Qld mine helps Cliffs achieve record revenues

CLIFFS Natural Resources has more than doubled third-quarter revenue to $US1.3 billion as its strategy of increasing exports of coal and iron ore from Australia has helped it bolster sales volumes and take advantage of favourable pricing.
Qld mine helps Cliffs achieve record revenues Qld mine helps Cliffs achieve record revenues Qld mine helps Cliffs achieve record revenues Qld mine helps Cliffs achieve record revenues Qld mine helps Cliffs achieve record revenues

Cliffs’ Oak Grove mine. Courtesy Cliffs Natural Resources.

Lou Caruana

Cliffs marked its diversification into seaborne coking and thermal coal by acquiring an economic interest in the Sonoma coal project in the northern Bowen Basin and is believed to be on the look-out for more coal assets in Queensland.

“The project presents a good fit with Cliffs’ operational competencies and an ideal means for Cliffs to expand its presence in the Australian mining sector, as well as broaden its participation in the steelmaking materials industry,” the company said.

In the third quarter of 2010, Cliffs' share of sales volume for its 45% economic interest in Sonoma was 373,000 tonnes.

Revenues and sales margin generated for Cliffs' share were $55.8 million and $21.8 million, respectively. Revenue per tonne at Sonoma was $149.60, with costs of $91.18/t.

In 2010, the company expects equity sales and production volume at Sonoma to decrease slightly to 1.5 million tonnes from its prior expectation of approximately 1.6Mt.

The approximate product mix between thermal and metallurgical coal is expected to be 60:40, respectively.

As a result of additional metallurgical coal yields and improved pricing expectations, Cliffs increased its average revenue-per-tonne expectation to $120 -125, up from $110 -115. Per-tonne costs are still expected to be $80-85.

“Our continued strategic efforts to increase our business' exposure to seaborne markets has contributed to another record-breaking quarter,” Cliffs chairman, president and chief executive officer Joseph A Carrabba said.

The North American business unit is comprised of six iron ore mines owned or managed in Michigan, Minnesota and Canada, and six coal mines located in West Virginia and Alabama.

The Asia-Pacific business unit is comprised of two iron ore mining complexes in Western Australia and its 45% economic interest in Sanoma.

The Latin American business unit includes a 30% interest in the Amapa Project, an iron ore project in the state of Amapa, Brazil.

Cliff’s group operating income for the third quarter increased to $389.2 million, up 383% from $80.5 million in the comparable 2009 quarter.

Net income was $297.4 million up from $58.8 million in the third quarter of 2009.

North American coal sales volume increased 185% to 977,000t from the 343,000t sold in 2009's third quarter.

The increase was driven by 457,000t of incremental sales volume from the acquisition of INR Energy's coal operations at the end of July and a 52% increase in sales volume from the company's legacy coal assets.

Cliffs' Pinnacle and Oak Grove mines both experienced adverse geological conditions in the third quarter, resulting in lower than expected third-quarter sales and production volumes from these mines.

Revenue per ton increased 22% to $117.64 compared with the third quarter of 2009.

Cost per ton declined 4% to $135.87 from $141.69 in the comparable quarter last year.

Included in cost per ton is $8 related to Cliffs' acquisition of INR Energy's coal operations and approximately $10 resulting from recent adverse geology encountered at the Pinnacle mine, which includes the acceleration of depreciation attributed to that mine's legacy longwall machine.

Excluding these non-recurring items, cost per ton would have been approximately $117.

The company is reducing its 2010 North American Coal sales and production volume expectation to 3.6 million tons from its prior expectation of 3.9Mt.

The decrease is attributed to continued adverse geological conditions experienced at the company's legacy mines.

The product split is expected to be 500,000t of thermal coal and 3.1Mt of metallurgical coal.

Cliffs continues to expect full-year revenue per ton in North American Coal to be $115-120 FOB mine.

Due to lower leverage over fixed costs, the company is increasing its 2010 cost-per-ton expectation to $120-125 from the prior expectation of $115-120.

Costs include non-cash expense of approximately $16 per ton of depreciation, depletion and amortisation, and $2/t related to acquisition accounting adjustments for INR Energy's coal operations.

In 2011, Cliffs expects to produce and sell approximately 6.5Mt from its North American Coal business, comprised of approximately 5.5Mt of metallurgical coal and 1.0Mt of thermal coal.

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