Cleveland-Cliffs Inc. reported net income of $25.2 million for the first quarter of 2005.

The $25.2 million ($.91 per diluted share) net income compares with a loss of $.05 per share applicable to common shareholders in the first quarter of 2004. Record income from continuing operations of $20.4 million ($.74 per diluted share) compare with break-even results from continuing operations in the first quarter of 2004.

The $20.4 million increase in income from continuing operations was comprised of a $27.4 million improvement in pre-tax income, net of $7.0 million in income taxes. The pre-tax earnings increase principally reflected higher sales margins of $37.1 million, partially offset by $9.8 million of currency hedging costs against an increase in the value of the Australian dollar associated with the acquisition of 68.7% of Portman Limited on March 31, 2005. Excluding the currency hedging cost associated with the Portman acquisition, income from continuing operations would have been $27.7 million ($1.01 per diluted share).

Commenting on the record results, Cliffs' Chairman and CEO John Brinzo said: "The year 2005 is off to a good start. Annual pellet pricing settlements have resulted in substantial price increases, and we have commitments for all of our projected 2005 production."

The company attributes the $37.1 million increase in sales margin to higher sales price realization partially offset by higher production costs and modestly lower sales volume. Sales revenues (excluding freight and minority interest) increased $55.3 million (34%) due to higher sales prices partly offset by lower sales volume. Sales volume was 4.0 million tons, which represented a .3 million ton decrease from the first quarter of 2004. Cliffs continues to forecast total-year North American sales of approximately 24 million tons.

Cost of goods sold and operating expenses (excluding freight and minority interest) increased $18.2 million (12%), reflecting higher unit production costs partly offset by lower sales volume. Unit production cost increases primarily reflected higher maintenance spending, due in part to timing of repairs, increased energy and supply pricing, and higher royalty expense due to increased pellet sales pricing. Total-year 2005 North American unit production costs are now expected to increase approximately 9% from the 2004 cost of goods sold and operating expenses (excluding freight and minority interest) of $37.56 per ton.

Pre-tax earnings changes compared to the first quarter of 2004 also included higher administrative, selling and general expense; lower impairment of mining assets charges as Cliffs determines that its Empire Mine is no longer impaired; a 2004 provision for customer bankruptcy related to a subsidiary of Weirton Steel Corp.; increased interest income; and an additional increase primarily reflecting currency hedging costs associated with the Portman acquisition.

Accounting Change—In the first quarter of 2005, Cliffs recorded a cumulative effect adjustment related to the early adoption of Emerging Issues Task Force (EITF) Consensus No. 04-6, "Accounting for Stripping Costs Incurred during Production in the Mining Industry." The EITF reached a consensus that stripping costs incurred during the production phase of a mine are variable production costs that should be included in the costs of the inventory produced during the period that the stripping costs were incurred. Adoption of the consensus resulted in the company increasing the value of its January 1, 2005 product inventory by $6.4 million, resulting in an after-tax cumulative effect increase in earnings of $4.2 million. Previously, stripping costs were expensed as period costs during the period incurred.

Total first-quarter production for Cliffs' account was 4.8 million tons, which compares to 4.5 million tons in the comparable 2004 period. Although production schedules are subject to change, all operations are expected to operate at or near capacity in 2005 and total North American pellet production is presently expected to be approximately 37 million tons, with Cliffs' share being approximately 22.8 million tons.

As of March 31, 2005, Cliffs had purchased 68.7% of the outstanding shares of Portman at an acquisition cost of approximately $372 million including acquisition expenses. In April 2005, Cliffs increased its ownership of Portman to slightly more than 80%. The tender offer for Portman shares expired on April 19, 2005, and the company currently has no plans to purchase additional shares of Portman. First-quarter operating results do not include Portman. Portman is operating at its current annual capacity of 5.7 million tonnes and is expanding capacity to 8 million tonnes for 2006 to meet customer requirements.

Brinzo added: "Acquiring a majority interest in Portman is an important milestone in Cliffs' long-term strategy for enhancing shareholder value. Through this acquisition, Cliffs now has a much broader customer base in China — the world's fastest growing iron ore market. Moreover, we are very pleased to also have gained an immediate presence in the Australian mining industry."

Liquidity—At March 31, 2005, Cliffs had $108.5 million of cash and cash equivalents. At December 31, 2004, Cliffs had $399.6 million of cash and highly-liquid marketable securities. The $291.1 million decrease in liquid assets primarily reflected the Portman acquisition partially offset by $75.0 million of borrowings under the new three-year $350 million revolving credit facility.

Outlook—The company announced that, due to delays associated with required permitting, the 800,000-ton capacity expansion underway at its Northshore facility will be finalized several months later than originally projected. At this time, the additional capacity is expected to be brought online near year-end. The company now expects to produce 22.8 million tons of pellets for its own account in 2005. Projected 2005 pellet sales have not changed and remain at approximately 24 million tons.

Commenting on the company's outlook, Brinzo concluded: "Our outlook for the year continues to be encouraging. We remain sold out for the year, and with the benefit of increased sales volumes and full 2005 price realization in future quarters, we believe our North American operating results will exceed 2004's record performance and the recent Portman acquisition will further enhance our performance."

Headquartered in Cleveland, Ohio, Cleveland-Cliffs Inc. is the largest producer of iron ore pellets in North America and sells the majority of its pellets to integrated steel companies in the United States and Canada. Cleveland-Cliffs operates a total of six iron ore mines located in Michigan, Minnesota and Eastern Canada. The company is majority owner of Portman Limited, the third-largest iron ore mining company in Australia, serving the Asian iron ore markets with direct-shipping fines and lump ore.