Cliffs Natural Resources Inc. (CLF) announced its outlook for its Bloom Lake Mine, an iron ore operation acquired as part of its recent acquisition of Consolidated Thompson Iron Mines Limited. Along with this Cliffs also provided an update for its North American Operations for the years 2011 and 2012.
At Bloom Lake, annualized production rate is expected to be 8 million tons by the end of 2011. For the rest of 2011, the company expects to sell approximately 4.8 million tons of Bloom Lake iron ore concentrate.
The company anticipates revenue per ton of Bloom Lake iron ore concentrate for 2011 to be in the range of $170 – $175 (F.O.B. Eastern Canada), based on the assumption that the April 15, 2011 Platts iron ore spot price of $181 per ton (C.I.F. China) is maintained through the end of 2011. Excluding around $10 – $15 per ton of non-cash inventory valuation step-up costs, the cost of goods sold, are expected to be $60 – $65 per ton. This comprises cash cost per ton of $50 – $55 and depreciation, depletion and amortization of approximately $10 per ton.
For the remaining 2011, capital expenditure is forecast to be approximately $300 million. This amount includes capital for Bloom Lake’s capacity expansion to 16 million tons.
For full year 2012, Cliffs expects Bloom Lake iron ore concentrate sales and production volume to be approximately 8 million tons, with a revenue rate of around $170 – $175 per ton, based on current iron ore spot prices. Bloom Lake’s 2012 cash costs per ton are likely to decline to $45 – $50. Cliffs expects capital expenditures to be about $350 million, including sustainable and expansion capital.
The company’s Oak Grove Mine in Alabama faced rough weather conditions leading to damage to the plant and overland conveyor system. A return to coal production is, therefore, already on the cards during the end of the fourth quarter of 2011, owing to the considerable damage done to the plant.
Cliffs hopes to complete the repairing by the end of 2011 and expects to receive insurance settlement proceeds related to the severe weather conditions. The insurance claim is expected to cover the expenditure incurred in repair work.
Cliffs also discovered much higher than required levels of carbon monoxide at a section of its Pinnacle Mine in West Virginia; due to which the underground operations at the mine have been halted.
Cliffs has begun working, in collaboration with the Mine Safety and Health Administration (MSHA), on the execution of a remediation plan which includes the intentional flooding of the mine section where elevated gas levels were detected. Based on the plan Cliffs expects to resume production at the mine by about July 1, 2011.
Cliffs expects its North American Coal business to sell 5.1 million tons of coal in 2011, which is a reduced outlook from its prior expectation of 6.5 million tons. Revenue per ton in this business segment is likely to be $125 – $130, with cost of goods sold of approximately $110 – $115, comprising $90 – $95 cash cost per ton and depreciation, depletion and amortization costs of $20 per ton.
Cliffs completed its acquisition of Consolidated Thompson Iron Mines Ltd. for C$4.9 billion ($4.95 billion). The company financed the transaction (including net debt) through committed financing, including a $1.25 billion term loan, $750 million in bridge financing and available cash on hand.
Cliffs faces stiff competition from CONSOL Energy Inc. (CNX), Massey Energy Co. and Peabody Energy Corp. (BTU).
We maintain our Neutral recommendation on Cliffs with a short-term Zacks #3 Rank (Hold) on the stock.
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