Cliffs Natural Resources Inc. (CLF) posted adjusted earnings of 62 cents per share for the fourth quarter of 2012, down 58% from $1.49 earned in the year-ago quarter. Adjusted earnings from continuing operations were 41 cents a share. By that measure, it missed the Zacks Consensus Estimate of 55 cents.
On a reported basis, the company turned to a loss of $11.36 per share compared with earnings of $1.30 per share in the year-ago quarter. Non-cash impairment charges of $1 billion related to Cliffs' acquisition of Consolidated Thompson Iron Mines Limited, $365 million of charges related to sale of Amapa stake, $541 million related to a couple of deferred tax assets and lower iron ore pricing led to the year over year slump in the bottom line.
For the full year, adjusted earnings came in at $3.45 per share, down 70% year over year, missing the Zacks Consensus Estimate of $3.59. After including one-time charges, the company recorded a loss of $6.32 per share compared with earnings of $11.48 per share a year ago.
Sales for the quarter came in at $1,535.9 million, down roughly 4% from $1,603.7 million in the prior-year quarter. However, it exceeded the Zacks Consensus Estimate of $1,529 million. The decline in revenues resulted from a year-over-year drop in seaborne iron ore pricing.
For full-year 2012, sales decreased 11% year over year to $5.87 billion, missing the Zacks Consensus Estimate of $6.37 billion.
Segment Performance
U.S. Iron Ore: U.S. Iron Ore pellet sales volume decreased to 6.2 million tons in the quarter from 7.8 million tons in the fourth quarter of 2011. Lower volumes to a customer and lower demand for iron ore led to the decline. Revenues per ton fell 7% year over year to $120.06. The decline was due to lower pricing of sea borne iron ore and changes in customer mix. Cash costs per ton fell 3% to $64.55.
Eastern Canadian Iron Ore: Sales volumes increased 20% to 2.3 million tons in the quarter, mainly due to increased customer demand and improved production volume at Bloom Lake Mine. Revenues per ton for the segment declined 19% year over year to $100.70, hurt by lower pricing of iron ore, timing of certain cargoes, and product mix.
Cash costs per ton jumped 14% to $116.56, attributable to higher cash costs at Wabush mine due to higher labor costs and increased spending related to maintenance, and repair costs. Higher fuel, contract labor and maintenance and supply costs at the Bloom Lake Mine also led to higher cash costs.
Asia Pacific Iron Ore: Sales volumes in the segment increased 56% to 2.8 million tons as Koolyanobbing Complex expansion project was completed in the quarter. Revenues per ton were $99.96, down 23% from $130.18 in the prior-year quarter, due to weaker year over year pricing for seaborne iron and low grade iron ore in the company’s product mix.
Cash cost per ton in the Asia-Pacific Iron Ore segment declined 5% to $65.86 on the back of improved volumes and the related favorable impact on fixed-cost leverage.
North American Coal: Sales volumes shot up 94% to 1.9 million tons, led by significantly higher sales volumes from Cliffs’ low-volatile metallurgical coal mines. Revenues per ton decreased 12% to $110.14, due to lower market pricing for all coal products. Cash cost per ton decreased 15% to $114.56. Also, increased shipments to Asia lowered revenues due to higher freight.
Sonoma Coal: Cliffs entered into a definitive share and asset sale agreement to sell its 45% economic interest in Sonoma Coal. The transaction closed in the fourth quarter of 2012 and Cliffs collected net cash proceeds of AUD $141 million.
Financial Position
Cliffs had $195.2 million in cash and cash equivalents as of Dec 31, 2012, compared with $519.3 million as of Dec 31, 2011. Long-term debt stood at $3,960.7 million as of Dec 31, 2012, compared with $3,608.7 million as of Dec 31, 2011.
Dividend
Cliffs’ Board of Directors approved the reduction of the company's quarterly cash dividend by 76% to 15 cents per share from 62.5 cents. The cash dividend is payable on Mar 1, 2013, to shareholders of record as of Feb. 22, 2013.
Outlook
According to Cliffs, prices are likely to stay volatile in 2013, but demand should remain healthy because of high demand in China for raw materials used in making steel. Cliffs expects its global iron ore sales to be relatively flat year over year at about 40 million tons.
In order to reduce overhead costs, Cliffs expects selling, general and administrative expenses for 2013 to be $230 million, a decrease of about $60 million from 2012.
The company increased its 2013 capital expenditures budget to $800–$850 million from its previous expectation of $700–$800 million due to additional investments in its Eastern Canadian Iron Ore business segment.
U.S. Iron Ore Outlook The company expects sales and production volumes in U.S. Iron Ore to be 20 million tons in 2013. Cash cost is expected to be in the range of $65–$70 per ton.
Eastern Canadian Iron Ore Outlook
The company maintained its sales volume target in the range of approximately 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 $100–$105 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 approximately $70–$75.
North American Coal Outlook
For 2013, expected sales and production volumes for North American Coal are approximately 7 million tons. Cash cost per ton has been projected in the range of $95–$100, lower than full-year 2012 cash costs due to the improved operating performance.
Cliffs currently retains a Zacks Rank #2 (Buy).
Other companies in the mining industry having a favourable Zacks Rank are Kumba Iron Ore Ltd. (KIROY), BHP Billiton Plc. (BBL) and BHP Billiton Ltd. (BHP). While Kumba Iron Ore retains a Zacks Rank #1 (Strong Buy), BHP Billiton Ltd. and BHP Billiton Plc. hold a Zacks Rank #2 (Buy).
