Cliffs Natural Resources Inc. (CLF) reported fourth-quarter 2013 adjusted earnings from continuing operations (barring special items) of $1.22 per share that increased roughly two-fold from 63 cents per share reported in the year-ago quarter. The results also surpassed the Zacks Consensus Estimate of 77 cents.
Consolidated net income was $31 million (or 20 cents per share) versus a loss of $1.6 billion (or $11.36 per share) registered in the year-ago quarter.
Sales for the quarter came in at $1,515.8 million, down 1.3% from $1,535.9 million in the prior-year quarter. However, it came ahead of the Zacks Consensus Estimate of $1,450 million. The decrease was due to lower market pricing and sales volumes for metallurgical coal products partly offset by a 10% rise in global seaborne iron ore pricing.
For full-year 2013, adjusted earnings from continuing operations were $3.84 per share, up 20% from $3.21 per share recorded in 2012. The results surpassed the Zacks Consensus Estimate of $2.90 per share. Reported net income was $413.5 million or $2.37 per share versus a loss of $899.4 million or $6.32 per share in 2012.
For full-year 2013, revenues decreased 3% to $5,691.4 million from $5,872.7 million in 2012, but were ahead of the Zacks Consensus Estimate of $5,606 million
Segment Performance
U.S. Iron Ore: U.S. Iron Ore pellet sales volume was 6.2 million tons in the fourth quarter, relatively flat year over year as increased domestic demand and a catch-up of tonnage resulting from the end of a customer’s force majeure was offset by lower sales volume from the expiration of a customer contract.
Revenues per ton were up 1% year over year to $112.70 due to increase in pricing for one customer which reset contract base rate. The increase was partly offset by customer mix, increased sales to seaborne customers and an unfavorable true-up on hot-rolled steel pricing.
Cash cost per ton increased 1% year over year to $65.51 due to lower production volumes and the resulting unfavorable impact on the mines’ cost-per-ton rate.
Eastern Canadian Iron Ore: Sales volumes in the reported quarter decreased 6% year over year to 2.2 million tons. Extremely cold weather in Dec 2013, limiting the loading of ships at the Pointe Noire port, led to the decrease.
Revenues per ton for the segment leapt 8% year over year to $108.73 due to a 10% increase in seaborne iron ore pricing and higher quality premiums. Cash cost per ton decreased 6% to $110.03.
Asia Pacific Iron Ore: Sales volumes in the segment rose 5% to 3 million tons due to the timing of shipments in 2013. Revenues per ton were $109.07, up 9% from $99.96 in the prior-year quarter, due to higher market pricing and lump premiums.
Cash cost per ton in the segment fell 11% to $58.90 due to favorable foreign exchange rate variances.
North American Coal: Sales volumes decreased 7% to 1.8 million tons, led by lower domestic demand and export sales. Revenues per ton decreased 19% to $89.70, due to lower market pricing for metallurgical coal products and customer mix.
Cash cost per ton decreased 13% to $85.14 due to lower year-over-year cost rate, driven by improved operating efficiencies.
Financial Position
Cliffs had $335.5 million in cash and cash equivalents as of Dec 31, 2013, compared with $195.2 million as of Dec 31, 2012. Long-term debt stood at $3,022.6 million as of Dec 31, 2013, compared with $3,960.7 million as of Dec 31, 2012.
Capital expenditures were reduced by 64% to $119 million in the fourth quarter from $334 million capital spending recorded in the prior-year quarter, driven by decreased spending in Eastern Canada.
For 2013, cash flow from operations increased 123% over 2012 to $1.1 billion.
Outlook
Cliffs expects a healthy pace of economic growth in the U.S. to support domestic steel production and demand for steelmaking raw materials. Chinese economy is also expected to expand at a pace near the official government target rate driven by fixed asset investment. Growth in both these markets is expected to lead to in continued demand for Cliffs’ products. It expects pricing of its commodities to remain volatile.
Cliffs expects a significant reduction in its full-year 2014 capital expenditures to between $375 million and $425 million from full-year 2013 capital spending of $862 million. Capital expenditures for 2014 include roughly $100 million in cash-carryover capital, with the balance mainly comprised of sustaining and license-to-operate capital. The company is also expected to take costs of roughly $100 million related to the Wabush Mine idle.
Any additional cash generated in excess of consolidated capital expenditures and dividend payoffs will be utilized to lower Cliffs’ net-debt position in 2014. The company is looking forward to find out alternative options to the use of capital, all of which must have attractive return rates and boost shareholder value in the long term.
For full-year 2014, selling, general and administrative (SG&A) expenses are expected to be roughly $185 million, a reduction of $90 million year over year. The decrease was due to expected reductions in employee-related expenses, outside services and legal settlements. For full-year 2014, cash outflow for exploration and chromite-related spending is expected to be roughly $15 million. Cliffs expects its full-year 2014 depreciation, depletion and amortization to be roughly $600 million.
U.S. Iron Ore Outlook
For full-year 2014, Cliffs expects sales and production volume to be between 22 million tons and 23 million tons. Cash-cost expectation is in the range of $65–$70 per ton. Depreciation, depletion and amortization for full-year 2014 are expected to be roughly $7 per ton.
Eastern Canadian Iron Ore Outlook
For full-year 2014, sales and production volume is expected to be between 6–7 million tons. Cliffs expects its full-year 2014 cash cost per ton to be $85–$90. Depreciation, depletion and amortization for full-year 2014 are expected to be roughly $25 per ton.
Asia Pacific Iron Ore Outlook
For 2014, cash cost per ton is expected to be roughly $60–$65, lower than the previous year’s cash cost of $65–$70 due to favorable foreign exchange rate assumptions. 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 2014, the company expects to sell about 7–8 million tons from its North American Coal business. Cliffs expects its cash-cost-per-ton to be $85–$90 and revenue per ton to be $85–$90. Depreciation, depletion and amortization for full-year 2014 are expected to be roughly $15 per ton.
Cliffs currently carries a Zacks Rank #3 (Hold).
Other companies in the mining industry with a favorable Zacks Rank are Stillwater Mining Co. (SWC), Denison Mines Corp. (DNN) and Rio Tinto plc (RIO). While Stillwater Mining sports a Zacks Rank #1 (Strong Buy), both Denison Mines and Rio Tinto carry a Zacks Rank #2 (Buy).
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