Sunday, February 13, 2011

Cliffs Natural Resources (NYSE: CLF): Q4 Earnings Preview 2010

Cliffs Natural Resources (NYSE: CLF) the largest iron ore producer in North America, is scheduled to release its fourth-quarter earnings after the closing bell on Wednesday, February 16, 2011. Analysts, on average, expect the company to report earnings of $2.16 per share on revenue of $1.43 billion. In the year ago period, the company reported earnings of 75 cents per share on revenue of $820.50 million.

Cliffs Natural Resources Inc., a mining and natural resources company, produces iron ore pellets, lump and fines iron ore, and metallurgical coal.

In the preceding third quarter, the Cleveland, Ohio-based company's net income was $297.4 million or $2.18 per share, compared to $58.8 million or $0.45 per share in the prior year quarter. Operating income for the third quarter jumped to $389.2 million from $80.5 million in the year-ago quarter. Revenue more than doubled to $1.3 billion from $666.4 million in the same quarter last year. Analysts, on average, expected the company to post earnings of $2.59 per share on revenue of $1.45 billion.

At its last earnings call in October, Cliffs said it expected steady demand for the rest of 2010 and into 2011 with steel utilization rates remaining stable.  In 2011, Cliffs expects to produce and sell about 27 million tons from its North American Iron Ore business. In 2011, Cliffs expects to produce and sell about 6.5 million tons from its North American Coal business, including 5.5 million tons of metallurgical coal and 1.0 million tons of thermal coal.  In 2011, Cliffs expects to produce and sell about 9.0 million tons from its Asia Pacific Iron Ore business.

Cliffs Natural Resources has seen growth in revenue from each ton of iron ore sold in North America. The revenue growth can be attributed to increased Chinese demand for iron ore and a continued rise of international sea freight that has pushed iron ore prices upwards. The increase in iron ore prices is also caused by rising global demand for steel sparked by economic growth.

In January, the company announced a comprehensive global reorganization that will realign global management responsibilities for its commercial sales and marketing, operating and corporate support.

Last month, the company agreed to acquire all of Consolidated Thompson Iron Mines Ltd.'s common shares for about C$4.9 billion, including net debt, in an all-cash transaction. With this acquisition, Cliffs is expected to be one of the largest mining and natural resources companies in North America, with significant exposure to Asia. The Consolidated Thompson transaction is expected to close early second quarter 2010. Consolidated Thompson currently operates in the iron ore-rich area spanning northeastern Quebec, western Newfoundland and Labrador. The company manages and operates Bloom Lake, an open-pit iron ore mine, and two adjacent development properties, Lamelee and Peppler Lake. The transaction is expected to be modestly accretive to Cliffs' earnings and cash flow in 2011 and 2012. Cliffs estimates that the proposed transaction could generate annual pre-tax operating synergies of about US$75 million.

The acquisition of Consolidated Thompson is in-line with Cliffs strategy to diversify its geographical presence. Almost all its sale of iron ore in China is currently through its Asia Pacific Iron Ore Division, which has a limited supply capacity of 9 million metric tonnes of iron ore. The added capacity would allow Cliffs to garner a bigger share of the seaborne iron ore trade with Asia.

Full Disclosure: None.
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