Cliffs Updates Full-Year 2010 North American Coal Outlook
09/14/2010 - Cliffs Natural Resources Inc. is updating its full-year 2010 North American Coal outlook to include its recent acquisition of INR Energy’s coal operations and to adjust the production outlook for its legacy coal operations in West Virginia and Alabama.
Cliffs Natural Resources Inc. is updating its full-year 2010 North American Coal outlook to include its recent acquisition of INR Energy’s coal operations and to adjust the production outlook for its legacy coal operations in West Virginia and Alabama.
Cliffs now expects total full-year 2010 North American Coal sales volume of 3.9 million tons, with an approximate sales mix of 3.4 million tons metallurgical and 500,000 tons thermal. Incremental tons related to the acquisition of INR Energy’s coal operations are anticipated to be approximately 500,000 tons metallurgical coal and 500,000 tons thermal coal.
Cliffs reduced its 2010 sales volume expectation from its legacy coal operations in West Virginia and Alabama to 2.8 million tons, from a previous expectation of 3.4 million tons. The decrease is primarily driven by an adverse geological condition at Cliffs’ Pinnacle Mine, which has slowed production. The company previously announced that it is installing a new automated longwall system at Pinnacle Mine in the fourth quarter 2010, which, combined with other capital projects, is anticipated to improve future production rates.
With additional thermal coal sales from the INR coal operations acquisition (which carry lower average selling price) and lower than previously anticipated spot sales of uncommitted met coal, Cliffs now expects North American Coal revenue per ton to be $115 - $120, a decrease from the prior guidance of $140 - $145 per ton. As a result of the production volume changes and acquisition-related accounting adjustments, per-ton costs are expected to increase to $115 - $120 per ton, from the prior expectation of $110 - $115 per ton.
Costs are expected to be impacted by lower fixed cost absorption given the decline in production at the legacy coal operations. The revised per-ton costs include non-cash expenses of approximately $16 per ton of depreciation, depletion and amortization and $2 per ton related to acquisition accounting adjustments for the INR Energy coal operations.
“This geological condition is unfortunate, but underground mining challenges are part of the inherent risks of coal mining,” said Joseph A. Carrabba, Cliffs’ Chairman, President and Chief Executive Officer. “Fortunately, this adjustment represents a small impact to our full-year 2010 EBITDA expectations and does not alter our positive outlook for North American Coal in 2011.”
Cliffs currently anticipates North American Coal to achieve 2010 cash margin of more than $60 million and nearly breakeven in sales margin.
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 North American business unit comprises six iron ore mines owned or managed in Michigan, Minnesota, and 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 Latin American business unit includes a 30% interest in the Amapá Project, an iron ore project in the state of Amapá in Brazil.
