Mining can simultaneously be sustainable and environmentally friendly when pursued by companies that make a long-term commitment to the industry, Cliffs Natural Resources’ chairman, president and chief executive told the Society for Mining, Metallurgy & Exploration Wednesday.

In a speech that largely addressed corporate issues, Lourenco Goncalves stressed the importance of controlling costs, carefully allocating capital, managing risk and retaining the right people. The 59-year-old engineer further said that protecting price will ensure success. 

“If you are running a business, trying to lower costs and then passing that along in your price – you are killing yourself. If you add another player or have a market that’s not growing, guess what? Prices will deteriorate. If a player is smart enough, you reduce capacity, because protecting price is what generates jobs and generates business,” Goncalves said. Regional mining and steel companies encountered that challenge in recent years. A flood of new overseas mines combined with a flood of foreign steel hammered domestic producers by driving ore and steel prices below the break-even point. 

Goncalves also advised corporate executives to keep tight control of capital allocation. Even when business performance is good, he said, it’s easy to lose track of priorities and make bad decisions. He used Cliffs as an example. Before he led a hostile takeover of the corporation in 2014, Goncalves said, it had drifted from its core market by purchasing iron ore and chromium mines in Canada and coal mines in the United States.

“One mistake today will create a serious issue five or 10 years down the road. The next generation will pay for it. This is serious stuff,” he said.

It’s critical to manage risks in the mining business, Goncalves added, and equally important, to ensure that risk doesn’t rise as a result of trimming costs.

He advocated hiring the children of existing employees.

“That’s what gives us the ability to have a culture surrounding mining – to have a real understanding of what mining’s all about. It also helps us be environmentally friendly, because if you pollute around your home, that’s where you’re raising your kids. That’s how you create real environmental compliance,” he said.

Expanding on that topic, he said “If you are not environmental compliant, you will be out of this business in no time.” China, Goncalves explained, was able to abuse its environment when the country was largely closed to visitors. Today, being open to the world, that’s no longer possible. It will have to begin using pellets instead of pollution-prone iron ore fines. And Australia, a large ore supplier to China, lacks sufficient water to make pellets.

He named the Samarco mine in Brazil, jointly owned by BHP Billiton and Vale, as a poor environmental steward. On Nov. 5, 2015, a tailings dam broke, killing 19 people and polluting hundreds of miles of rivers. Clean-up costs are estimated at $40 billion, and the owners lack those funds.

BHP, Rio Tinto and Vale, the world’s largest iron ore producers, control the price of iron ore, he suggested. It can be manipulated to drive competitors out of business, Goncalves lamented. But in the process, they might pare their own profits so much that shareholders revolt.

“It will be fun to watch,” he said. 

Cliffs has been in business for 170 years, making it one of the country’s oldest companies. That longevity is a key selling point, Goncalves said, noting the company has established lengthy relationships with its pellet customers.

“Those who don’t have long-term commercial contracts don’t have a clue what they’re doing,” he said about his competitors.

The Cleveland-based company has reduced its net debt by $2 billion during his tenure. It will dip below $1 billion by the end of 2017. The future debt level depends on when Cliffs invests in direct reduced iron production. One plant could cost $700 million, and Goncalves hopes to establish several to serve the needs of electric arc furnaces, which don’t use taconite pellets.

In Minnesota, ore near Nashwauk would be ideal, although the company already produces a DR-grade pellet at North Shore Mining in Silver Bay. It has two DR customers – Nucor and Arcelor-Mittal Canada. Goncalves said he wants to develop Cliffs’ first DRI facility at the Mesabi Metallics site, and Cliffs has support from Gov. Mark Dayton, U.S. Rep. Rick Nolan, and U.S. Sens. Al Franken and Amy Klobuchar. The situation, however, is in the hands of a bankruptcy court judge.

“We have support from the political side, but unfortunately the courts don’t work that way. I’m following procedures.

"It’s time for us. The market’s ready (for a DRI plant). If I can’t do it here, I’ll do it somewhere else,” he said.

Cliffs, however, won’t invest in its own electric arc furnaces, Goncalves said during a question/answer period. Instead, the company will follow its long-term path of mining and processing ore for independent steelmaker customers. 

“DRI is our future,” he said. “I’m talking about a sustainable, long-term business, not a one-time shot.”