Cliffs Natural Resources Reviews 2013, Offers Outlook for 2014
02/18/2014 - In 2014, Cliffs expects accelerating economic growth in the United States to support domestic steel production and thus demand for steelmaking raw materials.
Cliffs Natural Resources Inc. reported fourth-quarter and full-year results for the period ended 31 December 2013. Full-year revenues of US$5.7 billion decreased US$181 million, or 3%, from the previous year. The lower revenues were primarily driven by slightly lower global iron ore sales volumes and significantly lower market pricing for metallurgical coal products. This was partially offset by a 12% increase in coal sales volumes. Cost of goods sold decreased by 3% to US$4.5 billion driven by lower cost rates for Cliffs' North American Coal business and favorable foreign exchange rates. For the full year, Cliffs recorded net income attributable to Cliffs' shareholders of US$414 million, or US$2.37per diluted share, compared with a net loss of US$899 million, or US$6.32 per diluted share, in 2012. The full-year results for both 2013 and 2012 include special item charges related to certain asset and goodwill impairments and non-controlling interest adjustments. Excluding these special items, which are detailed in the attached "Non-GAAP Reconciliation", full-year 2013 adjusted net income attributed to Cliffs' shareholders was US$672 million, or US$3.85per diluted share, higher than full-year 2012's adjusted net income of US$493 million, or US$3.46 per diluted share.
Gary Halverson, Cliffs' president and chief executive officer, said, "Through a company-wide focus to improve our cost profile and financial position, we ended the year with over a billion dollars in cash flow from operations, paid down the entire balance on our revolving credit facility, and achievedUS$1.5 billion in adjusted EBITDA. Looking ahead, sharper capital allocation that increases shareholder value must drive our decisions. The first step in this process is significantly cutting our capital spending and idling and or exploring alternatives for underperforming assets in our portfolio."
Fourth-Quarter Consolidated Results
Fourth-quarter 2013 consolidated revenues decreased slightly to US$1.5 billion driven by lower market pricing and sales volumes for metallurgical coal products. This was partially offset by a 10% increase in global seaborne iron ore pricing to an average of US$135 per ton for a 62% Fe fines product (C.F.R. China). Cost of goods sold decreased by 6% to US$1.2 billion, primarily driven by favorable foreign exchange rates, lower costs at Wabush Mine, and lower cost rates for Cliffs' North American Coal business. Lower cost of goods sold resulted in a 23% increase in consolidated sales margin toUS$295 million, from US$239 million in last year's comparable quarter.
Cliffs' fourth-quarter 2013 SG&A expenses were US$64 million and included US$8 million in severance-related costs. Excluding these costs, fourth-quarter 2013 SG&A expenses were US$56 million, an 18% decrease when compared to the year-ago quarter of US$68 million, which also excludes US$12 million of special items. Year-over-year exploration expenses decreased US$35 million, or 72%, to US$13 million in the fourth quarter of 2013. The decrease was driven by the company's initiative to reduce exploration spending, as well as to scale back on chromite project-development spending. During the fourth quarter of 2013, Cliffs announced it was indefinitely suspending major components of its Chromite Project in Northern Ontario given the uncertain timeline and risks associated with the development of necessary infrastructure to bring this project online.
As previously disclosed, during fourth-quarter 2013, the company recorded US$183 million in charges related to its Wabush Mine in Eastern Canada. These charges were comprised of a US$155 million non-cash asset impairment charge, which was reflected within the goodwill and long-lived asset impairment line on the consolidated income statement, and a US$28 million supplies inventory write-down charge, which was reflected in the fourth quarter of 2013's cost of goods sold line item. Also during the quarter, Cliffs recorded a non-cash goodwill impairment charge of US$81 million related to the aforementioned suspension of its Chromite Project.
Fourth-quarter 2013 miscellaneous net income increased to US$50 million and was comprised of: US$45 million in proceeds from insurance recoveries primarily related to the company's North American Coal mines, a favorable impact of US$28 million related to foreign currency exchange remeasurements, and an unfavorable penalty of US$16 million incurred from a minimum tonnage rail shipment contract obligation not being met as a result of the delay in the Bloom Lake Phase II expansion.
Fourth-quarter 2013 results included an income tax benefit of US$14 million versus an expense of US$491 million reported in the previous year's comparable quarter. As previously disclosed, the prior year's fourth quarter income tax expense included US$541 million in non-cash valuation allowances related to two of the company's deferred tax assets.
For the fourth quarter of 2013, Cliffs recorded net income attributable to Cliffs' common shareholders of US$31 million, or US$0.20 per diluted share, compared with a loss of US$1.6 billion, or US$11.36 per diluted share, in the fourth quarter of 2012. Excluding the special items detailed in the attached "Non-GAAP Reconciliation," fourth-quarter 2013 adjusted net income attributable to Cliffs' shareholders was US$218 million, or US$1.22 per diluted share, up from US$89 million, or US$0.63 per diluted share, in the fourth quarter of 2012.
U.S. Iron Ore
U.S. Iron Ore pellet sales volume was relatively flat in the fourth quarter of 2013 compared to the prior year. During the quarter, there was increased domestic demand and a catch-up of tonnage resulting from the end of a customer's force majeure. This was offset by lower sales volume from the expiration of a customer contract.
Fourth-quarter 2013 revenues per ton were US$112.70, up 1% from US$112.06 in the year-ago quarter. The increase was primarily attributable to higher pricing for one customer due to the reset of their contract base rate. This was partially offset by customer mix, increased sales to seaborne customers, which have lower realized pricing due to higher freight and handling costs, and an unfavorable true-up on hot-rolled steel pricing.
Cash cost per ton in U.S. Iron Ore was US$65.51, up 1% from US$64.55 in the prior year's fourth quarter. The slight increase was due to lower production volumes and the resulting unfavorable impact on the mines' cost-per-ton rate.
Eastern Canadian Iron Ore
Eastern Canadian Iron Ore sales volume was 2.2 million tons, a decrease of 6% versus the prior year's quarter. The decrease was primarily driven by December's extremely cold weather, which limited the loading of ships at the Pointe Noire port. During the fourth quarter of 2013, sales volume at Bloom Lake Mine was 1.3 million tons, down 6%, from 1.4 million tons in the prior year's quarter. Wabush Mine sold 670,000 tons of iron ore concentrate and 150,000 tons of iron ore pellets versus 900,000 tons of iron ore pellets in the prior year's comparable quarter.
Revenues per ton in Eastern Canadian Iron Ore were US$108.73, up 8% from US$100.70 in the prior year's fourth quarter. The higher per-ton revenues were attributable to a 10% year-over-year increase in seaborne iron ore pricing and higher quality premiums versus the prior year. During the quarter, Bloom Lake and Wabush Mine realized quality premiums of US$12 and US$8 per ton, respectively. These increases were partially offset by the quarter's product mix, which was comprised of a higher proportion of iron ore concentrate versus pellets compared to the prior year's fourth quarter, and higher freight rates.
Cash cost per ton in Eastern Canadian Iron Ore was US$110.03, down 6% from US$116.56 in the year-ago quarter. Fourth-quarter 2013 cash costs at Wabush Mine were US$143 per ton, down 14% from 2012's comparable quarter, primarily due to the absence of pelletizing costs from the Pointe Noire pellet plant. Wabush Mine's fourth-quarter 2013 cash costs included the previously mentioned supplies inventory write-down of US$28 million, or US$34 per ton.
The year-over-year decrease in Eastern Canadian Iron Ore's cash costs per ton was partially offset by higher cash costs at Bloom Lake Mine of US$90per ton, an increase of 5% from the prior year's comparable quarter. This was primarily due to higher mining costs driven by increased year-over-year strip ratios and additional overburden removal activities.
Asia Pacific Iron Ore
Fourth-quarter 2013 Asia Pacific Iron Ore sales volume increased 5% to 3.0 million tons, from 2.8 million tons in 2012's fourth quarter. The increase was attributable to the timing of shipments in 2013.
Revenues per ton for the fourth quarter of 2013 increased 9% to US$109.07, from US$99.96 in the prior year's fourth quarter. The increase was primarily driven by higher market pricing and lump premiums. Revenues per ton for the fourth quarter of 2013 were unfavorably impacted by a foreign exchange hedging loss of US$2 per ton versus a gain of US$2 per ton in the prior year's quarter.
Fourth-quarter 2013 cash cost per ton in Asia Pacific Iron Ore decreased 11% to US$58.90, from US$65.86 in 2012's comparable quarter. The decrease was primarily due to favorable foreign exchange rate variances of US$7 per ton.
North American Coal
For the fourth quarter of 2013, North American Coal sales volume was 1.8 million tons, a 7% decrease from the 1.9 million tons sold in the prior year's comparable quarter. The decrease was due to lower domestic demand and export sales. Also, in the prior year's fourth quarter, Oak Grove Mine's sales volume was higher due to catch-up commitments related to the severe weather damage force majeure.
North American Coal's 2013 fourth-quarter revenues per ton were down 19% to US$89.70, versus US$110.14 in the fourth quarter of 2012. The year-over-year decrease was primarily driven by lower market pricing for metallurgical coal products and customer mix.
Cash cost per ton decreased 13% to US$85.14, from US$98.07 in the year-ago quarter. The decrease was primarily due to a lower year-over-year cost rate, driven by improved operating efficiencies.
Cash Flow and Liquidity
For the fourth quarter, Cliffs generated US$460 million in cash from operations, versus generating US$239 million in 2012's comparable quarter. Full-year 2013 cash flow from operations increased 123% over full-year 2012 to US$1.1 billion. The full-year and fourth-quarter increases in cash flow from operations were primarily driven by lower exploration and SG&A expenses, working capital improvements and the collection of insurance proceeds. Also, full-year 2012 cash flow from operations was unfavorably impacted as the period included large tax payments related to 2011's higher-than-expected profitability. The company reduced capital expenditures by 64% to US$119 million in the fourth quarter of 2013 versus spending US$334 million in the prior year's fourth quarter, driven by decreased spending in Eastern Canada.
Cliffs' strong fourth quarter operating cash flow enabled the company to pay down its revolving credit facility in its entirety and end the year with US$336 million of cash and cash equivalents. At year end, Cliffs had US$3.0 billion in total long-term debt, including the company's equipment loan financing. During the fourth quarter of 2013, Cliffs received US$103 million from equipment loan financing arrangements.
Cliffs reported depreciation, depletion and amortization of US$155 million during the fourth quarter of 2013.
Outlook
In 2014, Cliffs expects accelerating economic growth in the United States to support domestic steel production and thus demand for steelmaking raw materials. The company expects China's economy will expand at a pace near the official government target rate, primarily driven by fixed asset investment. As a result, increased steel production will continue to require both domestic and imported steelmaking raw materials to satisfy demand. Growth in these key markets is anticipated to provide continued demand for Cliffs' products.
Due to the commodity pricing volatility for the products Cliffs sells and for the purpose of providing a full-year outlook, Cliffs will utilize the year-to-date average 62% Fe seaborne iron ore spot price as of Jan. 31, 2014, which was US$128 per ton (C.F.R. China), as a base price assumption for providing its full-year 2014 revenues-per-ton sensitivities for the company's iron ore business segments. With US$128 per ton as a base price assumption for full-year 2014, included in the table below is the expected revenues-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 revenues-per-ton sensitivities consider various contract provisions and lag-year adjustments contained in certain supply agreements. Actual realized revenues per ton for the full year will depend on iron ore price changes, customer mix, freight rates, production input costs and/or steel prices (all factors contained in certain of Cliffs' supply agreements).
U.S. Iron Ore Outlook (Long Tons)
For 2014, Cliffs is maintaining its full-year sales and production volume expectation of 22 - 23 million tons from its U.S. Iron Ore business.
The U.S. Iron Ore revenues-per-ton sensitivity included within the 2014 revenue sensitivity summary table above also includes the following assumptions:
Eastern Canadian Iron Ore Outlook (Metric Tons, F.O.B. Eastern Canada)
Cliffs' full-year 2014 Eastern Canadian Iron Ore expected sales and production volumes are 6 - 7 million tons, comprised of virtually all iron ore concentrate. This includes 500,000 tons from Wabush Mine and the remainder from Bloom Lake Mine.
The Eastern Canadian Iron Ore revenues-per-ton sensitivity is included within the 2014 revenues-per-ton sensitivity table above. Full-year 2014 cash cost per ton in Eastern Canadian Iron Ore is expected to be US$85 - US$90. Depreciation, depletion and amortization is expected to be approximately US$25per ton for full-year 2014.
Asia Pacific Iron Ore Outlook (Metric Tons, F.O.B. the port)
Cliffs' full-year 2014 Asia Pacific Iron Ore expected sales and production volumes are 10–1 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 2014 revenues-per-ton sensitivity table above. Full-year 2014 Asia Pacific Iron Ore cash cost per ton is expected to be approximately US$60–65, lower than the previous year's cash costs primarily due to favorable foreign exchange rate assumptions. Cliffs anticipates depreciation, depletion and amortization to be approximately US$14 per ton for full-year 2014.
North American Coal Outlook (Short Tons, F.O.B. the mine)
For 2014, Cliffs is increasing its North American Coal expected sales and production volumes to 7 - 8 million tons, driven by higher thermal coal production. The sales volume mix is anticipated to be approximately 67% low-volatile metallurgical coal and 21% high-volatile metallurgical coal, with thermal coal making up the remainder.
Cliffs' full-year 2014 North American Coal revenues-per-ton outlook is US$85 - US$90. Cliffs has approximately 50% of its expected 2014 sales volume committed and priced at approximately US$87 per short ton at the mine. The revenue-per-ton expectation includes all anticipated thermal coal sales volume for 2014, which realizes a lower price than the company's metallurgical coal products. Cash cost per ton is anticipated to be US$85 - US$90. Full-year 2014 depreciation, depletion and amortization is expected to be approximately US$15 per ton.
The following table provides a summary of Cliffs' 2014 guidance for its four business segments:
Gary Halverson, Cliffs' president and chief executive officer, said, "Through a company-wide focus to improve our cost profile and financial position, we ended the year with over a billion dollars in cash flow from operations, paid down the entire balance on our revolving credit facility, and achievedUS$1.5 billion in adjusted EBITDA. Looking ahead, sharper capital allocation that increases shareholder value must drive our decisions. The first step in this process is significantly cutting our capital spending and idling and or exploring alternatives for underperforming assets in our portfolio."
Fourth-Quarter Consolidated Results
Fourth-quarter 2013 consolidated revenues decreased slightly to US$1.5 billion driven by lower market pricing and sales volumes for metallurgical coal products. This was partially offset by a 10% increase in global seaborne iron ore pricing to an average of US$135 per ton for a 62% Fe fines product (C.F.R. China). Cost of goods sold decreased by 6% to US$1.2 billion, primarily driven by favorable foreign exchange rates, lower costs at Wabush Mine, and lower cost rates for Cliffs' North American Coal business. Lower cost of goods sold resulted in a 23% increase in consolidated sales margin toUS$295 million, from US$239 million in last year's comparable quarter.
Cliffs' fourth-quarter 2013 SG&A expenses were US$64 million and included US$8 million in severance-related costs. Excluding these costs, fourth-quarter 2013 SG&A expenses were US$56 million, an 18% decrease when compared to the year-ago quarter of US$68 million, which also excludes US$12 million of special items. Year-over-year exploration expenses decreased US$35 million, or 72%, to US$13 million in the fourth quarter of 2013. The decrease was driven by the company's initiative to reduce exploration spending, as well as to scale back on chromite project-development spending. During the fourth quarter of 2013, Cliffs announced it was indefinitely suspending major components of its Chromite Project in Northern Ontario given the uncertain timeline and risks associated with the development of necessary infrastructure to bring this project online.
As previously disclosed, during fourth-quarter 2013, the company recorded US$183 million in charges related to its Wabush Mine in Eastern Canada. These charges were comprised of a US$155 million non-cash asset impairment charge, which was reflected within the goodwill and long-lived asset impairment line on the consolidated income statement, and a US$28 million supplies inventory write-down charge, which was reflected in the fourth quarter of 2013's cost of goods sold line item. Also during the quarter, Cliffs recorded a non-cash goodwill impairment charge of US$81 million related to the aforementioned suspension of its Chromite Project.
Fourth-quarter 2013 miscellaneous net income increased to US$50 million and was comprised of: US$45 million in proceeds from insurance recoveries primarily related to the company's North American Coal mines, a favorable impact of US$28 million related to foreign currency exchange remeasurements, and an unfavorable penalty of US$16 million incurred from a minimum tonnage rail shipment contract obligation not being met as a result of the delay in the Bloom Lake Phase II expansion.
Fourth-quarter 2013 results included an income tax benefit of US$14 million versus an expense of US$491 million reported in the previous year's comparable quarter. As previously disclosed, the prior year's fourth quarter income tax expense included US$541 million in non-cash valuation allowances related to two of the company's deferred tax assets.
For the fourth quarter of 2013, Cliffs recorded net income attributable to Cliffs' common shareholders of US$31 million, or US$0.20 per diluted share, compared with a loss of US$1.6 billion, or US$11.36 per diluted share, in the fourth quarter of 2012. Excluding the special items detailed in the attached "Non-GAAP Reconciliation," fourth-quarter 2013 adjusted net income attributable to Cliffs' shareholders was US$218 million, or US$1.22 per diluted share, up from US$89 million, or US$0.63 per diluted share, in the fourth quarter of 2012.
U.S. Iron Ore
|
Three Months Ended 31 December |
Year Ended 31 December |
|||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| Volumes - In Thousands of Long Tons | ||||||||||||||||
| Total sales volume | 6,204 | 6,234 | 21,299 | 21,633 | ||||||||||||
| Total production volume | 5,494 | 6,253 | 20,271 | 21,992 | ||||||||||||
| Sales Margin - In Millions | ||||||||||||||||
| Revenues from product sales and services | US$ | 773.7 | US$ | 780.6 | US$ | 2,667.9 | US$ | 2,723.3 | ||||||||
| Cost of goods sold and operating expenses | 518.9 | 513.3 | 1,766.0 | 1,747.1 | ||||||||||||
| Sales margin | US$ | 254.8 | US$ | 267.3 | US$ | 901.9 | US$ | 976.2 | ||||||||
| Sales Margin - Per Long Ton | ||||||||||||||||
| Revenues from product sales and services* | US$ | 112.70 | US$ | 112.06 | US$ | 113.08 | US$ | 114.29 | ||||||||
| Cash cost** | 65.51 | 64.55 | 65.08 | 64.50 | ||||||||||||
| Depreciation, depletion and amortization | 6.13 | 4.64 | 5.65 | 4.66 | ||||||||||||
| Cost of goods sold and operating expenses* | 71.64 | 69.19 | 70.73 | 69.16 | ||||||||||||
| Sales margin | US$ | 41.06 | US$ | 42.87 | US$ | 42.35 | US$ | 45.13 | ||||||||
| * | Excludes revenues and expenses related to domestic freight, which are offsetting and have no impact on sales margin. Revenues per ton also exclude venture partner cost reimbursements. |
| ** | Cash cost per ton is defined as cost of goods sold and operating expenses per ton less depreciation, depletion and amortization per ton. |
Fourth-quarter 2013 revenues per ton were US$112.70, up 1% from US$112.06 in the year-ago quarter. The increase was primarily attributable to higher pricing for one customer due to the reset of their contract base rate. This was partially offset by customer mix, increased sales to seaborne customers, which have lower realized pricing due to higher freight and handling costs, and an unfavorable true-up on hot-rolled steel pricing.
Cash cost per ton in U.S. Iron Ore was US$65.51, up 1% from US$64.55 in the prior year's fourth quarter. The slight increase was due to lower production volumes and the resulting unfavorable impact on the mines' cost-per-ton rate.
Eastern Canadian Iron Ore
|
Three Months Ended 31 December, |
Year Ended 31 December, |
|||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| Volumes - In Thousands of Metric Tons | ||||||||||||||||
| Total sales volume | 2,164 | 2,295 | 8,551 | 8,934 | ||||||||||||
| Total production volume | 2,326 | 2,326 | 8,655 | 8,515 | ||||||||||||
| Sales Margin - In Millions | ||||||||||||||||
| Revenues from product sales and services | US$ | 235.3 | US$ | 231.1 | US$ | 978.7 | US$ | 1,008.9 | ||||||||
| Cost of goods sold and operating expenses | 286.3 | 309.5 | 1,082.0 | 1,130.3 | ||||||||||||
| Sales margin | US$ | (51.0 | ) | US$ | (78.4 | ) | US$ | (103.3 | ) | US$ | (121.4 | ) | ||||
| Sales Margin - Per Metric Ton | ||||||||||||||||
| Revenues from product sales and services | US$ | 108.73 | US$ | 100.70 | US$ | 114.45 | US$ | 112.93 | ||||||||
| Cash cost* | 110.03 | 116.56 | 105.66 | 108.59 | ||||||||||||
| Depreciation, depletion and amortization | 22.27 | 18.30 | 20.87 | 17.93 | ||||||||||||
| Cost of goods sold and operating expenses | 132.30 | 134.86 | 126.53 | 126.52 | ||||||||||||
| Sales margin | US$ | (23.57 | ) | US$ | (34.16 | ) | US$ | (12.08 | ) | US$ | (13.59 | ) | ||||
| * | Cash cost per ton is defined as cost of goods sold and operating expenses per ton less depreciation, depletion and amortization per ton. |
Eastern Canadian Iron Ore sales volume was 2.2 million tons, a decrease of 6% versus the prior year's quarter. The decrease was primarily driven by December's extremely cold weather, which limited the loading of ships at the Pointe Noire port. During the fourth quarter of 2013, sales volume at Bloom Lake Mine was 1.3 million tons, down 6%, from 1.4 million tons in the prior year's quarter. Wabush Mine sold 670,000 tons of iron ore concentrate and 150,000 tons of iron ore pellets versus 900,000 tons of iron ore pellets in the prior year's comparable quarter.
Revenues per ton in Eastern Canadian Iron Ore were US$108.73, up 8% from US$100.70 in the prior year's fourth quarter. The higher per-ton revenues were attributable to a 10% year-over-year increase in seaborne iron ore pricing and higher quality premiums versus the prior year. During the quarter, Bloom Lake and Wabush Mine realized quality premiums of US$12 and US$8 per ton, respectively. These increases were partially offset by the quarter's product mix, which was comprised of a higher proportion of iron ore concentrate versus pellets compared to the prior year's fourth quarter, and higher freight rates.
Cash cost per ton in Eastern Canadian Iron Ore was US$110.03, down 6% from US$116.56 in the year-ago quarter. Fourth-quarter 2013 cash costs at Wabush Mine were US$143 per ton, down 14% from 2012's comparable quarter, primarily due to the absence of pelletizing costs from the Pointe Noire pellet plant. Wabush Mine's fourth-quarter 2013 cash costs included the previously mentioned supplies inventory write-down of US$28 million, or US$34 per ton.
The year-over-year decrease in Eastern Canadian Iron Ore's cash costs per ton was partially offset by higher cash costs at Bloom Lake Mine of US$90per ton, an increase of 5% from the prior year's comparable quarter. This was primarily due to higher mining costs driven by increased year-over-year strip ratios and additional overburden removal activities.
Asia Pacific Iron Ore
|
Three Months Ended 31 December, |
Year Ended 31 December, |
|||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| Volumes - In Thousands of Metric Tons | ||||||||||||||||
| Total sales volume | 2,978 | 2,841 | 11,043 | 11,681 | ||||||||||||
| Total production volume | 2,723 | 3,237 | 11,109 | 11,260 | ||||||||||||
| Sales Margin - In Millions | ||||||||||||||||
| Revenues from product sales and services | US$ | 324.8 | US$ | 284.0 | US$ | 1,224.3 | US$ | 1,259.3 | ||||||||
| Cost of goods sold and operating expenses | 213.0 | 229.0 | 857.2 | 948.3 | ||||||||||||
| Sales margin | US$ | 111.8 | US$ | 55.0 | US$ | 367.1 | US$ | 311.0 | ||||||||
| Sales Margin - Per Metric Ton | ||||||||||||||||
| Revenues from product sales and services | US$ | 109.07 | US$ | 99.96 | US$ | 110.87 | US$ | 107.81 | ||||||||
| Cash cost* | 58.90 | 65.86 | 63.71 | 68.18 | ||||||||||||
| Depreciation, depletion and amortization | 12.63 | 14.75 | 13.92 | 13.00 | ||||||||||||
| Cost of goods sold and operating expenses | 71.53 | 80.61 | 77.63 | 81.18 | ||||||||||||
| Sales margin | US$ | 37.54 | US$ | 19.35 | US$ | 33.24 | US$ | 26.63 | ||||||||
| * | Cash cost per metric ton is defined as cost of goods sold and operating expenses per metric ton less depreciation, depletion and amortization per metric ton. |
Fourth-quarter 2013 Asia Pacific Iron Ore sales volume increased 5% to 3.0 million tons, from 2.8 million tons in 2012's fourth quarter. The increase was attributable to the timing of shipments in 2013.
Revenues per ton for the fourth quarter of 2013 increased 9% to US$109.07, from US$99.96 in the prior year's fourth quarter. The increase was primarily driven by higher market pricing and lump premiums. Revenues per ton for the fourth quarter of 2013 were unfavorably impacted by a foreign exchange hedging loss of US$2 per ton versus a gain of US$2 per ton in the prior year's quarter.
Fourth-quarter 2013 cash cost per ton in Asia Pacific Iron Ore decreased 11% to US$58.90, from US$65.86 in 2012's comparable quarter. The decrease was primarily due to favorable foreign exchange rate variances of US$7 per ton.
North American Coal
|
Three Months Ended 31 December, |
Year Ended 31 December, |
|||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| Volumes - In Thousands of Short Tons | ||||||||||||||||
| Total sales volume | 1,777 | 1,913 | 7,274 | 6,512 | ||||||||||||
| Total production volume | 1,685 | 1,855 | 7,221 | 6,394 | ||||||||||||
| Sales Margin - In Millions | ||||||||||||||||
| Revenues from product sales and services | US$ | 183.4 | US$ | 240.2 | US$ | 821.9 | US$ | 881.1 | ||||||||
| Cost of goods sold and operating expenses | 204.5 | 245.8 | 836.4 | 882.9 | ||||||||||||
| Sales margin | US$ | (21.1 | ) | US$ | (5.6 | ) | US$ | (14.5 | ) | US$ | (1.8 | ) | ||||
| Sales Margin - Per Short Ton | ||||||||||||||||
| Revenues from product sales and services* | US$ | 89.70 | US$ | 110.14 | US$ | 101.20 | US$ | 119.79 | ||||||||
| Cash cost** | 85.14 | 98.07 | 85.47 | 104.99 | ||||||||||||
| Depreciation, depletion and amortization | 16.43 | 15.00 | 17.72 | 15.08 | ||||||||||||
| Cost of goods sold and operating expenses* | 101.57 | 113.07 | 103.19 | 120.07 | ||||||||||||
| Sales margin | US$ | (11.87 | ) | US$ | (2.93 | ) | US$ | (1.99 | ) | US$ | (0.28 | ) | ||||
| * | Excludes revenues and expenses related to domestic freight, which are offsetting and have no impact on sales margin. |
| ** | Cash cost per ton is defined as cost of goods sold and operating expenses per ton less depreciation, depletion and amortization per ton. |
For the fourth quarter of 2013, North American Coal sales volume was 1.8 million tons, a 7% decrease from the 1.9 million tons sold in the prior year's comparable quarter. The decrease was due to lower domestic demand and export sales. Also, in the prior year's fourth quarter, Oak Grove Mine's sales volume was higher due to catch-up commitments related to the severe weather damage force majeure.
North American Coal's 2013 fourth-quarter revenues per ton were down 19% to US$89.70, versus US$110.14 in the fourth quarter of 2012. The year-over-year decrease was primarily driven by lower market pricing for metallurgical coal products and customer mix.
Cash cost per ton decreased 13% to US$85.14, from US$98.07 in the year-ago quarter. The decrease was primarily due to a lower year-over-year cost rate, driven by improved operating efficiencies.
Cash Flow and Liquidity
For the fourth quarter, Cliffs generated US$460 million in cash from operations, versus generating US$239 million in 2012's comparable quarter. Full-year 2013 cash flow from operations increased 123% over full-year 2012 to US$1.1 billion. The full-year and fourth-quarter increases in cash flow from operations were primarily driven by lower exploration and SG&A expenses, working capital improvements and the collection of insurance proceeds. Also, full-year 2012 cash flow from operations was unfavorably impacted as the period included large tax payments related to 2011's higher-than-expected profitability. The company reduced capital expenditures by 64% to US$119 million in the fourth quarter of 2013 versus spending US$334 million in the prior year's fourth quarter, driven by decreased spending in Eastern Canada.
Cliffs' strong fourth quarter operating cash flow enabled the company to pay down its revolving credit facility in its entirety and end the year with US$336 million of cash and cash equivalents. At year end, Cliffs had US$3.0 billion in total long-term debt, including the company's equipment loan financing. During the fourth quarter of 2013, Cliffs received US$103 million from equipment loan financing arrangements.
Cliffs reported depreciation, depletion and amortization of US$155 million during the fourth quarter of 2013.
Outlook
In 2014, Cliffs expects accelerating economic growth in the United States to support domestic steel production and thus demand for steelmaking raw materials. The company expects China's economy will expand at a pace near the official government target rate, primarily driven by fixed asset investment. As a result, increased steel production will continue to require both domestic and imported steelmaking raw materials to satisfy demand. Growth in these key markets is anticipated to provide continued demand for Cliffs' products.
Due to the commodity pricing volatility for the products Cliffs sells and for the purpose of providing a full-year outlook, Cliffs will utilize the year-to-date average 62% Fe seaborne iron ore spot price as of Jan. 31, 2014, which was US$128 per ton (C.F.R. China), as a base price assumption for providing its full-year 2014 revenues-per-ton sensitivities for the company's iron ore business segments. With US$128 per ton as a base price assumption for full-year 2014, included in the table below is the expected revenues-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.
| 2014 Full-Year Realized Revenue Sensitivity Summary (1) | |||||||||
|
U.S. Iron Ore (2) |
Eastern Canadian Iron Ore (3) |
Asia Pacific Iron Ore (4) |
|||||||
| Revenues Per Ton | US$105 - US$110 | US$95 - US$100 | US$100 - US$105 | ||||||
| Sensitivity Per Ton (+/- US$10) | +/- US$2 | +/- US$9 | +/- US$9 | ||||||
| (1) | Based on the average year-to-date 62% Fe seaborne iron ore fines price (C.F.R. China) of US$128 per ton as of Jan. 31, 2014. | ||||||||
| (2) | U.S. Iron Ore tons are reported in long tons. | ||||||||
| (3) | Eastern Canadian lron Ore tons are reported in metric tons, F.O.B. Eastern Canada. | ||||||||
| (4) | Asia Pacific Iron Ore tons are reported in metric tons, F.O.B. the port. | ||||||||
U.S. Iron Ore Outlook (Long Tons)
For 2014, Cliffs is maintaining its full-year sales and production volume expectation of 22 - 23 million tons from its U.S. Iron Ore business.
The U.S. Iron Ore revenues-per-ton sensitivity included within the 2014 revenue sensitivity summary table above also includes the following assumptions:
- 2014 average hot-rolled steel pricing of approximately US$640 per ton
- 25 - 30% of the expected 2014 sales volume is linked to seaborne iron ore pricing
Eastern Canadian Iron Ore Outlook (Metric Tons, F.O.B. Eastern Canada)
Cliffs' full-year 2014 Eastern Canadian Iron Ore expected sales and production volumes are 6 - 7 million tons, comprised of virtually all iron ore concentrate. This includes 500,000 tons from Wabush Mine and the remainder from Bloom Lake Mine.
The Eastern Canadian Iron Ore revenues-per-ton sensitivity is included within the 2014 revenues-per-ton sensitivity table above. Full-year 2014 cash cost per ton in Eastern Canadian Iron Ore is expected to be US$85 - US$90. Depreciation, depletion and amortization is expected to be approximately US$25per ton for full-year 2014.
Asia Pacific Iron Ore Outlook (Metric Tons, F.O.B. the port)
Cliffs' full-year 2014 Asia Pacific Iron Ore expected sales and production volumes are 10–1 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 2014 revenues-per-ton sensitivity table above. Full-year 2014 Asia Pacific Iron Ore cash cost per ton is expected to be approximately US$60–65, lower than the previous year's cash costs primarily due to favorable foreign exchange rate assumptions. Cliffs anticipates depreciation, depletion and amortization to be approximately US$14 per ton for full-year 2014.
North American Coal Outlook (Short Tons, F.O.B. the mine)
For 2014, Cliffs is increasing its North American Coal expected sales and production volumes to 7 - 8 million tons, driven by higher thermal coal production. The sales volume mix is anticipated to be approximately 67% low-volatile metallurgical coal and 21% high-volatile metallurgical coal, with thermal coal making up the remainder.
Cliffs' full-year 2014 North American Coal revenues-per-ton outlook is US$85 - US$90. Cliffs has approximately 50% of its expected 2014 sales volume committed and priced at approximately US$87 per short ton at the mine. The revenue-per-ton expectation includes all anticipated thermal coal sales volume for 2014, which realizes a lower price than the company's metallurgical coal products. Cash cost per ton is anticipated to be US$85 - US$90. Full-year 2014 depreciation, depletion and amortization is expected to be approximately US$15 per ton.
The following table provides a summary of Cliffs' 2014 guidance for its four business segments:
| 2014 Outlook Summary | ||||||||
|
U.S. Iron Ore (1) |
Eastern Canadian Iron Ore (2) |
Asia Pacific Iron Ore (3) |
North American Coal (4) |
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| Sales volume (million tons) | 22 - 23 | 6 - 7 | 10 - 11 | 7 - 8 | ||||
| Production volume (million tons) | 22 - 23 | 6 - 7 | 10 - 11 | 7 - 8 | ||||
| Cash cost per ton | US$65 - US$70 | US$85 - US$90 | US$60 - US$65 | US$85 - US$90 | ||||
| DD&A per ton | US$7 | US$25 | US$14 | US$15 | ||||
| (1) | U.S. Iron Ore tons are reported in long tons. | |||||||
| (2) | Eastern Canadian lron Ore tons are reported in metric tons, F.O.B. Eastern Canada. | |||||||
| (3) | Asia Pacific Iron Ore tons are reported in metric tons, F.O.B. the port. | |||||||
| (4) | North American Coal tons are reported in short tons, F.O.B. the mine. | |||||||
