The iron ore industry never ceases to evolve. Whereas just last week we reported the [potential] death of the quarterly iron ore contract, major US iron ore producer Cliffs Natural Resources has made the plunge to diversify its iron ore holdings by investing in IOCG holdings in Latin America. IOCG refers to iron oxide, copper and gold. Okay you say, what’s the big deal? The big deal involves a new direction for the primarily iron ore mining firm by looking at “multi-product mines and using the by-product credits of the copper and gold to make the mining of iron oxide economical. In an interesting article in Resource Investor, the author suggests Cliffs has officially moved to the Starbucks model meaning the company will begin to leverage its expertise in mining iron ore to other products. (The analogy relates to Starbuck’s as primarily a coffee house but with a slew of other ancillary revenue streams on top of the core product think pastries, CD’s, mugs etc)
Cliffs has announced several interesting investments in recent days from the IOCG investments in both Mariana Resources and this one in Mexico with Riverside Resources to a majority position in Spider Resources. Spider Resources has several major diamond deposits but also has a significant chromite deposit with PGE (platinum group elements) as well as a VMS (volcanic massive sulphide) deposit thought to contain copper, zinc, lead, silver and gold as well was a range of by-products including tin, cadmium, antimony and bismuth.
These moves are bold steps for a mining company that essentially supplies iron ore pellets to the US integrated steel community (according to the Cliffs website, nearly 100% of current capacity is sold via long term contracts). The company also supplies some coking and metallurgical coal and has primarily supplied these materials since the founding of the company back in the 1840’s. Given the recent volatility in the global iron ore market along with supply constraints within various raw materials markets (e.g. chrome, antimony etc) we aren’t surprised Cliffs has decided to leverage its metallurgical expertise to expand its mining capabilities across products.
As with any “grow-the-wallet-strategy if you can call it that, the moves are not without risk. However, Cliffs Natural Resources probably more than many mining companies has deep expertise and the strategy could indeed prove to be a very interesting one.