Cliffs Natural Resources Inc. (CLF) posted net earnings of $185 million or $1.30 per share in the fourth quarter of 2011 compared with last year’s $384 million or $2.82 per share. Earnings missed the Zacks Consensus Estimate of $1.54 per share. For full-year 2011, net earnings came in at $1.6 billion, or $11.48 per share compared with $1 billion, or $7.49 per share, in 2010. Earnings surpassed the Zacks Consensus Estimate of $11.46 per share.
Quarterly revenues came in at $1.7 billion, up 17% year over year. The increase was driven by higher sales volumes and increased market pricing. For fiscal 2011, revenues increased by about 45% to $6.8 billion.
Segment Performance
U.S.Iron Ore: U.S. Iron Ore pellet sales volume increased to 7.8 million tons in the quarter from 6.5 million tons in the fourth quarter of 2010. The increase was led by stronger demand for iron ore pellets driven by slightly higher North American steel industry capacity utilization. Revenues per ton increased more than 20% year over year to $120.37 in the quarter due to stronger iron ore pricing.
Cash costs per ton rose to $66.34 from $59.27 in the year-ago quarter led by higher supply and maintenance spending, electricity rates and stripping activity.
Eastern Canadian Iron Ore:Sales volume was 1.9 million tons in the quarter, a jump of 70% from 1.1 million tons sold in the prior-year quarter. The increase was led by approximately 1.2 million tons of incremental sales volume of iron ore concentrate from the Bloom Lake Mine. However, this was offset by decreased production and sales from Wabush Mine.
Revenues per ton for the segment plunged 18% year over year to $123.83 due to unfavorable product mix and lower sales rate premiums for pellet products.
Cash costs per ton were up 9% to $102.41. Production challenges at Wabush Mine, which led to lower fixed-cost leverage and approximately $9 per ton of unplanned maintenance and repair spending led to the increased cash cost per ton.
Asia Pacific Iron Ore:Sales volumes in the segment decreased 31% to 1.8 million tons. The decrease was due to the planned shutdown at one of its ports r elated to its expansion project, weather-related timing of two shipments and industrial action within the logistics network in Western Australia.
In the quarter, revenues per ton were $130.18, a decrease from $135.42 in the prior-year quarter due to weaker year-over-year pricing for seaborne iron.
Cash cost per ton in Asia Pacific Iron Ore segment increased 34% to $69.22 in the quarter from $51.75 in the prior-year quarter. The increase was driven by unfavorable foreign exchange rates, accelerated mining costs, increased stripping requirements and lower fixed cost leverage.
North American Coal:Sales Volumes increased 6.5% to 988,000 tons, driven by significantly higher sales and production volumes from Pinnacle Mine. However, the increase was offset by lower sales volume from Oak Grove Mine due to severe weather that damaged the above-ground operations during 2011. Revenue per ton increased 11% to $125.10 driven by higher proportion of sales of low-volatile metallurgical coal products.
Cash cost per ton decreased 17% to $118.00. Cash costs per ton of $94 were recorded at Pinnacle Mine during the quarter, which was driven largely by higher production in the fourth quarter of 2011.
SonomaCoal and Amapa:Cliffs has a 45% economic interest in Sonoma Coal. Sales volumes in the segment were 360,000 tons in the quarter. The segment generated revenues of $58.9 million. Revenue per ton at Sonoma was $163.78, with cash costs of $80.80 per ton.
Cliffs has a 30% ownership interest in Amapa, an iron ore operation in Brazil. During the quarter, Amapa produced approximately 1.3 million tons and earned equity income of $9.6 million for Cliffs' share of operation.
Financial Position
At the end of December 31, 2011, Cliffs had $522 million of cash and cash equivalents and $3.6 billion in long-term debt. For full-year 2011, Cliffs reported depreciation, depletion and amortization of $427 million and generated a record $2.3 billion in cash from operations.
Outlook
Looking ahead, Cliffs anticipates SG&A expense to be about $325 million in 2012 driven by an increase in growth-related corporate projects.
The company expects to incur cash outflows of approximately $165 million to support future growth, comprising approximately $90 million related to exploration and drilling programs and approximately $75 million related to its chromite project in Ontario, Canada.
For 2012, Cliffs anticipates a full-year effective tax rate of approximately 25%. In addition, Cliffs expects its full-year 2012 depreciation, depletion and amortization to be approximately $620 million.
The company expects to generate cash flow from operations of approximately $1.9 billion. Cliffs reiterated its previously disclosed 2012 capital expenditures budget of approximately $1 billion for 2012, including approximately $300 million in sustaining capital and $700 million in growth and productivity-improvement capital.
U.S.Iron Ore Outlook
For 2012, U.S. Iron Ore revenue is expected to be in the range of $115-$125 per ton. Cash cost is expected to be in the range of $60-$65 per ton. For 2012, depreciation, depletion and amortization are expected to be approximately $5 per ton.
Eastern Canadian Iron Ore Outlook
For 2012, the company expects revenue to be in the range of $135-$145 per ton. It expects cash cost per ton of in the range of $70-$75. For 2012, depreciation, depletion and amortization are expected to be approximately $19 per ton.
Asia Pacific Iron Ore Outlook
For 2012, the company expects revenue to be in the range of $135-$145 per ton. Cash cost is expected to be in the range of $65-$70 per ton. Depreciation, depletion and amortization are expected to be approximately $13 per ton.
North American Coal Outlook
For 2012, the company expects revenue to be in the range of $140-$150 per ton. Cash cost is expected to be in the range of $105-$110 per ton. Depreciation, depletion and amortization are expected to be approximately $16 per ton.
SonomaCoal and Amapa Outlook
For 2012, the company is maintaining its equity sales and production volume expectations of approximately 1.6 million tons. The approximate product mix is expected to be two-third of thermal coal and one-third of metallurgical coal. Cash cost per ton is expected to be approximately $110. For 2012, depreciation, depletion and amortization is expected to be approximately $14 per ton. Cliffs expects Amapa to contribute over $30 million in equity income in 2012.
Cliffs retains a Zacks #4 Rank, which translates into a short-term (1 to 3 months) “Sell” rating and we have recommended the shares of the company as “Neutral” for the long-term (more than 6 months). The company faces stiff competition from CONSOL Energy Inc. (CNX) and Peabody Energy Corp. (BTU).
PEABODY ENERGY (BTU): Free Stock Analysis Report
CLIFFS NATURAL (CLF): Free Stock Analysis Report
CONSOL ENERGY (CNX): Free Stock Analysis Report
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