O'Keeffe's Buying Opportunity in the Labrador Trough
Issue 108, December 2014
TWO FORCES are at work in Canada’s iron ore capital the Labrador Trough: Michael O’Keeffe and the iron ore price. And they appear to be working together.
A former Glencore boss, O’Keeffe’s forte is spotting basin-scale opportunities, laying a route to market and being on the right side of the cycle. In 2004 he founded Riversdale Mining, a coal explorer in Mozambique valued at less than $10m. Riversdale raised $250m in early 2008, traded below its cash backing in 2009 and was bought out by Rio Tinto for $3.9bn in 2011. Encapsulating what the cycle can give and what it can take away, Rio sold on the assets earlier this year for $50m.
The iron ore price, dropping below $70 per tonne last week, has meanwhile whacked the Labrador Trough. Cliffs Natural Resources has closed its Wabush and Bloom Lake mines, Tata Steel and Labrador Iron have both idled production, debt funding for Alderon’s Kami project has stalled and Rio Tinto’s giant IOC operations have failed to find a buyer.
“What I look for is good resources around the world,” O’Keeffe tells Global Mining Observer, “whether it’s coal, or iron ore, or copper. That’s what we chase and when the markets are as dire as they are at the moment, that creates a buying opportunity."
Having sold Riversdale, O’Keeffe began investing in “banks and telco’s and things like that and we did very well.” He also invested in coal and in an iron ore project in Canada, owned by ASX-listed Mamba Minerals.
When O’Keeffe was asked to put a second tranche of funding into the company, he flew to Canada, took a helicopter over the Labrador Trough and decided to have a tilt at consolidating some sizable assets. “Unless you start a journey, you’re never going to end up somewhere.”
O’Keeffe became chairman and in a $60m all-paper deal, folded Mamba into Toronto-listed Champion Iron. “Champion had a market cap of $30m, they had 500m tonnes of reserves and 2bn tonnes of resource and very high grade material. I sent the geo’s that I use in and they said, just pin your ears back and go for it, so that’s all I needed to know.”
He moved his family from Australia and the company’s head office from Toronto and put both in Montreal.
As O’Keeffe moves into the region, Cleveland-based Cliffs is desperate to cut loose. The company bought out its partner in Wabush for $88m in 2010 and spent close to $5bn buying Bloom Lake in 2011, but like Rio Tinto in Mozambique, having written the assets down, is now keen to give them away.
Cliffs was in talks with steel groups to fund a $1.2bn expansion of Bloom Lake that would have lowered costs, but they have seemingly collapsed, turning attention to closure costs, estimated at $650m to $700m.
Cliffs has “never made a penny” in Canada, its forthright chief executive Lourenco Goncalves has said and it’s a “toss-up” whether the company will be able to offload the mine.
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