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Cliffs Natural Resources Provides Update on North American Business Unit
07/03/2009 - Cliffs Natural Resources provides update for its North American Business Unit, including 2009 North American Iron Ore contractual obligations for volume and the company’s expectations for North American Coal sales volumes.
In an update on its North American business unit, Cliffs Natural Resources Inc. reported this week that it expects to defer about one million tons of iron ore pellet sales to the first quarter of 2010, bringing the company’s full-year 2009 contractual obligations for iron ore pellets 17 million tons. Cliffs also indicated that the shutdown at the Hibbing Taconite Joint Venture, in which Cliffs has a 23% stake, would be extended through the first quarter of 2010, per agreement between the owners.
Cliffs indicated the deferral of pellet sales resulted from amendments to customer supply agreements. The further decrease to 2009 contractual obligations to 17 million tons of iron ore pellets will affect the amount of sales volume recognized in 2009, which depends on accounting principles for “bill and hold” sales. The 17 million tons excludes revenue recognition of 1.2 million tons deferred at the end of 2008, which are being recognized as these tons ship in 2009.
The company said that if the recent agreement between Vale and a European steelmaker for a price settlement decrease of approximately 48% for iron ore pellets is adopted by Eastern Canada and other iron ore pellet producers, this decrease, combined with the impact of the customer supply amendments, could result in average revenues of approximately $75 per ton for the North American Iron Ore business segment in 2009.
Currently, the North American Iron Ore business segment is expected to produce 15 million tons in 2009 at a cost of $70 to $80 per ton.
Regarding Hibbing Taconite, Cliffs said that its owners—ArcelorMittal (62.3%), Cliffs Natural Resources (23%), and U.S. Steel Canada (14.7%)—have decided to extend the plant’s current shutdown status through the first quarter of 2010 due to continuing soft demand for iron ore pellets. The facility was originally shut down in May 2009, following an idling of two of Hibbing’s three pelletizing furnaces in March 2009. The initial shutdown had been expected to last 15 weeks. Hibbing Taconite has the rated capacity of 8.0 million tons per year and employs approximately 700 people when operating at full capacity.
“While we have begun to see preliminary signs of stabilization in the North American steelmaking industry, we will continue to ensure our production and inventory are balanced with customer demand,” commented Don Gallagher, President, Cliffs’ North American Business Unit.
Cliffs also revised sales volume expectations for its North American Coal business segment to approximately 1.5 million short tons of coal at average revenue of approximately $100 per ton.
Cliffs Natural Resources, an international mining and natural resources company, is the largest producer of iron ore pellets in North America, a major supplier of direct-shipping lump and fines iron ore out of Australia and a significant producer of metallurgical coal. The company’s core values are environmental and capital stewardship, and it is organized through three geographic business units: North American, Asia Pacific, and South American.
Cliffs’ North American business unit comprises six iron ore mines owned or managed in Michigan, Minnesota and Eastern Canada, and two coking coal mining complexes located in West Virginia and Alabama. The Asia Pacific business unit comprises two iron ore mining complexes in Western Australia and a 45% economic interest in a coking and thermal coal mine in Queensland, Australia. The South American business unit includes a 30% interest in the Amapá Project, an iron ore project in the state of Amapá in Brazil.
Over recent years, Cliffs has been executing a strategy designed to achieve scale in the mining industry and focused on serving the world’s largest and fastest growing steel markets.
