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Cliffs Q3 Earnings Miss, Profit Up

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Cliffs Natural Resources Inc. (CLF - Free Report) reported third-quarter 2013 earnings from continuing operations of 65 cents per share, up 6.6% from 61 cents reported in the year-ago quarter. The results, however, missed the Zacks Consensus Estimate of 71 cents.

Profit from discontinued operations was 1 cent per share compared with a loss of 2 cents in the year ago quarter. Consolidated net income was $104.3 million (or 66 cents per share) versus a profit of $85.1 million (or 59 cents per share) registered in the year-ago quarter, up roughly 23% year over year.

Cost-cutting measures by the company and higher iron ore prices contributed to the increase in profit. The company witnessed lower costs across all its business segments due to its cost reduction measures.

Sales for the quarter came in at $1,546.6 million, up 0.1% from $1,544.9 million in the prior-year quarter. It exceeded the Zacks Consensus Estimate of $1,495 million. A 17% rise in global seaborne iron ore pricing led to increased sales in the quarter.

Segment Performance

U.S. Iron Ore: U.S. Iron Ore pellet sales volume decreased to 6.3 million tons in the quarter from 6.6 million tons in the third quarter of 2012 on account of reduced tonnage resulting from a customer's force majeure and the expiration of a customer contract. Revenues per ton were up 2% year over year to $112.67 due to increase in pricing for one customer which reset contract base rate. Higher year-over-year market pricing for iron ore, and a favorable true-up on the estimated hot-rolled steel pricing also led to the increase.

Cash cost per ton declined 4% to $64.81 due to the absence of a LIFO inventory adjustment as well as lower labor and repair and maintenance costs.

Eastern Canadian Iron Ore: Sales volumes in the reported quarter rose 9% year over year to 2.6 million tons. The higher sales volume was due to higher product sales from Wabush Mine due to the timing of vessel shipments.

Revenues per ton for the segment leapt 3% year over year to $109.52 due to a 17% increase in seaborne iron ore pricing. Cash cost per ton decreased 6% to $99.96.

Asia Pacific Iron Ore: Sales volumes in the segment slipped 8% to 2.8 million tons due to the absence of sales volume from Cliffs' Cockatoo Island operation. Revenues per ton were $108.88, up 28% from $84.79 in the prior-year quarter, due to higher market pricing and the absence of low-grade tons.

Cash cost per ton in the Asia-Pacific Iron Ore segment fell 22% to $59.44 due to favorable foreign exchange rate variances and lower mining costs due to less waste movement in the reported quarter. Absence of costs from Cliffs' Cockatoo Island operation also led to the decline in costs.

North American Coal: Sales volumes decreased 2% to 1.6 million tons, led by lower sales tons at Oak Grove Mine. Revenues per ton decreased 23% to $98.95, due to lower market pricing for metallurgical coal products and customer mix.

Cash cost per ton decreased 34% to $76.16 due to improved production volumes as well as lower maintenance and contractor spending.

Financial Position

Cliffs had $298.8 million in cash and cash equivalents as of Sep 30, 2013, compared with $36.3 million as of Sep 30, 2012. Long-term debt stood at $3,319.6 million as of Sep 30, 2013, compared with $3,514.3 million as of Sep 30, 2012.


Cliffs expects healthy pace of steelmaking in China to support demand for its iron ore across its Eastern Canada and Asia Pacific businesses. The company expects healthy demand for U.S. ore and North American coal despite weak steel production in North America. It expects pricing of its commodities to remain volatile.

Due to lower investments in Eastern Canada, Cliffs decreased its 2013 capital expenditures budget to roughly $950 million from its previous expectation of $1 billion. The company also lowered its full-year cash outflows expectation by $10 million to around $65 million for future growth projects. This comprises roughly $15 million for exploration and around $50 million related to the company's chromite project in Ontario, Canada, which is in the feasibility stage of development.

The company maintained its full-year 2013 selling, general and administrative expenses guidance of roughly $215 million. Cliffs forecasts a full-year effective tax rate of roughly 13% for 2013. The company increased its outlook for depreciation, depletion and amortization by $10 million to roughly $575 million.

U.S. Iron Ore Outlook

Cliffs reiterated its sales and production volume guidance of 21 million tons and 20 million tons, respectively for 2013. Cash cost guidance was maintained in the range of $65–$70 per ton. Cliffs expects to sell 22 - 23 million tons in 2014.

Eastern Canadian Iron Ore Outlook

The company increased its guidance for sales and production volume to 8.5-9 million tons from its previous expectation of 8-9 million tons. Cliffs expects to sell about 1.5 million tons of iron ore pellets from its Eastern Canadian Iron Ore segment, with iron ore concentrate sales making up the remainder of the expected full-year sales volume range.  Cliffs maintained its full-year 2013 cash cost per ton guidance of $100–$105.

Asia Pacific Iron Ore Outlook

For 2013, sales and production volumes guidance was maintained at 11 million tons. The outlook for cash cost per ton was also reiterated at $65–$70. For 2014, Cliffs expects to sell roughly 10 - 11 million tons, which will comprise of about 50% lump iron ore and 50% fines iron ore.

North American Coal Outlook

For 2013, the company reiterated its sales and production volumes expectation for North American Coal which is expected to be around 7 million tons. Cliffs reduced its cash-cost-per-ton outlook to $85–$90 from its previous expectation of $90–$95. The company’s focus to improve the operation's cost structure and production volumes led to the guidance reduction.

For 2014, the company expects to sell about 6-7 million tons from its North American Coal business.

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

Another mining company Freeport-McMoRan Copper & Gold Inc. (FCX - Free Report) recently released its third quarter 2013 results. The company reported earnings of 79 cents per share for the quarter, a decline of 8.1% from the year-ago earnings of 86 cents. Profit fell 0.4% year over year to $821 million, impacted by lower price. Barring one-time charges, earnings were 88 cents a share, beating the Zacks Consensus Estimate of 62 cents.

Other companies in the mining industry with favorable Zacks Rank are Franco-Nevada Corp. (FNV - Free Report) , and Pretium Resources Inc. (PVG - Free Report) . Both of them carry a Zacks Rank #1 (Strong Buy).

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