assets to Mineral Resources Limited (Applecross, Western Australia).

The company also benefited from growing iron ore pellet sales, which totaled 6.5 million long tons, a 10% increase from sales in third-quarter 2017. Revenue per ton increased 17% from the prior-year period. Cleveland-Cliffs expects full-year 2018 sales volumes to be 21 million long tons.

"It has now become abundantly clear to the market in general that global supply-demand dynamics have shifted favorably towards producers of high-grade iron units," Goncalves said in the company's earnings press statement.

Goncalves noted the resurgence of the domestic steel industry as a result of trade tariffs and tax reform under the Trump administration. For related information, see October 19, 2018, article - Steel Dynamics, Nucor Celebrate Third-Quarter Results, Further Capital Investments

Goncalves also noted that a new four-year labor contract agreement was reached recently with the United Steelworkers, covering workers at Cleveland-Cliffs' United Taconite and Hibbing mines in Minnesota as well as its Tilden and Empire mines in Michigan. The new agreement will cost Cleveland-Cliffs an additional $80 million over the span of the contract, which amounts to about $1 per ton of the iron ore that the company expects to produce over the next four years, he said. For more information, see October 3, 2018, article - Industrial Info Tracking $1.8 Billion in U.S. Iron Mine Projects.

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