U.S. Markets closed

Cliffs and ArcelorMittal Extend Tie-up

Zacks Equity Research

Cliffs Natural Resources Inc. (CLF) has extended its commercial agreement with ArcelorMittal USA, a part of steel giant ArcelorMittal (MT), which incorporates new amendments to supply iron ore pellets for an additional two years through the end of Jan 2017. On mutual consideration, the partnership can be extended for a third year.

Additionally, Cliffs has also extended its joint partnership with ArcelorMittal USA for the Empire Mine located on the Marquette Iron Range in Michigan. Empire mine was nearing closure with a scheduled expiry of the partnership agreement in Dec 2014 as the mine did not have any customer for pellet production beyond 2014.

However, as a result of the amended commercial agreement, the partners have mutually agreed to extend the life of this mining operation by two years. Empire mine will now operate till 2016.

Close working relationships at the commercial as well as operational levels coupled with strong long-term customer and partner relationships which both ArcelorMittal and Cliffs share has led to this agreement-expansion decision.

Cliffs will continue to supply high-quality iron ore pellets to one of ArcelorMittal USA’s facilities. The employees of Cliffs can relax with this news as they will continue operations at Empire mine.

For 2014, Cliffs expects sales and production volume to be between 22 million tons and 23 million tons from its Iron Ore business in U.S. Iron ore cash-cost-per-ton for 2014 is expected to be within $65 to $70. Cliffs will be utilizing limited capital for this extension.

At the Empire mine, Cliffs has a 79% ownership and the remaining 21% is owned by a subsidiary of ArcelorMittal USA with limited rights and obligations. Operations at the mine are performed through an open pit truck and shovel mine, a concentrator that utilizes single stage crushing, AG mills, magnetic separation and flotation to produce a magnetic concentrate that is then supplied to the on-site pellet plant.

Cliffs released its fourth-quarter 2013 results on Feb 13. The company’s adjusted earnings from continuing operations (barring special items) of $1.22 per share 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.

Cliffs expects a healthy pace of economic growth in the U.S. to support domestic steel production and demand for steelmaking raw materials. The 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 continued demand for Cliffs’ products. It expects pricing of its commodities to remain volatile.

Cliffs currently carries a Zacks Rank #3 (Hold).

Other companies in the mining industry with favorable Zacks Rank are Stillwater Mining Co. (SWC) and Rio Tinto plc (RIO). While Stillwater Mining sports a Zacks Rank #1 (Strong Buy), Rio Tinto carries a Zacks Rank #2 (Buy).

Read the Full Research Report on CLF
Read the Full Research Report on MT
Read the Full Research Report on RIO
Read the Full Research Report on SWC

Zacks Investment Research