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Cliffs Reports Fourth-Quarter, Full-Year Results

02/19/2010 - Cliffs Natural Resources Inc. reported full-year revenues of $2.34 billion for the period ended Dec. 31, 2009, a decrease of 35% from the previous year. Consolidated fourth-quarter revenues were $820.5 million, a decrease of 10% compared to the same quarter last year.

Cliffs Natural Resources Inc. reported full-year revenues of $2.34 billion for the period ended Dec. 31, 2009, a decrease of 35% from the previous year. The decrease was attributed to lower year-over-year demand and pricing for steelmaking raw materials due to the global economic crisis and recessionary environment in some of the company’s markets.
 
Net income attributable to Cliffs’ shareholders for the year was $205.1 million ($1.63 per diluted share) compared with $515.8 million ($4.76 per diluted share) in 2008. The company ended the year with $503 million in cash and equivalents.
 
“Despite an extremely challenging environment through most of 2009, Cliffs achieved strong financial and strategic performances, delivering respectable earnings and ending the year in a position of strength,” said Joseph A. Carrabba, Cliffs’ Chairman, President, and Chief Executive Officer. “This was the result of exceptional execution by our management team, whose experience and professionalism allowed them to recognize 2009’s challenges and opportunities—and act to position the company to benefit from each.”
 
Fourth-quarter Consolidated Results—Consolidated fourth-quarter revenues were $820.5 million, a decrease of 10% compared with $916.3 million in the same quarter last year. The decrease for the quarter was driven primarily by lower year-over-year pricing in each of the company’s businesses, somewhat offset by higher sales volumes in Cliffs’ Asia Pacific businesses.
 
In the fourth quarter, Cliffs’ sales margin declined 39% to $175.0 million, from $285.9 million in the same period of 2008. This decrease was also primarily the result of lower year-over-year pricing, offset partially by strong cost-control efforts, in each of the company’s business segments.
 
Consolidated operating income for the fourth quarter increased 6% to $155.6 million, from $147.3 million in the 2008 fourth quarter. Cliffs indicated that its 2009 fourth-quarter operating income benefited from an $11.7 million gain on the sale of a non-core asset in Australia, while 2008 fourth-quarter operating income was negatively impacted by $90.1 million in costs related to a terminated merger agreement. Selling, general and administrative (SG&A) expenses declined 26% to $37.1 million during the quarter, reflecting lower year-over-year variable compensation, management salary reductions, and other cost-reduction initiatives.
 
Fourth-quarter 2009 net income increased 101% to $108.2 million ($0.82 per diluted share) from $53.9 million ($0.47 per diluted share) in 2008. Cliffs noted that fourth-quarter 2009 net income was impacted by the $11.7 million pre-tax gain referenced above.
 
Cliffs also said its fourth-quarter 2008 net income included approximately $209.1 million pre-tax ($1.43 per diluted share) of non-recurring items, including:
 
  • The $90.1 million pre-tax impact from terminated merger costs, referenced above
 
  • $93.9 million pre-tax of negative market-to-market adjustments related to currency hedging
 
  • $25.1 million pre-tax related to the impairment of investment securities in two junior mining and exploration companies.
 
As a result of these items, fourth-quarter 2008 also included an income tax benefit of $29.4 million, compared with an income tax expense of $35.4 million in 2009.
 
Outlook—Cliffs expects continued stabilization of the macroeconomic environment throughout 2010 and corresponding improvements for steelmaking raw material demand. The company noted that annual price settlements for iron ore products in 2010 are not yet concluded.
 
As such, Cliffs is using the following assumptions based on an average of industry analyst estimates to provide expectations for its iron ore businesses. Cliffs' iron ore businesses use settlement prices as factors in determining individual customer pricing. Average realized price will be impacted by any deviation from the following assumptions:
 
  • Increases of 40% for world blast furnace iron ore pellet price settlements
 
  • Increases of 35% and 30%, respectively, for Australian lump and fines benchmark price settlements
 
  • North America hard coking coal prices of $125 per short ton FOB mine.
 
2010 Capital Budget and Other Uses of Cash—Cliffs expects to generate more than $900 million in cash from operations in 2010. The company expects capital expenditures of approximately $200 million, comprised of approximately $110 million in sustaining capital and approximately $90 million earmarked for expansion, including the following projects:
 
  • $40 million related to installation of a new long-wall mining system at the Pinnacle Mine in West Virginia, which is expected to be complete in the fourth quarter of 2010
 
  • $15 million related to an upgrade of the Pinnacle Complex Preparation Plant, which is expected to be complete in the third quarter of 2011
 
  • $20 million related to installing a new mine shaft closer to current mining areas at Oak Grove Mine in Alabama, which is expected to be complete in the first quarter of 2011.
 
Combined, these projects are anticipated to enable future production from Cliffs North American Coal assets to ramp to 5.0 million tons annually from an expectation of 3.4 million tons in 2010. Other expected uses of cash in 2010 include, approximately:
 
  • $90 million related to the acquisition of Cliffs’ partners’ 73.2% interest in Wabush Mines
 
  • $30 million for Cliffs’ investment in the Amapá Project, including expected losses and capital spending
 
  • $70 million related to reduction of Cliffs’ debt obligation at the Amapá Project
 
  • $15 million related to renewaFUEL’s build-out of its first commercial-scale production facility in Michigan
 
  • $10 million related to Cliffs’ recently acquired chromite project in Ontario, Canada.
 
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 is organized through three geographic business units: The North American business unit is comprised of 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 is comprised of 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.