Cliffs Natural Resources Inc. (CLF) posted second-quarter 2013 net earnings of 82 cents per share, down roughly 55% from $1.81 a year ago. Net income (attributable to common shareholders) declined 48% year over year to $133 million, hit by a decline in global iron ore prices and higher costs.
The results include $68 million asset impairment charges related to the write down of Cliffs' Amapa investment as well as income tax expense of $9 million. Barring one-time items, earnings of $1.13 per share topped the Zacks Consensus Estimate of 61 cents.
Sales for the quarter came in at $1,488.5 million, down roughly 6% from $1,579.4 million in the prior-year quarter. But it exceeded the Zacks Consensus Estimate of $1,436 million. An 11% decline in global iron ore pricing led to reduced sales in the quarter.
U.S. Iron Ore: U.S. Iron Ore pellet sales volume increased to 5.7 million tons in the quarter from 5.4 million tons in the second quarter of 2012. Higher customer demand and increased export sales related to pellet contracts led to the increased sales volumes.
Revenues per ton were down 8% year over year to $110.32 due to lower year-over-year market pricing for iron ore. The increase in volume exported into the seaborne market, which has lower realized pricing due to the increased freight costs, also led to the decline.
Cash cost per ton rose 8% to $67.59 due to increased costs related to the planned temporary production curtailments at Cliffs' Northshore and Empire mines as well as increased energy costs.
Eastern Canadian Iron Ore: Sales volumes in the reported quarter fell 18% year over year to 1.9 million tons. The lower sales volume was due to lower iron ore pellet availability from Wabush Mine.
Revenues per ton for the segment slipped 14% year over year to $110.66, due to decrease in seaborne iron ore pricing and the product mix which comprised of higher proportion of iron ore concentrate sales versus iron ore pellet sales. Cash cost per ton increased 7% to $114.43.
Asia Pacific Iron Ore: Sales volumes in the segment slipped 3% to 3 million tons due to the absence of sales volume from Cliffs' Cockatoo Island operation. Revenues per ton were $109.36, down 7% from $117.73 in the prior-year quarter, due to lower market pricing.
Cash cost per ton in the Asia-Pacific Iron Ore segment climbed 12% to $63.65 due to the absence of low-grade tons sold.
North American Coal: Sales volumes spiked 36% to 2.1 million tons, led by significantly higher sales volume from Cliffs' Oak Grove Mine and Pinnacle mines. Revenues per ton decreased 13% to $104.89, due to lower market pricing for metallurgical coal products.
Cash cost per ton decreased 20% to $88.12, due to lower maintenance and employment-related expenses and improved fixed-cost leverage from the increased sales volumes.
Cliffs had $263.3 million in cash and cash equivalents as of Jun 30, 2013, compared with $159.2 million as of Jun 30, 2012. Long-term debt stood at $3,323.3 million as of Jun 30, 2013, compared with $3,614.1 million as of Jun 30, 2012.
The company lowered its full-year 2013 selling, general and administrative expenses guidance to roughly $215 million from its previous expectation of $230 million citing an overall focus on cost management.
Cliffs also decreased its full-year cash outflows expectation by $10 million to about $75 million for future growth projects. On the other hand, the company raised its outlook for capital expenditure and now expects to spend roughly $1 billion compared with its previous expectation of $800–$850 million. The revision is due to additional spending at Bloom Lake Mine related to tailings and water management.
U.S. Iron Ore Outlook
Cliffs reiterated its sales and production volume guidance of 21 million tons and 20 million tons, respectively for 2013. Cash cost guidance was maintained in the range of $65–$70 per ton.
Eastern Canadian Iron Ore Outlook
The company reduced its guidance for sales volume to 8-9 million tons from its previous expectation of 9-10 million tons. Production is also forecast to be in the range of 8-9 million tons. Lower volumes from Bloom Lake Mine related to lower than anticipated throughput and ore recovery rates led to the reduction in guidance.
Cliffs raised its full-year 2013 cash cost per ton guidance to $100–$105 from its previous expectation of $95–$100 due to additional mining expense that is expected to be incurred during 2013 related to the mine development of Bloom Lake's ore body.
Asia Pacific Iron Ore Outlook
For 2013, sales and production volumes guidance was maintained at 11 million tons. The outlook for cash cost per ton was lowered to $65-$70 from its previous expectation of $70-$75 mainly due to favorable foreign currency exchange rates.
North American Coal Outlook
For 2013, the company reiterated its sales and production volumes expectation for North American Coal which is expected to be around 7 million tons. Cliffs reduced its cash-cost-per-ton outlook to $90-$95 from its previous expectation of $95-$100. The company’s focus to improve the operation's cost structure led to the guidance reduction.
For the second half of 2013, Cliffs expects its two largest end markets to remain stable. The company expects modest growth in the U.S. economy, which is expected to support stable North American steelmaking utilization rates.
Cliffs currently retains a Zacks Rank #3 (Hold).
Another mining company Freeport-McMoRan Copper & Gold Inc. (FCX) also recently released its second quarter 2013 results. The company reported earnings of 49 cents per share for second-quarter 2013, a decline of 33.8% from the year ago earnings of 74 cents. But it beat the Zacks Consensus Estimate of 41 cents. Profit slid 32% year over year to $482 million, hurt by lower prices.
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