The process to offload Cliffs Natural Resources' WA iron ore mines has started in earnest, with the US-based miner appointing corporate advisers to manage the sale of the 11 million tonne-a-year Koolyanobbing operation.
Jefferies Group will sell Cliffs' Australian iron ore mines, according to Dow Jones Newswires. Industry sources say Jeffries is yet to reach out to potential local buyers, though Cliffs has already fielded early interest, including from Chinese steelmakers such as Baosteel and Wuhan Iron and Steel.
Sources say Korea's POSCO, a shareholder in Gina Rinehart's $10 billion Roy Hill iron ore project, and part-owner with Bao- steel of Aquila Resources' West Pilbara project, also ran a ruler over Koolyanobbing this year.
The assets are also likely to be the subject of bids from local producers. Mineral Resources is an obvious bidder given its Yilgarn assets sit near Koolyanobbing, and Chris Ellison has already expressed public interest in acquiring the project. It is understood Tony Sage's Cape Lambert Resources has approached Cliffs over a potential purchase and other local producers are also believed to have put out feelers.
Price will be a major issue. While the most bullish US estimates put an unlikely $1 billion price tag on Koolyanobbing, the true sale price is likely to be far less.
Analysts estimate production costs at between $US75/t and $US79/t. Koolyanobbing made a $US36 million gross operational profit in the June quarter, when benchmark iron ore prices averaged $US103/t and the company received $US80.38/t for its ore.
The price will also be affected by its short mine life - it is expected to be mined out by 2020. - and a sale could trigger a wave of regional consolidation.
Smaller players such as Cazaly Resources are seen as less likely bidders, but Cazaly's Parker Range project could add years of mine life to the Cliffs operation, potentially putting it and other regional projects on the radar of Cliffs' suitors.