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Cliffs in New Agreement with AK Steel

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Cliffs Natural Resources Inc. (CLF - Free Report) announced that it has entered into a new long term agreement with steel producer AK Steel Holding Corporation (AKS - Free Report) to supply iron ore pellets. The agreement is an extension of the previous contract with AK Steel and the tenure of the new agreement is from 2014 through 2023.

The new agreement includes minimum and maximum volume iron ore pellet purchase from Cliffs. As per Cliffs, the supply agreement is tied to a moving price index, based on changing iron ore prices and producer price indexes. As per the previous agreement, Cliffs will continue to supply AK Steel with iron ore pellets for the remainder of this year and 2014.

Cliffs reported its second-quarter 2013 results on Jul 25. The company’s net earnings of 82 cents per share dropped roughly 55% from $1.81 a year ago. Net income (attributable to common shareholders) declined 48% year over year to $133 million, hit by a decline in global iron ore prices and higher costs.

The results include $68 million asset impairment charges related to the write down of Cliffs' Amapa investment as well as income tax expense of $9 million. Barring one-time items, earnings of $1.13 per share topped the Zacks Consensus Estimate of 61 cents.

Sales for the quarter came in at $1,488.5 million, down roughly 6% from $1,579.4 million in the prior-year quarter. However, it exceeded the Zacks Consensus Estimate of $1,436 million. An 11% decline in global iron ore pricing led to reduced sales in the quarter.

Cliffs currently retains a Zacks Rank #3 (Hold).

Other companies in the mining industry with favorable Zacks Rank are Kumba Iron Ore Ltd. and Avalon Rare Metals Inc. . While Kumba Iron Ore retain a Zacks Rank #1 (Strong Buy), Avalon Rare Metals holds a Zacks Rank #2 (Buy).

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