Cliffs Natural Resources' Leader says Company is 'Headed in the Right Direction'
05/01/2013 - As the company reported its first quarter earnings results, Cliffs Natural Resources' chairman, president and CEO Joseph Carrabba said the company in headed in the right direction and anticipates the end markets for its products to remain healthy.
Cliffs Natural Resources Inc. reported first-quarter results for the period ended 31 March 2013. Consolidated revenues of US$1.1 billion decreased US$72 million, or 6%, from the previous year. The lower revenues were driven by a 10% decrease in global iron ore sales volumes, which contributed to a 2% decrease in cost of goods sold to US$903 million. Consolidated sales margin decreased 18% in the first quarter to US$238 million, from US$292 million in the same quarter last year. Global seaborne iron ore pricing for a 62% Fe fines product (C.F.R. China), a significant factor in the company's profitability, remained relatively flat, averaging US$148 per ton, an increase of 3% over the first quarter of 2012.
Joseph Carrabba, Cliffs' chairman, president and chief executive officer, said, "We are headed in the right direction in 2013. During the first quarter, we took deliberate measures to reduce our balance sheet leverage and improve our cash position. Also, our operating teams are taking a pragmatic approach to reduce operating costs across the board. We expect these initiatives will position the company to successfully manage through volatile pricing environments."
During the quarter, the company reported net income attributable to Cliffs' common shareholders of US$97 million, or US$0.66 per diluted share, compared with US$376 million, or US$2.63 per diluted share, in the first quarter of 2012. First-quarter 2013 results included an income tax benefit of US$6 million, driven by the Company's expected full-year income tax effective rate before discrete items of 1%, partially offset by certain discrete items. Also, the prior year's first-quarter results included a non-cash deferred tax benefit of US$255 million primarily related to the enactment of Australia's Mineral Resources Rent Tax, which was partially offset with certain other discrete tax items. Excluding the discrete tax items from both periods, the Company's adjusted net income attributed to common shareholders for the first quarter of 2013 was US$89 million, or US$0.60 per diluted share, compared to US$121 million, or US$0.85per diluted share, in the prior year's first quarter.
U.S. Iron Ore
First-quarter 2013 U.S. Iron Ore pellet sales volume was 3.1 million tons, compared with 3.4 million tons in the first quarter of 2012. The decrease was primarily driven by lower year-over-year volume to one customer due to its bankruptcy in May of 2012. Cliffs also indicated first-quarter U.S. Iron Ore sales volume is historically lower compared with other periods due to seasonal shipping constraints on the Great Lakes.
U.S. Iron Ore 2013 first-quarter revenues per ton were US$119.82, up 2% from US$117.40 in the year-ago quarter. The increase was primarily attributable to customer mix and favorable provisional pricing settlements when compared to the first quarter of 2012.
Cash cost per ton in U.S. Iron Ore was US$60.17, down 2% from US$61.14 in the prior year's first quarter. The decrease was primarily attributed to lower maintenance expenses.
Easter Canadian Iron Ore
First-quarter 2013 Eastern Canadian Iron Ore sales volume was 1.9 million tons, relatively flat with the prior year's comparable quarter. The sales volume mix included 1.5 million tons of iron ore concentrate and approximately 400,000 tons of iron ore pellets. As previously disclosed on March 11, 2013, Cliffs announced its intention to idle the Wabush Pointe Noire Pellet Plant by the end of this year's second quarter. Subsequent to idling the pellet plant, the Company expects to only produce a concentrate product from Wabush's Scully Mine.
Eastern Canadian Iron Ore 2013 first-quarter revenues per ton were US$131.95, up 13% from US$116.40 in the prior year's first quarter. The higher per-ton revenues were attributable to favorable provisional pricing settlements, lower freight rates, and a 3% year-over-year increase in seaborne iron ore pricing.
Cash cost per ton in Eastern Canadian Iron Ore was US$99.41, down 4% from US$103.96 in the year-ago quarter. The decrease reflected lower cash costs at Bloom Lake Mine of US$89 per ton, down 9% from the prior year's comparable quarter, primarily due to lower transshipping costs, reduced demurrage and lower contractor spending. First-quarter 2013 cash costs at Wabush Mine were US$135 per ton, up 12% from the year-ago quarter, primarily driven by higher mining costs.
Asia Pacific Iron Ore
First-quarter 2013 Asia Pacific Iron Ore sales volume decreased 17% to 2.3 million tons, from 2.8 million tons in 2012's first quarter. The decrease was attributed to vessel timing and the absence of sales volume from Cliffs' Cockatoo Island operation, which ceased production during the third quarter of 2012.
Revenues per ton for 2013 first-quarter decreased 9% to US$117.48, from US$129.75 in last year's first quarter. The decrease was primarily driven by lower revenue realizations due to lower iron ore grades, as well as customer mix, where certain customers utilize quarterly lagging pricing mechanisms. This was slightly offset by the higher year-over-year average seaborne iron ore pricing.
Cash cost per ton in Asia Pacific Iron Ore increased 2% to US$75.10, from US$73.86 in 2012's comparable quarter. The year-over-year increase was primarily attributable to higher mining and logistic costs as a result of increased production volumes and inventory stockpile movement due to a buildup of inventory in the first quarter.
North American Coal
For the first quarter of 2013, North American Coal sales volume was 1.8 million tons, a 27% increase from the 1.4 million tons sold in the prior year's comparable quarter. The increase was driven by significantly higher sales volume from Cliffs' Oak Grove Mine. During 2012's first quarter, Oak Grove's preparation plant and load-out facilities were not fully operational due to severe weather damage in 2011.
North American Coal's 2013 first-quarter revenues per ton were down 9% to US$110.35, versus US$121.61 in the first quarter of 2012. The decrease was primarily driven by lower year-over-year spot pricing for metallurgical coal products.
Cash cost per ton decreased 6%, to US$91.16, from US$97.01 in the year-ago quarter. First-quarter 2013 cash costs per ton benefited from lower maintenance and employment-related expenses. Also, the increased sales volumes resulted in improved fixed-cost leverage.
Outlook
Looking ahead, Cliffs anticipates the end markets for its products to remain healthy. In the first quarter of 2013, China's annualized crude steel production achieved record levels, while utilization rates in North American remained stable. The company expects pricing for the commodities it sells to remain volatile, with the potential to significantly decrease or increase at any point in time. Due to this expected volatility and for the purpose of providing a full-year outlook, Cliffs will utilize the year-to-date average Platts 62% Fe seaborne iron ore spot price as of 31 March 2013 of US$148 per ton (C.F.R. China), as a base price assumption for providing its full-year revenue-per-ton sensitivities for the Company's iron ore business segments. Cliffs indicated this assumption does not reflect the company's internal expectation of full-year seaborne iron ore pricing. As such, with US$148 per ton as a base-price assumption for the full year, included in the table below is the expected full-year revenue-per-ton range for the company's iron ore business segments and the per-ton sensitivity for each US$10-per-ton variance from the base-price assumption. The full-year sensitivity per ton for each respective iron ore business segment below reflects the sales volume and realized price achieved for first-quarter 2013 results and Cliffs' realized expectation for the remaining periods in 2013.
Looking ahead, Cliffs anticipates the end markets for its products to remain healthy. In the first quarter of 2013, China's annualized crude steel production achieved record levels, while utilization rates in North American remained stable. The company expects pricing for the commodities it sells to remain volatile, with the potential to significantly decrease or increase at any point in time. Due to this expected volatility and for the purpose of providing a full-year outlook, Cliffs will utilize the year-to-date average Platts 62% Fe seaborne iron ore spot price as of 31 March 2013 of US$148 per ton (C.F.R. China), as a base price assumption for providing its full-year revenue-per-ton sensitivities for the Company's iron ore business segments. Cliffs indicated this assumption does not reflect the company's internal expectation of full-year seaborne iron ore pricing. As such, with US$148 per ton as a base-price assumption for the full year, included in the table below is the expected full-year revenue-per-ton range for the company's iron ore business segments and the per-ton sensitivity for each US$10-per-ton variance from the base-price assumption. The full-year sensitivity per ton for each respective iron ore business segment below reflects the sales volume and realized price achieved for first-quarter 2013 results and Cliffs' realized expectation for the remaining periods in 2013.
U.S. Iron Ore Outlook (Long Tons)
For 2013, the company is increasing its sales volume expectation to 21 million tons from its previous estimate of 20 million tons. The increase is primarily driven by increased pellet demand from U.S.-based customers. Cliffs is maintaining its expected production volume in U.S. Iron Ore of 20 million tons.
For 2013, the company is increasing its sales volume expectation to 21 million tons from its previous estimate of 20 million tons. The increase is primarily driven by increased pellet demand from U.S.-based customers. Cliffs is maintaining its expected production volume in U.S. Iron Ore of 20 million tons.
The U.S. Iron Ore revenues-per-ton sensitivity included within the 2013 revenue sensitivity summary table above also includes the following assumptions:
- 2013 United States and Canada blast furnace steel production of 40–45 million tons
- 2013 average hot rolled steel pricing of US$630 per ton
- Approximately 50% of the expected 2013 sales volume is linked to seaborne iron ore pricing
In addition, the revenues-per-ton sensitivity also considers various contract provisions, lag-year adjustments and pricing caps and floors contained in certain supply agreements. Actual realized revenue per ton for the full year will depend on iron ore price changes, customer mix, production input costs and/or steel prices (all factors contained in certain of Cliffs' supply agreements).
Cliffs is maintaining its 2013 full-year U.S. Iron Ore cash-cost-per-ton expectation of US$65–US$70, and depreciation, depletion and amortization is expected to be approximately US$6 per ton.
Eastern Canadian Iron Ore Outlook (Tonnes, F.O.B. Eastern Canada)
For 2013, Cliffs is maintaining its full-year sales volume expectation of 9–10 million tons. Full-year production volume is also expected to be 9–10 million tons. Due to the recently announced adjustment to Wabush's product mix, Cliffs expects to sell approximately 1.5 million tons of iron ore pellets, with iron ore concentrate sales making up the remainder of the expected sales volume range.
For 2013, Cliffs is maintaining its full-year sales volume expectation of 9–10 million tons. Full-year production volume is also expected to be 9–10 million tons. Due to the recently announced adjustment to Wabush's product mix, Cliffs expects to sell approximately 1.5 million tons of iron ore pellets, with iron ore concentrate sales making up the remainder of the expected sales volume range.
The Eastern Canadian Iron Ore revenues-per-ton sensitivity is included within the 2013 revenues-per-ton sensitivity table above. Full-year 2013 cash cost per ton in Eastern Canadian Iron Ore is expected to be US$95–US$100.
The company is maintaining its full-year cash-cost-per-ton expectation at Bloom Lake Mine and Wabush Mine of US$85 - US$90 and US$115–US$120, respectively. Depreciation, depletion and amortization is expected to be approximately US$18 per ton for full-year 2013.
Asia Pacific Iron Ore Outlook (Tonnes, F.O.B. the port)
Cliffs is maintaining its 2013 full-year Asia Pacific Iron Ore expected sales and production volumes of approximately 11 million tons. The product mix is expected to be approximately half lump and half fines iron ore.
Cliffs is maintaining its 2013 full-year Asia Pacific Iron Ore expected sales and production volumes of approximately 11 million tons. The product mix is expected to be approximately half lump and half fines iron ore.
The Asia Pacific Iron Ore revenues-per-ton sensitivity is included within the 2013 revenues-per-ton sensitivity table above. Cliffs is lowering its revenue-per-ton expectation by US$5 per ton due to the challenging iron ore grades the Company expects to incur for the remainder of the year.
Cliffs is maintaining its 2013 full-year Asia Pacific Iron Ore cash-cost-per-ton expectation of US$70 - US$75, and depreciation, depletion and amortization is anticipated to be approximately US$15 per ton for the year.
North American Coal Outlook (Tons, F.O.B. the mine)
The Company is maintaining its 2013 full-year North American Coal expected sales and production volumes of approximately 7 million tons. Sales volume mix is anticipated to be approximately 67% low-volatile metallurgical coal and 25% high-volatile metallurgical coal, with thermal coal making up the remainder.
The Company is maintaining its 2013 full-year North American Coal expected sales and production volumes of approximately 7 million tons. Sales volume mix is anticipated to be approximately 67% low-volatile metallurgical coal and 25% high-volatile metallurgical coal, with thermal coal making up the remainder.
Cliffs' full-year North American Coal revenue-per-ton outlook is US$110–US$115. Cliffs has approximately 75% of its expected 2013 sales volume committed and priced at approximately US$110 per short ton at the mine.
Cliffs is maintaining its cash-cost-per-ton expectation of US$95–US$100. Full-year 2013 depreciation, depletion and amortization is expected to be approximately US$16 per ton.
Cliffs Natural Resources Inc. is an international mining and natural resources company. A member of the S&P 500 Index, the Company is a major global iron ore producer and a significant producer of high- and low-volatile metallurgical coal. Cliffs' strategy is to continually achieve greater scale and diversification in the mining industry through a focus on serving the world's largest and fastest growing steel markets. Driven by the core values of social, environmental and capital stewardship, Cliffs associates across the globe endeavor to provide all stakeholders operating and financial transparency.
