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Cliffs' Earnings Tops, Sales Miss

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Cliffs Natural Resources Inc. (CLF - Free Report) posted adjusted earnings of 60 cents per share in the first quarter of 2013, down 29.4% from 85 cents earned in the year-ago quarter but ahead of the Zacks Consensus Estimate of 32 cents.  The adjusted earnings exclude a tax benefit of 6 cents per share.
On a reported basis, Cliffs’ earnings were 66 cents per share compared with $2.63 reported in the year-ago quarter. Weak iron ore pricing coupled with lower volume hurt Cliffs’ earnings in the quarter.

Sales for the quarter came in at $1,140.5 million, down roughly 5.9% from $1,212.4 million in the prior-year quarter and also missed the Zacks Consensus Estimate of $1,226 million. Decline in global iron ore sales volumes led to reduced sales in the quarter.

Segment Performance

U.S. Iron Ore: U.S. Iron Ore pellet sales volume decreased to 3.1 million tons in the quarter from 3.4 million tons in the first quarter of 2012. Lower volumes to a customer due to bankruptcy in May 2012 and seasonal shipping constraints on the Great Lakes led to the decline.

Revenues per ton were up 2% year over year to $119.82 due to customer mix and favorable provisional pricing settlement. Cash cost per ton fell 2% to $60.17 due to lower maintenance expenses.

Eastern Canadian Iron Ore: Sales volumes in the reported quarter were flat year over year at 1.9 million tons. Cliffs announced that it will idle the Wabush Pointe Noire Pellet Plant by the end of second-quarter 2013.

Revenues per ton for the segment jumped 13% year over year to $131.95, led by favorable provisional pricing settlements, lower freight rates and a 3% year-over-year increase in seaborne iron ore pricing.

Cash cost per ton fell 4% to $99.41, attributable to lower cash cost at Bloom Lake Mine primarily due to lower transshipping costs, reduced demurrage and lower contractor spending.

Asia Pacific Iron Ore: Sales volumes in the segment slipped 17% to 2.3 million tons due to vessel timing and the absence of sales volume from Cliffs' Cockatoo Island operation. Revenues per ton were $117.48, down 9% from $129.75 in the prior-year quarter, due to lesser revenue realizations due to lower iron ore grades as well as customer mix.
Cash cost per ton in the Asia-Pacific Iron Ore segment climbed 2% to $75.10 on the back of higher mining and logistic costs.

North American Coal: Sales volumes spiked 27% to 1.8 million tons, led by significantly higher sales volume from Cliffs' Oak Grove Mine. Revenues per ton decreased 9% to $110.35, due to lower spot pricing for metallurgical coal products. Cash cost per ton decreased 6% to $91.16, due to lower maintenance and employment-related expenses.

Financial Position

Cliffs had $287.2 million in cash and cash equivalents as of Mar 31, 2013, compared with $122.3 million as of Mar 31, 2012. Long-term debt stood at $3,433 million as of Mar 31, 2013, compared with $3,583.8 million as of Mar 31, 2012.


The company reaffirmed its 2013 capital expenditures budget of $800–$850 million. Cliffs also maintains its 2013 selling, general and administrative expenses outlook of roughly $230 million. Cliffs expects depreciation, depletion and amortization to be around $565 million in 2013.

U.S. Iron Ore Outlook

Cliffs reiterated its production volume guidance in U.S. Iron Ore to be 20 million tons in 2013 while it increased its sales expectations to 21 million tons from its earlier guidance of 20 million tons. Cash cost guidance was maintained in the range of $65–$70 per ton.

Eastern Canadian Iron Ore Outlook

The company maintained its sales volume target in the range of roughly 9–10 million tons and production is also expected to be in the range of 9-10 million tons. Cash cost per ton in Eastern Canadian Iron Ore is expected to be in the range of $95–$100 in 2013.

Asia Pacific Iron Ore Outlook

For 2013, sales and production volumes are forecast to be 11 million tons. Cash cost per ton is expected to be roughly $70–$75.

North American Coal Outlook

For 2013, the company expects sales and production volumes for North American Coal to be around 7 million tons. Cash cost per ton has been projected in the range of $95–$100.

Cliffs remains optimistic regarding its financial flexibility including its prospects for cash generation and opportunities to fund organic growth projects and return cash to shareholders. It also has a significant presence in the Asia-Pacific region, where demand is still robust, lending support to shipments. However, Cliffs remains hamstrung by lower iron ore pricing, partly due to oversupply in the industry.

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

Another mining company Freeport-McMoRan Copper & Gold Inc. (FCX - Free Report) also recently released its first quarter 2013 results. The company’s adjusted earnings (excluding one-time charges) of 73 cents per share for the quarter beat the Zacks Consensus Estimate by a penny but exceeded the year-ago earnings of 96 cents.

Among other mining companies, Newmont Mining Corporation (NEM - Free Report) and Goldcorp Inc. (GG - Free Report) are slated to release their first-quarter 2013 results on Apr 29 and May 2, respectively.

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