Mining company, Cliffs Natural Resources Inc. (CLF) announced that it is seeking to sell and idle operations at its renewaFUEL biomass production facility in Michigan. The company will take a $30 million pretax charge, primarily non-cash, in the third quarter of 2011.
The plant in Marquette, Michigan, was built to produce high-energy, low-emission biofuel cubes from sustainably collected wood and agricultural feed stocks. Cliffs bought renewaFUEL in 2007. As per Cliffs, the plant has not performed to capacity, either by design or by production level that justifies continued operation.
The company stated that it will try to reassign the 30 fulltime employees who were working at the plant.
The company has decided to focus on its core business of producing raw material for steel manufcature.
In July 2011, the company reported its second quarter 2011 earnings. Cliffs posted net earnings of $408 million or $2.92 per share in the second quarter up 56.3%, above last year’s $261 million or $1.92 per share. Earnings missed the Zacks Consensus Estimate of $3.72 per share.
Quarterly revenues came in at $1.2 billion, up 52% year over year and also missed the Zacks Consensus Estimate of $1.8 billion. The increase was driven by several factors, including higher pricing in each of Cliffs' iron ore business segments and increased sales from Cliffs' recently acquired Bloom Lake operations in Eastern Canada.
Operating income in the quarter increased 68.6% year over year to $616.9 million.
Cliffs expects demand for its products to remain steady through the remainder of 2011 driven by continued growth in Chinese steel production and steady blast furnace utilization rates in Europe and North America. With a growing production profile, Cliffs is well positioned to generate significant cash flows through 2011 and beyond.
Cliffs increased its SG&A expenses expectation as a result of additional expenses incurred from the Consolidated Thompson acquisition. SG&A expenses are anticipated to be around $240 million, up from its previous expectation of $200 million.
For 2011, Cliffs expects to generate $2.6 million in cash from operations.
Cliffs maintained its 2011 capital expenditure budget of approximately $1 billion, comprising approximately $300 million in sustaining capital and $700 million in growth and expansion capital.
Cliffs faces stiff competition from CONSOL Energy Inc. (CNX) and Peabody Energy Corp. (BTU).
We maintain our Neutral recommendation on Cliff with a short-term Zacks #3 Rank (Hold) on the stock.
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