Monday, April 30, 2012

CLF Q1 2012 Earnings

Cliff Natural Resources (CLF) reported its Q1 2012 earnings on April the 25th. Revenues increased 7% over last year to $1.3 billion including a first quarter record output of 8 million tons of iron ore. CLF’s North American Coal segment returned to profitability and achieved record sales and production volume of 1.4 and 1.7 million tons respectively. Across the board, all segments realized record sales volume, as operational constraints from last year were significantly resolved. Sales volume of the U.S. segment increased 20% to 3.4 million tons from 2.8 million tons, while the East Canadian segment realized an increase of 160% to 1.9 million tons from 730,000 tons. The Asian Pacific region added to overall sales volume by recording a 25% increase to 2.8 million tons from 2.2 million tons in 2011. Despite increases seen in sales volume, pricing and cost conditions withheld expected earnings from materializing. Iron ore prices remained relatively low at $140 price per ton in comparison to last year’s Q1 price per ton of $180. Adding to price pressure was the lack of demand seen in Europe which hampered met coal prices during the quarter. Management expects iron ore prices to remain stable at $150 per ton throughout the remainder of the year. Apart from price conditions, CLF experienced a substantial increase in COGS as mining, maintenance, energy, and transportation cost squeezed earnings in Q1. Management highlights that continued aggressive capacity expansion and one time operational constraints also contributed to overall cost.

Net income depleted by 11% from $423 million in Q1 2011 to $376 million in Q1 2012.  Management maintains its sales volume outlook across all segments including an increase in the Asian Pacific segment of 11.4 million tons from 11 million. Although annual sales volume remains in line, CLF reduced its operational cash flow outlook from $1.9 billion to $1.7 billion, primarily driven by outlook adjustments in full year business segment. Currently, all capacity expansion plans are on schedule, including cost and expected annual output. The Chromite project is slated to advance from the pre-feasibility stage to feasibility this summer as CLF expects to spend $75 million this year. Overall, CapEx is expected to be $1 billion this year including $333 million in dividend payments. The remaining cash will cushion CLF’s liquidity stance as it plans to shore up cash after last year’s acquisition of Consolidated Thompson. In response, shares were down 5.5% after-hours on April the 25th

-Kelechi B. Nwokocha

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