Cliffs Natural Resources (CLF)

Q1 2012 Earnings Call

April 26, 2012 10:00 am ET

Executives

Steven R. Baisden - Vice President of Investor Relations & Corporate Communications

Joseph A. Carrabba - Chairman, Chief Executive Officer and President

Laurie Brlas - Chief Financial Officer and Executive Vice President of Global Finance & Administration

Analysts

Brian Yu - Citigroup Inc, Research Division

Timna Tanners - BofA Merrill Lynch, Research Division

Unknown Analyst

Michael F. Gambardella - JP Morgan Chase & Co, Research Division

Sohail Tharani - Goldman Sachs Group Inc., Research Division

Jessica Fung - BMO Capital Markets Canada

Shneur Z. Gershuni - UBS Investment Bank, Research Division

Nathan Littlewood - Crédit Suisse AG, Research Division

Jorge M. Beristain - Deutsche Bank AG, Research Division

Presentation

Operator

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Good morning. My name is Shannon and I am the conference facilitator today. I would like to welcome everyone to Cliffs Natural Resources 2012 First Quarter Conference Call. [Operator Instructions] At this time, I would like to introduce Steve Baisden, Vice President of Investor Relations and Communications. Mr. Baisden?

Steven R. Baisden

Thank you, Shannon. I'd like to welcome everyone to this morning's call. Before we get started, let me remind you that certain comments made on today's call will include predictive statements that are intended to be made as forward-looking within the Safe Harbor protections of the Private Securities Litigation Reform Act of 1995.

Although the company believes that its forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties that could cause actual results to differ materially. Important factors that could cause results to differ materially are set forth in reports on Form 10-K and 10-Q and news releases filed with the SEC, which are available on our website.

Today's conference call is also available and being broadcast at cliffsnaturalresources.com. At the conclusion of the call, it will be archived on the website and available for replay.

Joining me today are Cliffs Chairman, President and Chief Executive Officer, Joseph Carrabba; and Executive Vice President, Finance and Administration, and Chief Financial Officer, Laurie Brlas. At this time, I'll turn the call over to Joe for his initial remarks.

Joseph A. Carrabba

Thanks, Steve, and thanks to everyone, for joining us this morning. A year-over-year volume increases in all of our business segments led us to achieve a first quarter global iron ore sales record of 8 million tons. In North America, we continue to experience healthy steelmaking utilization rates, with first quarter averaging around 78%. Conversely, many mills in Europe are operating at the rates well below capacity, ranging from 60% to 70% with a number of announced permanent idles. Europe's lower rates will have a minimal impact on our iron ore sales volume and recent announcements suggest stable pricing in premium -- in pellet premiums. We continue to see the Platts index pricing for iron ore trading within a pricing band of $140 to $160 per ton. First quarter's average Platts price was $144 versus $180 per ton in last year's comparable quarter. Despite the year-over-year pricing headwind, we still recorded first quarter record revenues. Additionally, we anticipate the iron ore spot sale, spot price to increase throughout the remainder of the year. This was supported by our expectation of China's crude steel production of over 730 million tons. Although China's January and February crude steel production was lower than expectations, the momentum appears to be gaining. China's annualized steel production increased to 725 million tons in March with even higher annualized production suggested in April's early reports.

In the coal markets, spot pricing during the quarter was continually under pressure and softer relative to last year. However, we believe we have experienced the bottom. This will be especially evident if we see continued supply side shocks including industrial actions or adverse weather and primarily production basis. The softer market in the quarter required our global marketing group to seek out new customers in nontraditional markets for our North American Coal products. Although this environment is more challenging, it has creating an opportunity to establish relationships with new coal customers in Asia. As you all know, we place significant volumes of iron ore into this region. However, our export in North American coal products have historically been placed into Europe. That means that during March and April, we sold 0.5 billion on met coal to these new customers in Asia. Our ability to swiftly place this volume reflects the quality of our coal products and the benefit of having a global marketing group.

Now turning to the performance of our core businesses during the quarter. Sales volume of U.S. Iron Ore increased 20% to 3.4 million tons from 2.8 million tons, primarily driven by vessel timing. The Great Lakes shipping season resume on March 25. As most of you know, our first quarter sales volumes are typically the lightest when compared to other quarters. This is due to the winter weather and lot maintenance of our Great Lakes. Our U.S. Iron Ore volumes continue to deliver a very consistent volumes and generating a significant amount of cash for the company. Eastern Canadian Iron Ore sales volume for the quarter was 1.9 million tons, that was made up of approximately 1.4 million tons of iron ore concentrate from Bloom Lake and 500,000 tons of pellets from Wabush. The year-over-year sales volume decrease at Wabush is attributed to major repair work to stabilize the mine's production reliability.

As reported on our last earnings call, during the quarter we experienced a minor fire at Bloom Lake's concentrating facility. This resulted in production downtime of approximately 10 days. In addition to repairing the damage caused by the fire, we used the downtime to advance planned maintenance originally slated for the second quarter. By compressing maintenance plan for future quarters, we expect to recover some of the production loss throughout the remainder of the year. While no personnel were injured during the fire incident, I do regret to say we had a fatality at Bloom Lake earlier this month. We are greatly saddened by this tragedy and we extend our thoughts and prayers to our employees' families and fellow colleagues. We take our responsibility of providing a safer environment very seriously and we are currently investigating the cause of the accident.

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