CLIFFS NATURAL RESOURCES, INC. Reports Operating Results (10-Q)
CLIFFS NATURAL RESOURCES INC formerly Cleveland-Cliffs Inc is an international mining company a producer of iron ore pellets in North America and a supplier of metallurgical coal to the global steelmaking industry. It operates six iron ore mines in Michigan Minnesota and Eastern Canada and three coking coal mines in West Virginia and Alabama. Cliffs also owns 80.4% of Portman an iron ore mining company in Australia serving the Asian iron ore markets with direct-shipping fines and lump ore. In addition it has a 30% interest in the Amapa Project a Brazilian iron ore project and a 45% economic interest in the Sonoma Project an Australian coking and thermal coal project. Cliffs Natural Resources, Inc. has a market cap of $4.57 billion; its shares were traded at around $34.87 with a P/E ratio of 9.5 and P/S ratio of 1.2. The dividend yield of Cliffs Natural Resources, Inc. stocks is 0.4%. Highlight of Business Operations: Consolidated revenues for the three and nine months ended September 30, 2009 decreased to $666.4 million and $1.5 billion, respectively, with net income per diluted share of $0.45 and $0.78, respectively. This compares with revenues of $1.2 billion and $2.7 billion, respectively, and net income per diluted share of $1.61 and $4.34, respectively, for the comparable periods in 2008. In response to the economic downturn and its impact on the global steel industry, we initiated and extended production curtailments at our North American mines during the first nine months of 2009 necessary to align output with lower demand and optimize inventory. In Asia Pacific, the demand for steelmaking raw materials has remained strong throughout the year primarily led by demand from China. We have negotiated provisional pricing arrangements consistent with agreed upon price declines reached between Asia Pacific steelmakers outside of China and producers in Australia. Results for the first nine months of 2009 were favorably impacted by the rise in the Australian dollar to an exchange rate of A$0.88 at September 30, 2009, resulting in $84.8 million of unrealized gains on foreign currency exchange contracts during the period.
As a result of the deteriorating market conditions that continued throughout much of 2009, revenues related to our North American Iron Ore and Coal segments decreased approximately $854.2 million and $132.8 million, respectively, during the first nine months of 2009 compared with the same period in 2008. Based upon the economic downturn and the resulting impact on demand, sales volumes for the quarter and first nine months of 2009 declined approximately 30 percent and 40 percent, respectively, at North American Iron Ore. North American Coal experienced decreases in volume of 62 percent and 54 percent, respectively, for the quarter and year to date when compared with the same periods in 2008. Revenues for the third quarter and first nine months of 2009 were also negatively impacted by base rate adjustments related to reductions in World Pellet Pricing and producer price indices referenced in certain of our North American Iron Ore contracts as well as the estimated decline in average annual hot band steel pricing for one of our North American Iron Ore customers.
and year to date, respectively. Additionally, employment costs were reduced in each period by $6.0 million and $13.8 million, respectively, primarily as a result of lower share-based and incentive compensation. Expenses at our Asia Pacific Iron Ore segment were $2.1 million and $5.1 million higher for the third quarter and first nine months of 2009, respectively, when compared with the comparable periods in 2008, reflecting an increased focus on marketing activities due to the weakening economic climate, as well as higher employment costs and outside professional services to support business development and improvement efforts. In addition, selling, general and administrative expense for the first nine months of the prior year was impacted by a charge in the first quarter of 2008 of approximately $6.8 million in connection with a legal judgment.
Miscellaneous net of $4.9 million and $19.3 million for the third quarter and first nine months of 2009, respectively, is primarily attributable to exchange rate gains on foreign currency transactions related to loans denominated in Australian dollars, as a result of the increase in exchange rates during the period from A$0.69 at December 31, 2008 to A$0.88 at September 30, 2009.
The favorable unrealized mark-to-market fluctuations of $8.8 million and $84.8 million for the third quarter and first nine months of 2009 are related to the spot rate of A$0.88 as of September 30, 2009, which increased considerably from the spot rate of A$0.69 as of December 31, 2008. The changes in the spot rates are correlated to the appreciation of the Australian dollar relative to the United States dollar during the period. The amount of outstanding contracts in our foreign exchange hedge book decreased from $869 million at December 31, 2008 to $148.5 million as of September 30, 2009 as a result of the expiration of contracts upon maturity and the sale of approximately $270 million of the outstanding contracts during the third quarter of 2009, which resulted in a net realized loss of approximately $3.3 million based upon the difference between the contract rates and the spot rates on the date each contract was sold. During the first nine months of 2009, approximately $451 million of outstanding contracts matured, resulting in a cumulative net realized loss of $37.1 million since inception of the contracts.
Equity 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 loss in ventures for the three and nine months ended September 30, 2009 of $20.9 million and $55.6 million, respectively, primarily represents our share of the operating results of our equity method investment in Amapá. Such results consist of operating losses of $19.9 million and $53.8 million for the third quarter and first nine months of 2009, respectively. This compares with losses of $13.1 million and $26.2 million, respectively, for the comparable periods in 2008. The negative operating results in each year are mainly due to slower than anticipated ramp-up of operations and product yields. Our equity share of the losses for Amapá were also higher in the current year due to a write-down
Read the The complete ReportCLF is in the portfolios of Bill Miller of Legg Mason Value Trust, Kenneth Fisher of Fisher Asset Management, LLC.