Cliffs reports solid recovery from 2011 coal problems

Cliffs Natural Resources (NYSE: CLF) (Paris: CLF) has overcome problems, like a tornado last year that heavily damaged the surface infrastructure at its Oak Grove longwall mine in Alabama, and reported April 25 that its North American Coal segment achieved record sales and production volumes – and increased profitability – in the first quarter of this year.

The Cliffs North American Coal operations include Oak Grove, the Pinnacle longwall mine in southern West Virginia, and a handful of strip and deep mines, also in southern West Virginia, under its Cliffs Logan County LLC unit. These mines sold 1.4 million tons in the first quarter, up from nearly 1.3 million tons in the year-ago quarter. The increase was primarily driven by higher year-over-year sales volume from Cliffs’ low-volatile metallurgical coal mines. Total production volume in the first quarter was nearly 1.8 million tons, up from nearly 1.4 million tons in the year-ago quarter.

Revenues from first-quarter coal sales were $189.9m, up from $165m in the first quarter of 2011. After subtracting costs, the sales margin in the first quarter was $14.5m, up from a negative $2.9m in the year-ago quarter.

North American Coal’s first-quarter revenues per ton were down slightly to $121.61 versus $123.83 in the first quarter of 2011. Cliffs indicated the slight decline in revenues per ton was primarily attributable to decreased market pricing for the company’s coal products. While Cliffs contracted and priced a significant amount of metallurgical coal volume under favorable pricing earlier in the year, the company’s first-quarter results included a significant volume of sales at lower spot-market pricing.

Cash cost per ton decreased 11% to $97.01 from $108.98 in the comparable quarter last year. The lower cash cost per ton was primarily attributed to higher fixed-cost leverage as the result of the increased production volumes indicated above.  

Cliffs said it is maintaining its 2012 North American Coal sales and production volume expectations of about 7.2 million tons and 6.6 million tons, respectively. The sales volume mix is anticipated to be around 4.5 million tons of low-vol met coal and 1.6 million tons of high-vol met coal, with thermal coal making up the remainder.

Cliffs is decreasing its North American Coal 2012 revenues-per-ton expectation to $130-$135, from its previous expectation of $140-$150. The decrease is driven by lower spot-market pricing for met coal products.

The company is maintaining its cash-cost-per-ton expectation of $105-$110, which includes the impact of sales from higher cost inventory stockpiles at Oak Grove related to the operation’s recovery from severe weather in 2011. Basically, Oak Grove produced a lot of raw coal last year that went into inventory while the surface facilities were fixed. Full-year 2012 depreciation, depletion and amortization is expected to be about $14 per ton.

Cliffs is an international mining and natural resources company. It is a major global iron ore producer and a significant producer of high- and low-vol met coal. Cliffs operates iron ore and coal mines in North America and two iron ore mining complexes in Western Australia. The company also has a 45% economic interest in a coking and thermal coal mine in Queensland, Australia. In addition, Cliffs has a major chromite project, in the pre-feasibility stage of development, located in Ontario, Canada.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.