Cliffs Natural Resources Inc. (CLF) posted
second-quarter 2013 net earnings of 82 cents per share, down
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. But 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.
Segment Performance
U.S. Iron Ore: U.S. Iron Ore pellet sales
volume increased to 5.7 million tons in the quarter from 5.4
million tons in the second quarter of 2012. Higher customer demand
and increased export sales related to pellet contracts led to the
increased sales volumes.
Revenues per ton were down 8% year over year to $110.32 due to
lower year-over-year market pricing for iron ore. The increase in
volume exported into the seaborne market, which has lower realized
pricing due to the increased freight costs, also led to the
decline.
Cash cost per ton rose 8% to $67.59 due to increased costs
related to the planned temporary production curtailments at Cliffs'
Northshore and Empire mines as well as increased energy costs.
Eastern Canadian Iron Ore: Sales volumes in the
reported quarter fell 18% year over year to 1.9 million tons. The
lower sales volume was due to lower iron ore pellet availability
from Wabush Mine.
Revenues per ton for the segment slipped 14% year over year to
$110.66, due to decrease in seaborne iron ore pricing and the
product mix which comprised of higher proportion of iron ore
concentrate sales versus iron ore pellet sales. Cash cost per ton
increased 7% to $114.43.
Asia Pacific Iron Ore: Sales volumes in the
segment slipped 3% to 3 million tons due to the absence of sales
volume from Cliffs' Cockatoo Island operation. Revenues per ton
were $109.36, down 7% from $117.73 in the prior-year quarter, due
to lower market pricing.
Cash cost per ton in the Asia-Pacific Iron Ore segment climbed 12%
to $63.65 due to the absence of low-grade tons sold.
North American Coal: Sales volumes spiked 36%
to 2.1 million tons, led by significantly higher sales volume from
Cliffs' Oak Grove Mine and Pinnacle mines. Revenues per ton
decreased 13% to $104.89, due to lower market pricing for
metallurgical coal products.
Cash cost per ton decreased 20% to $88.12, due to lower
maintenance and employment-related expenses and improved fixed-cost
leverage from the increased sales volumes.
Financial Position
Cliffs had $263.3 million in cash and cash equivalents as of Jun
30, 2013, compared with $159.2 million as of Jun 30, 2012.
Long-term debt stood at $3,323.3 million as of Jun 30, 2013,
compared with $3,614.1 million as of Jun 30, 2012.
Outlook
The company lowered its full-year 2013 selling, general and
administrative expenses guidance to roughly $215 million from its
previous expectation of $230 million citing an overall focus on
cost management.
Cliffs also decreased its full-year cash outflows expectation by
$10 million to about $75 million for future growth projects. On the
other hand, the company raised its outlook for capital expenditure
and now expects to spend roughly $1 billion compared with its
previous expectation of $800–$850 million. The revision is due to
additional spending at Bloom Lake Mine related to tailings and
water management.
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.
Eastern Canadian Iron Ore Outlook
The company reduced its guidance for sales volume to 8-9 million
tons from its previous expectation of 9-10 million tons. Production
is also forecast to be in the range of 8-9 million tons. Lower
volumes from Bloom Lake Mine related to lower than anticipated
throughput and ore recovery rates led to the reduction in
guidance.
Cliffs raised its full-year 2013 cash cost per ton guidance to
$100–$105 from its previous expectation of $95–$100 due to
additional mining expense that is expected to be incurred during
2013 related to the mine development of Bloom Lake's ore body.
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 lowered
to $65-$70 from its previous expectation of $70-$75 mainly due to
favorable foreign currency exchange rates.
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 $90-$95 from its previous expectation of $95-$100. The company’s
focus to improve the operation's cost structure led to the guidance
reduction.
For the second half of 2013, Cliffs expects its two largest end
markets to remain stable. The company expects modest growth in the
U.S. economy, which is expected to support stable North American
steelmaking utilization rates.
Cliffs currently retains a Zacks Rank #3 (Hold).
Another mining company Freeport-McMoRan Copper &
Gold Inc. (FCX) also recently released its second quarter
2013 results. The company reported earnings of 49 cents per share
for second-quarter 2013, a decline of 33.8% from the year ago
earnings of 74 cents. But it beat the Zacks Consensus Estimate of
41 cents. Profit slid 32% year over year to $482 million, hurt by
lower prices.
Other companies in the mining industry with favorable Zacks Rank
are NovaGold Resources Inc. (NG), and
Pretium Resources Inc. (PVG). Both of them carry a
Zacks Rank #2 (Buy).
CLIFFS NATURAL (CLF): Free Stock Analysis Report
FREEPT MC COP-B (FCX): Free Stock Analysis Report
NOVAGOLD RSRCS (NG): Free Stock Analysis Report
PRETIUM RES INC (PVG): Free Stock Analysis Report
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