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CLIFFS NATURAL RESOURCES, INC. Reports Operating Results (10-Q)

April 29, 2011 | About:

10qk

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CLIFFS NATURAL RESOURCES, INC. (CLF) filed Quarterly Report for the period ended 2011-03-31.

Cliffs Natural Resources Inc has a market cap of $13.08 billion; its shares were traded at around $96.59 with a P/E ratio of 12.7 and P/S ratio of 2.8. The dividend yield of Cliffs Natural Resources Inc stocks is 0.6%. Cliffs Natural Resources Inc had an annual average earning growth of 6.8% over the past 5 years.

Highlight of Business Operations:

Our consolidated revenues for the first three months of 2011 increased to $1,183.2 million, with net income per diluted share of $3.11. This compares with revenues of $727.7 million and net income per diluted share of $0.57 for the first three months of 2010. Based upon the recent shift in the industry toward shorter-term pricing arrangements linked to the spot market and away from the annual international benchmark pricing mechanism historically referenced in our customer supply agreements, pricing has continued to increase through the first quarter of 2011 from the comparable period in 2010. We have finalized short-term pricing arrangements with our Asia Pacific Iron Ore customers. This change in pricing has impacted certain of our North American Iron Ore customer supply agreements for the 2011 contract year and in some cases we have revised the terms of such agreements to incorporate changes to historical pricing mechanisms. In addition, in April 2011 we reached a negotiated settlement with ArcelorMittal with respect to our previously disclosed arbitrations and litigation resulting in additional revenue recorded in

In order to provide a portion of the financing for the pending acquisition of Consolidated Thompson, we entered into an unsecured bridge credit agreement and an unsecured term loan agreement with a syndicate of banks in March 2011. The bridge credit agreement provides for up to a $960 million bridge credit facility and the term loan agreement provides for a $1,250 million term loan. The commitments under the bridge credit agreement may continue to be further reduced prior to the closing date of the Consolidated Thompson acquisition as we continue to obtain permanent financing. The date of funding under the bridge credit agreement and the term loan agreement is expected to occur not more than three business days prior to the date of the consummation of our pending acquisition of Consolidated Thompson. We also intend to use the net proceeds of the $1 billion public offering of senior notes consisting of a $700 million 10-year tranche and a $300 million 30-year tranche in March and April 2011, to fund a portion of the pending acquisition, as discussed above.

Cost of goods sold and operating expenses in the first quarter of 2011 was $584.5 million, an increase of $6.8 million over the comparable prior year period. The increase was primarily attributable to higher costs at our North American Coal and Asia Pacific Iron Ore business operations as a result of higher sales volume. Costs were also negatively impacted in the first quarter of 2011 by approximately $15.3 million related to unfavorable foreign exchange rates compared with the first quarter of 2010. These increases in cost were partially offset by lower costs at our North American Iron Ore business operations as a result of lower sales volume and cost reductions resulting from the ArcelorMittal price re-opener settlement. The cost reductions represent the cost reimbursements that we realize under cost sharing arrangements with ArcelorMittal. In addition, $10.7 million of inventory step-up related to the accounting for the acquisition of the remaining interest in Wabush was recognized in the first quarter of 2010.

The increase in exploration costs of $9.0 million in the first quarter of 2011 over the same period in 2010 was primarily due to costs of $5.9 million related to our Ferroalloys operating segment that were primarily comprised of pre-feasibility study costs of $4.3 million and other administrative expenses of $1.6 million. In addition, we incurred $3.0 million in the first quarter of 2011 over the same period in 2010 related to our involvement in exploration activities, as our Global Exploration Group focuses on identifying new world-class projects for future development or projects that are intended to add significant value to existing operations.

As a result of acquiring the remaining ownership interests in Freewest and Wabush during the first quarter of 2010, our results for the period were impacted by realized gains of $38.6 million related to the increase in fair value of our previous ownership interest in each investment held prior to the business acquisitions. The fair value of our previous 12.4 percent interest in Freewest was $27.4 million on January 27, 2010, the date of acquisition, resulting in a gain of $13.6 million being recognized in the first quarter of 2010. In addition, the fair value of our previous 26.8 percent equity interest in Wabush was $38.0 million on February 1, 2010, resulting in a gain of $25.0 million also being recognized in the first quarter of 2010. Refer to NOTE 5 ACQUISITIONS & OTHER INVESTMENTS for further information.

Equity income (loss) in ventures is primarily comprised of our share of the results from Amapá and AusQuest, for which we have a 30 percent ownership interest in each. The equity income in ventures for the three months ended March 31, 2011 of $3.0 million and the equity loss in ventures for the three months ended March 31, 2010 of $3.4 million primarily represents our share of the operating results of our equity method investment in Amapá. Such results consisted of operating income of $2.6 million and operating losses of $2.2 million, for each respective period. The negative operating results in the prior year period were primarily due to slower than anticipated ramp-up of operations and product yields.

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