Cliffs cuts met coal sale forecast due to weak market conditions

As the result of softer metallurgical coal market conditions, Cliffs Natural Resources (NYSE and Paris: CLF) is reducing its full-year sales volume expectation to about 6.4 million tons, from its previous expectation of around 6.9 million tons.

The company said in its Oct. 24 third quarter earnings statement that it is maintaining its anticipated full-year production volume of 6.2 million tons. Sales volume mix is anticipated to be about 4.3 million tons of low-vol metallurgical coal and 1.4 million tons of high-vol met coal, with thermal coal making up the rest.

Cliffs has two longwall mines – Oak Grove in Alabama and Pinnacle in southern West Virginia – plus a mix of surface and deep mines in southern West Virginia that produce high-vol coal.

Cliffs is decreasing its North American Coal 2012 revenues-per-ton expectation to $120-$125, from its previous expectation of $130-$135. The decrease is driven by lower pricing for met coal products.

Due to continuing performance improvements at Cliffs’ longwall operations, the company is decreasing its cash-cost-per-ton expectation to $105-$110 versus the previous $110-$115.

In 2013, Cliffs expects to sell 6 million to 7 million tons from its North American Coal business, comprised of about 65% low-vol met coal, 25% high-vol met coal and 10% thermal coal.

For the 2012 third quarter, North American Coal sales volume was 1.7 million tons, a 157% increase from the 646,000 tons sold in the year-ago quarter. The increase was due to significantly higher sales volume from Cliffs’ low-vol met coal mines, which achieved meaningfully higher year-over-year production rates.

Third-quarter 2011 production and sales volumes were unfavorably impacted by severe weather damage at Oak Grove and the detection of high carbon monoxide at the Pinnacle mine, which is a sign of an underground combustion event. The year-over-year sales volume increase was partially offset by lower sales from Cliffs’ Toney Fork thermal coal mine. As previously disclosed, Cliffs has curtailed production and reduced its labor force at Toney Fork due to weak thermal coal market conditions.

North American Coal’s third-quarter 2012 revenues per ton were up 30% to $128.88, versus $99.38 in the third quarter of 2011. The increase was primarily driven by sales mix, as third-quarter 2012 included a higher proportion of premium low-vol met coal sales. The increase was partially offset by lower year-over-year market pricing for all coal products.

Cash cost per ton decreased 15% to $114.56, from $134.98 in the comparable quarter last year. Third-quarter 2012 cash costs per ton benefited from improved fixed-cost leverage, partially offset by a longwall move at Oak Grove.

Cliffs, based in Cleveland, 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. Also, Cliffs has a major chromite project in the feasibility stage of development 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.