Cliffs scraps dividend to help pay down debt amid iron ore slump

Cliffs Natural Resources Inc., the largest U.S. iron-ore producer, will stop paying a dividend as it tries to cut its debt amid a slump in the price of the steelmaking raw material.

The Cleveland-based company was previously paying shareholders 15 cents a share each quarter. Eliminating the dividend will give Cliffs $92-million a year of extra free cash to use to pay down debt, it said Monday in a statement.

Cliffs also said it cut its net debt by more than $400-million in the fourth quarter.

"We see accelerated debt reduction as a more effective means of protecting our shareholders than continuing to pay a common share dividend," Chairman and Chief Executive Officer Lourenco Goncalves said in the statement.

Iron ore has tumbled by about half in the past 12 months amid a slowdown in the Chinese steel industry and the addition of new capacity in Australia. Cliffs, which installed Goncalves as CEO in August after an activist investor won a proxy contest, is focusing on its U.S. iron-ore business. The company has ended production at its Bloom Lake mine in Canada, which it purchased as part of a $4.3-billion takeover in 2011, and earlier this month sold some of its U.S. coal assets.

Cliffs fell 3.6 per cent to $7.22 at the close in New York. The shares have declined 63 per cent in the past 12 months.

Dashed Plans The collapse in iron-ore prices has thwarted efforts by activist investor Casablanca Capital LLC to get Cliffs to double its dividend. After going public with a series of demands last January, Casablanca – which also pushed for the company to convert its U.S. assets to a master limited partnership – won a proxy contest in July with the election of its slate of directors, including Goncalves, on the Cliffs board.

With iron ore tumbling, though, Goncalves said in October that a higher dividend was something Casablanca had promised, not him. "I'm not Casablanca," he said in a phone interview at the time.

Scrapping the dividend now was a "foregone conclusion," Philip Gibbs and Tyler Kenyon, Cleveland-based analysts for KeyBanc Capital Markets, said in a note today. They described the step as a "necessary action" to ensure enough cash for debt reduction.

The company last suspended its dividend in 2002, according to data compiled by Bloomberg.