Cliffs Natural Resources Inc. reported third-quarter results for the period ended 30 September 2012. Consolidated revenues decreased 26% for the third quarter to $1.5 billion, from $2.1 billion in the same quarter last year. This was primarily driven by a 36% decrease in year-over-year pricing for seaborne iron ore. Reduced revenues, along with increased labor, mining, and maintenance expenses resulted in a 76% decrease in consolidated sales margin to $198 million, compared with the third quarter of 2011.

Joseph A. Carrabba, Cliffs’ chairman, president and chief executive officer, said, "During this volatile pricing environment, management remains focused on executing the Phase II expansion at Bloom Lake and maintaining our cash dividend and investment-grade rating. Our U.S. Iron Ore business continues to deliver consistent performance, generating strong results quarter over quarter. With our diverse customer base in the U.S. and Asia, we believe the company is well positioned to manage through this business cycle."

Net income attributable to Cliffs’ common shareholders was $85 million down from $601 million in the third quarter of 2011. The decrease was primarily due to lower consolidated sales margin, as indicated above. Primarily driven by lower pricing, the company has reduced its anticipated full-year income from continuing operations. As a result, Cliffs decreased its expected full-year effective tax rate. Also during the quarter, Sonoma Coal was reported as a discontinued operation and generated a $2.7 million loss, which was included within net income attributable to Cliffs’ common shareholders.

Segment Results

U.S. Iron Ore
Third-quarter 2012 U.S. Iron Ore pellet ales volume was 6.6 million tons, compared with 7.9 million tons in the third quarter of 2011. The decrease was attributed to a lower demand for iron ore pellets and timing of vessel shipments. Cliffs indicated that sales volume recorded in third-quarter 2011 included 203,000 tons related to first-half shipments due to recording the full consolidation of Empire Mine.

U.S. Iron Ore third-quarter 2012 revenues per ton were $110.51, down 20% from $137.90 in the year-ago quarter. The prior year’s third-quarter revenue included a previously disclosed favorable adjustment of $9.39 per ton related to first-half 2011 revenue that was recorded in third-quarter 2011 due to the full consolidation of Empire Mine. Excluding this adjustment, 2012 third-quarter revenue per ton decreased 14% over the prior year and was primarily attributable to lower year-over-year pricing for seaborne iron ore and changes in customer mix.

Eastern Canadian Iron Ore
Third-quarter 2012 Eastern Canadian Iron Ore sales volume was 2.4 million tons, a 24% decrease from the 3.1 million tons sold in the third quarter of 2011. The decrease was primarily driven by the timing of vessel shipments related to iron ore concentrate and a lack of iron ore pellet availability. The third-quarter 2012 sales volume mix included 1.4 million tons of iron ore concentrate and 1.0 million tons of iron ore pellets.

Eastern Canadian Iron Ore third-quarter 2012 revenues per ton were $106.57, down 36% from $166.25 in the prior year’s third quarter. The lower per-ton revenues were attributable to decreased year-over-year seaborne pricing for iron ore. Cliffs indicated the Platts Fe Index for a 62% fines product, CFR China, decreased 36% from the year-ago quarter.

Asia Pacific Iron Ore
Third-quarter 2012 Asia Pacific Iron Ore sales volume increased 28% to 3.0 million tons from 2.4 million tons in 2011’s third quarter. The increase is attributed to the completion of Cliffs’ Koolyanobbing Complex expansion project to achieve an 11-million-ton annual run rate. The project included several logistical infrastructure investments including longer trains, new locomotives, and upgrades to the port.

Revenues per ton for third-quarter 2012 decreased 50% to $84.79, from $170.26 in last year’s third quarter. The decrease was primarily driven by lower year-over-year seaborne pricing for iron ore and customer mix. The current quarter’s sales mix included nearly 900,000 tons of a low-grade iron ore product, which also contributed to the lower year-over-year revenues-per-ton results. The lower-quality product sells at a reduced rate.

North American Coal
For the third quarter of 2012, North American Coal sales volume was 1.7 million tons, a 157% increase from the 646,000 tons sold in the prior year’s comparable quarter. The increase was due to significantly higher sales volume from Cliffs’ low-volatile metallurgical coal mines, which achieved meaningfully higher year-over-year production rates. The company indicated that third-quarter 2011 production and sales volumes were unfavorably impacted by severe weather damage at Oak Grove Mine and the detection of high carbon monoxide at Pinnacle Mine. The year-over-year sales volume increase was partially offset by lower sales from Cliffs’ Toney Fork thermal coal mine. As previously disclosed, Cliffs has curtailed production and reduced its labor force at Toney Fork Mine due to weak thermal coal market conditions.

North American Coal’s third-quarter 2012 revenues per ton were up 30% to $128.88, versus $99.38 in the third quarter of 2011. The increase was primarily driven by sales mix, as third-quarter 2012 included a higher proportion of premium low-volatile metallurgical coal sales. The increase was partially offset by lower year-over-year market pricing for all coal products.

Sonoma Coal and Amapa
As previously disclosed, Cliffs entered into a definitive share and asset sale agreement to sell its 45% economic interest in Sonoma Coal. The company expects the transaction to close during the fourth quarter of 2012. Upon completion of the transaction, Cliffs anticipates collecting approximately AUD$141 million in cash proceeds. During the third quarter of 2012, Cliffs reported its 45% economic interest in Sonoma Coal as a loss of $2.7 million, net of tax, in income (loss) from discontinued operations.

Cliffs has a 30% ownership interest in Amapa, an iron ore operation in Brazil. During the third quarter of 2012, Amapa produced approximately 1.6 million tons. Primarily driven by a settlement charge for the termination of a transportation contract and lower year-over-year pricing for seaborne iron ore, Cliffs recorded an equity loss of $14 million for its share of the operation.

Outlook
Looking forward, Cliffs expects the U.S. economy to remain stable for the remainder of the year. The company anticipates moderate volatility in the pricing for seaborne iron ore and metallurgical coal products, driven by Asian and European end markets. Based on recent destocking activity within China’s steel industry and the recent decline in its annualized crude steel production, Cliffs is lowering its full-year expectation for Chinese crude steel production to approximately 715 million tons, from its previous expectation of 730 million tons. Also, due to the year-to-date average spot price for 62% Fe seaborne iron ore of $133 per ton, Cliffs is decreasing its average full-year 2012 seaborne iron ore spot price expectation to approximately $128 per ton (C.F.R. China) from its previous expectation of $145 per ton. The revised pricing assumption serves as the basis for the iron ore business outlook below.

U.S. Iron Ore Outlook (Long tons)
For 2012, the Company is reducing its U.S. Iron Ore sales volume expectation to 22 million tons from its previous expectation of 23 million tons. The decrease reflects a lower expected average for seaborne iron ore pricing during the second half of 2012, which reduces Cliffs’ ability to profitably place product in the seaborne market from the lower Great Lakes. Cliffs is maintaining its full-year production volume expectation of approximately 22 million tons.

The company is also maintaining its full-year 2012 U.S. Iron Ore revenues-per-ton expectation of approximately $115 - $120, based on the following assumptions:

Average 2012 U.S. steelmaking utilization rate of approximately 75%; and

Average 2012 hot-rolled steel pricing of approximately $650 - $675 per ton.

In 2013, Cliffs expects to sell approximately 19 million - 20 million tons from its U.S. Iron Ore business. This expectation assumes a slightly lower year-over-year North American blast furnace utilization rate for 2013.

Eastern Canadian Iron Ore Outlook (Tonnes F.O.B. Eastern Canada)
Cliffs is decreasing its expected full-year production volume to approximately 8.9 million tons, from its previous expectation of 9.2 million tons. As a result, the company is decreasing its full-year Eastern Canadian Iron Ore sales volume expectation to approximately 9.4 million tons from its previous expectation of 9.6 million tons.

Cliffs is decreasing its full-year 2012 Eastern Canadian Iron Ore revenues-per-ton expectation to approximately $110 - $115 from its previous expectation of $130 - $135 per ton. The decrease is primarily driven by the previously indicated lower full-year assumption for seaborne iron ore pricing. The full-year product mix expectation is anticipated to be approximately 65% iron ore concentrate and 35% iron ore pellets.

In 2013, Cliffs expects to sell approximately 13 million - 14 million tons from its Eastern Canadian Iron Ore business, comprised of approximately one-third iron ore pellets and two-thirds iron ore concentrate.

Asia Pacific Iron Ore Outlook (Tonnes, F.O.B. the port)
Cliffs is maintaining its full-year 2012 Asia Pacific Iron Ore expected sales and production volumes of approximately 11.6 million tons and 11.1 million tons, respectively.

Due to the lower assumption for full-year iron ore pricing, Cliffs is reducing its full-year 2012 Asia Pacific Iron Ore revenues-per-ton expectation to approximately $100 - $105, from its previous expectation of $120 - $125. The anticipated product mix is approximately half lump and half fines iron ore.

In 2013, Cliffs expects to sell approximately 10 million - 11 million tons from its Asia Pacific Iron Ore business, comprised of approximately 50% lump iron ore and 50% fines iron ore.

North American Coal Outlook (Tons, F.O.B. the mine)
As the result of softer metallurgical coal market conditions, Cliffs is reducing its full-year sales volume expectation to approximately 6.4 million tons, from its previous expectation of approximately 6.9 million tons. The company is maintaining its anticipated full-year production volume of 6.2 million tons. Sales volume mix is anticipated to be approximately 4.3 million tons of low-volatile metallurgical coal and 1.4 million tons of high-volatile metallurgical coal, with thermal coal making up the remainder of the expected sales volume.

Cliffs is decreasing its North American Coal 2012 revenues-per-ton expectation to approximately $120 - $125, from its previous expectation of $130 - $135. The decrease is driven by lower pricing for metallurgical coal products.

In 2013, Cliffs expects to sell approximately 6 million - 7 million tons from its North American Coal business, comprised of approximately 65% low-volatile metallurgical coal, 25% high-volatile metallurgical coal and 10% thermal coal.

Outlook for Amapa and Sonoma
For the full year, Cliffs anticipates a $25 million equity loss for its interest in Amapa, primarily driven by the previously disclosed charge and lower expected pricing for seaborne iron ore. As previously disclosed, Cliffs’ sale of its economic interest in Sonoma Coal is expected to be completed in the fourth quarter of 2012.