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Cleveland-Cliffs Reports 4th Quarter
and Full Year Results

Feb. 6, 2004 — Cleveland-Cliffs Inc. reported a fourth quarter net loss of $8.9 million and a net loss of $32.7 for the full year of 2003.

Fourth Quarter Results—Cliffs’ $8.9 million net loss ($.86 per diluted share) includes $17.2 million in charges related to the kiln shutdown at Tilden ($6.0 million); salaried employee reduction program ($2.5 million); acquisition and startup cost of the United Taconite Mine ($3.8 million); and accrual for stock-based compensation ($4.9 million), and an additional impairment charge ($2.6 million) for current year Empire fixed asset additions. Results also included an extraordinary gain of $2.2 million related to the acquisition of the Eveleth Mine assets by United Taconite. Excluding the extraordinary gain, the loss from continuing operations was $11.1 million ($1.07 per diluted share). In the fourth quarter of 2002, Cliffs recorded a net loss of $70.8 million ($7.01 per share).

Iron ore pellet sales were 5.6 million tons compared to 4.5 million tons in the fourth quarter of 2002. Cliffs' share of iron ore pellet production in the fourth quarter was 4.8 million tons versus 4.2 million tons in 2002.

Full Year Results—Cliffs’ 2003 net loss of $32.7 million ($3.19 per share) compares with $188.3 million ($18.62 per share) for 2002. Excluding the extraordinary gain (see above), the loss from continuing operations was $34.9 million ($3.40 per diluted share). The 2002 net loss included a loss of $108.5 million from a discontinued operation, and a $13.4 million charge related to a cumulative effect of accounting change. Excluding these charges, the 2002 loss from continuing operations was $66.4 million ($6.58 per diluted share).
Results in 2002 also included a $52.7 million asset impairment charge to write off the long-lived assets of the Empire Mine.

Iron ore pellet sales volume was up 31% for the full year, 19.2 million tons versus 14.7 million tons in 2002.
Royalties and management fees from partners were $10.6 million, a decrease of $1.6 million from 2002. The decrease was principally due to the whole year effect of the Company's increased mine ownership in 2002, partially offset by increased production.

Administrative expenses were $25.1 million in 2003, an increase of $1.3 million from 2002. The increase primarily reflects higher professional fees related to financing and business development activities and higher stock-based compensation, partially offset by lower employment costs and incentive compensation. The increase in stock-based compensation of $4.3 million principally reflected the approximate 157% increase in the company's common stock price during 2003.

Interest income of $10.6 million in 2003 was $5.8 million above 2002 income of $4.8 million. The increase primarily reflected interest on the long-term receivables from Ispat Inland and Rouge Industries Inc. Interest expense was $4.6 million in 2003, a decrease of $2.0 million from 2002 interest expense of $6.6 million. The decrease principally reflected lower average borrowing due to the repayment and cancellation of the company's $100 million revolving credit facility in October 2002 and repayment of a portion of the senior unsecured notes. The company made senior note repayments totaling $30 million in 2003, and paid off the balance early in 2004.

Other income of $11.4 million in 2003 was $2.3 million less than 2002. The decrease reflected two insurance recoveries in 2002 totaling $3.5 million partially offset by higher sales of non-strategic assets in 2003. Other expenses were $9.4 million in 2003, an increase of $1.5 million from 2002 expenses of $7.9 million. The increase primarily reflects coal retiree expense of $2.0 million and increased state and local taxes of $.4 million, partially offset by lower debt restructuring fees.

Cliffs' share of iron ore pellet production was 18.1 million tons versus 14.7 million tons in 2002. At the end of December, Cliffs had 4.1 million tons of pellets in inventory compared to 3.9 million tons at December 31, 2002. A significant percentage of the pellets in inventory at year-end are located in the lower great lakes region and will be sold early in 2004.

2003 Events—In November, the Tilden facility experienced a crack in a kiln riding ring requiring the shutdown of Unit No. 2 kiln in the pelletizing plant. Scheduled maintenance was accelerated to coincide with the kiln ring repair. The repair is expected to be complete by mid-February 2004. The resulting 2003 production loss was approximately .3 million tons. Fourth quarter sales were not impacted by the outage; however, fourth quarter results were adversely affected by $6 million due to the cost of the repair, cost of accelerated maintenance, and the effect of lost production on fixed costs.

In the fourth quarter 2003, the company recorded an additional restructuring charge of $2.5 million related to the company's previously disclosed salaried employee reduction program, resulting in a total reduction of 20% in salaried workforce, or 133 employees, at Cliffs' U.S. operations. Cliffs initiated the salaried employee reduction in the third quarter of 2003. The company had previously recorded a restructuring charge of $6.2 million in the third quarter 2003.

In December 2003, United Taconite LLC (70% owned by Cliffs and 30% owned by Laiwu Steel Group) acquired the mine assets of Eveleth Mine LLC in Minnesota for $3 million and the assumption of certain liabilities, primarily mine closure related environmental obligations. The mine resumed operations in late December and produced 80,000 tons of pellets for the year. Cliffs recorded a charge of $3.8 million in December related to the acquisition and start up of the mine. The company also recorded an extraordinary gain of $2.2 million as a result of this transaction, based on the values assigned to assets acquired and liabilities assumed.

In December, after International Steel Group Inc. completed a public offering of its common shares, Cliffs' investment value in ISG increased to $196.7 million from its original cost of $17.4 million. The "marked to market" gain of $179.3 million resulted in an after-tax credit to "Other comprehensive income" of $144.9 million. Cliffs is restricted from selling its shares until June 9, 2004.

On October 23, 2003, Rouge Industries, Inc., a significant pellet customer of Cliffs, filed for Chapter 11 bankruptcy protection and on January 30, 2004 sold substantially all of its assets to Severstal North America, Inc., a U.S. affiliate of OAO Severstal, Russia's second largest steel producer. The company's sales contract with Rouge, which provided that it would be the sole supplier of pellets to Rouge through 2012, was assumed by Severstal with minor modifications.

On January 29, 2004, Stelco Inc. obtained an order for protection under the Companies' Creditors Arrangement Act in Ont., Canada. Stelco is a 44.6% participant in Wabush Mines and U.S. subsidiaries of Stelco (which are understood not to have filed for creditor protection) own 14.7% of the Hibbing Taconite Co. Joint Venture and 15% of Tilden Mining Co. LC. At the time of the filing, the company had no trade receivable exposure to Stelco. Additionally, Stelco has met its cash call requirements at the mining ventures to date. The Company currently expects Stelco to continue its participation in the mining ventures.

Liquidity—At December 31, 2003, Cliffs had $67.8 million of cash and cash equivalents and $25 million of debt.

In January 2004, the company completed a private offering of $172.5 million of redeemable cumulative convertible perpetual preferred stock. The preferred stock will pay cash dividends at a rate of 3.25% per annum. The company expects the net proceeds to be approximately $166 million after offering expenses. A portion of the proceeds was utilized to repay the remaining $25 million of the company's senior unsecured notes early in 2004. The company has also used approximately $23 million to fund its underfunded salaried pension plan and intends to use some additional amounts for other pension funding obligations in 2004.

Outlook—The North American iron ore and steel markets are currently very strong and global demand for iron ore is at extremely high levels. With solid steel demand and improved pricing, most integrated steel producers are operating their mills at high utilization rates. Cliffs anticipates the demand for iron ore will remain high, and all company operations are currently scheduled to run at or near capacity. Given the current market conditions, the company expects that it will be able to sell all of its production this year.

John Brinzo, Chairman and CEO, said, "We are starting 2004 with a substantially improved balance sheet and a full order book, thus our prospects for this year are solid. We still must work to increase profit margins and improve the competitive position of our mines. Our 2004 sales volume is projected to be a record 22 million tons, a 15% increase from 2003."

Brinzo concluded, "We are excited about 2004. After three years of dealing with virtually the complete restructuring of our customer base, and remaking our company into a merchant mining company, we are at a point where our actions and a much stronger steel industry are expected to improve profitability for Cliffs."

Headquartered in Cleveland, Ohio, Cleveland-Cliffs Inc. is the largest producer of iron ore pellets in North America and sells the majority of its pellets to integrated steel companies in the United States and Canada. The company operates six iron ore mines located in Michigan, Minnesota and Eastern Canada.

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