Scotiabank sues Cliffs Natural for breach of debt terms

The Globe and Mail
By: Bertrand Marotte
Mar. 19 2015

U.S. mining giant Cliffs Natural Resources Inc. has hit a bump in an anticipated smooth exit from its iron ore mining operations in Bloom Lake, Que.

Bank of Nova Scotia has filed a lawsuit against Cleveland-based Cliffs alleging the company breached the terms of a loan agreement when it got court-ordered bankruptcy protection for the mine.

At the same time, the Cleveland-based company announced plans to raise $500-million (U.S.) to repay debts under its existing credit facility. It is unclear whether some of the proceeds will be used to pay the Canadian bank.

Cliffs said in a letter last month that it is not obligated to pay, according to the March 16 filing in U.S. District Court for the Northern District of Ohio.

Bloom Lake is the “cancer that we have to take out,” outspoken Cliffs chairman and chief executive officer Lourenco Goncalves said on a conference call last month, assuring investors that the mine had been “ring-fenced” from its parent company.

Bloom Lake was plagued by higher-than-expected costs and the fall in the price of iron ore.

Mr. Goncalves said last November that his predecessors made a major mistake investing billions of dollars in Canadian iron ore and other mining assets.

Cliffs, the biggest U.S. iron ore producer, has spent about $6-billion on Bloom Lake over the past three years but never made a profit, Mr. Goncalves said then.

Scotia spokesman Andrew Chornenky said on Thursday the bank does not comment on matters before the courts.

A Cliffs official did not immediately respond to a request for comment.

The 2013 loan agreement for the acquisition of equipment was between a subsidiary of Scotia and Cliffs, according to the filing in Ohio court.

Mr. Goncalves said in February that unsuccessful attempts were made to sell the Bloom Lake assets before it was decided to opt for CCAA.

Among the Bloom Lake liabilities are more than $90-million owed as a result of a court decision in a suit over contractual delivery obligations and $450-million over three years to be paid to a rail unit of Iron Ore Co. of Canada.

Bloom Lake was acquired as part of a $4.3-billion takeover of Consolidated Thompson Iron Mines Ltd. in 2011, before Mr. Goncalves took over last August amid a board shakeup following an investor proxy fight.