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

October 25, 2012 | About:
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10qk

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CLIFFS NATURAL RESOURCES, INC. (CLF) filed Quarterly Report for the period ended 2012-09-30.

Cliffs Natural Resources Inc has a market cap of $6.33 billion; its shares were traded at around $38.25 with a P/E ratio of 5.2 and P/S ratio of 0.9. The dividend yield of Cliffs Natural Resources Inc stocks is 5.6%. Cliffs Natural Resources Inc had an annual average earning growth of 25.2% over the past 5 years.

Highlight of Business Operations:

Our consolidated revenues for the three and nine months ended September 30, 2012 decreased to $1.5 billion and $4.3 billion, respectively, with net income from continuing operations per diluted share of $0.61 and $5.00, respectively. This compares with revenues of $2.1 billion and $5.0 billion and net income from continuing operations per diluted share of $4.27 and $10.19, respectively, for the comparable periods in 2011. Revenues and earnings during the three and nine months ended September 30, 2012 were impacted primarily by the decrease in market pricing during the first nine months of 2012 in comparison to the historically high prices of 2011 and increased costs, offset by total increased iron ore and coal production sales volumes at most of our operations around the world. Our net income from continuing operations was impacted favorably during the nine months ended September 30, 2012 by discrete tax items, primarily due to the enactment of the MRRT in Australia.

Cost of goods sold and operating expenses for the three and nine months ended September 30, 2012 was $1,346.6 million and $3,403.2 million, respectively, which resulted in an increase of $100.6 million and $573.8 million, or 8.1 percent and 20.3 percent, respectively, over the comparable prior year periods. The increase primarily was attributable to higher sales volumes across the majority of our operations. Cost of goods sold and operating expenses for the first nine months of 2012 also were impacted by sales volume increases of $156.4 million and $162.7 million, respectively, at our Asia Pacific Iron Ore and North American Coal segments. The increase in the sales volumes at Eastern Canadian Iron Ore operations as a result of the acquisition of Consolidated Thompson in May 2011 resulted in $85.4 million of additional costs in the first nine months of 2012.

Equity loss from ventures for the three and nine months ended September 30, 2012 of $15.3 million and $22.7 million, respectively, compares to equity income from ventures for the three and nine months ended September 30, 2011 of $11.1 million and $2.8 million, respectively. The equity loss from ventures for the first nine months of 2012 primarily is comprised of our share of the operating results of our equity method investment in Amapá, for which we have a 30 percent ownership interest, which consisted of operating losses of $14.0 million and $19.3 million, respectively, for the three and nine months ended September 30, 2012, compared with operating income of $12.4 million and $22.8 million, respectively, for the same periods in 2011. Amapá s equity loss in the first nine months of 2012 compared to equity income during the same period in 2011 is primarily attributable to our share of a settlement charge taken in the third quarter of 2012 for the termination of a transportation agreement that resulted in a $10.2 million loss and a $5.5 million adjustment during the first quarter of 2012 related to tax credits that were determined would not be realizable. Additionally, although sales volumes exceeded the prior year, sales margin was lower as a result of decreases in market pricing and sales mix. The equity income from Amapá for the nine months ended September 30, 2011 was partially offset by the impairment of $17.6 million recorded on our investment in AusQuest, for which we have a 30 percent ownership interest.

Sales margin for U.S. Iron Ore was $255.9 million for the third quarter of 2012, compared with a sales margin of $481.3 million for the third quarter of 2011. The decline over the prior year period is attributable to a decrease in revenue of $310.7 million, partially offset by a decrease in cost of goods sold and operating expenses of $85.3 million. The decrease in revenue of $305.9 million, excluding the increase of freight and reimbursement of $4.8 million, was partially a result of a decrease in sales volume of $182.9 million that was driven by timing of shipments and lower year-over-year domestic demand. We have not delivered this tonnage in the export market due to changes in market pricing. The sales volume for the third quarter of 2011 also included 203 thousand tons related to ArcelorMittal's noncontrolling interest in the Empire mining venture that were related to prior quarters in 2011 (See NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES for further information regarding the accounting adjustments for the Empire partnership arrangement). In addition, the decrease in revenue is attributable to the reclassification of $54.1 million related to the ArcelorMittal price re-opener settlement originally recorded during the first quarter of 2011 from cost of goods sold and operating expenses to product revenues during the third quarter of 2011. Additionally, decreases in market pricing, as discussed above, resulted in a decrease of $78.5 million in the third quarter compared to the same period of 2011. Our realized sales price during the third quarter of 2012 was an average decrease per ton of 19.9 percent over the same period in 2011, or an average decrease per ton of 15.7 percent excluding the impact of the reclassification of the arbitration settlement.

Sales margin for U.S. Iron Ore was $708.9 million for the first nine months of 2012, compared with a sales margin of $1,283.7 million for the first nine months of 2011. The decline compared to the prior year is attributable to a decrease in revenue of $559.3 million, as well as a slight increase in cost of goods sold and operating expenses of $15.5 million. A decrease in revenue of $257.2 million for the nine months ended September 30, 2012 was a result of a decreased sales price due to changes in the market, as described above, compared to the prior year period. The decrease in revenue was also impacted by the ArcelorMittal USA price re-opener settlement, which caused revenue to increase $159.2 million in the first nine months of 2011. Additionally, the Algoma 2010 nomination sales price “true-up” arbitration agreement resulted in an additional $23.4 million of revenue in the first nine months of 2011. Our realized sales price during the first nine months of 2012 was an average decrease per ton of 19.2 percent over the same period in 2011, or an average decrease per ton of 12.5 percent excluding the impact of the arbitration settlements.

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