Cliffs Natural Resources (CLF) Posts Q3 Operating Loss of 11c/Share

October 27, 2016 8:09 AM EDT
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Cliffs Natural Resources (NYSE: CLF) reported Q3 EPS of ($0.11), which may not compare with the analyst estimate of $0.17. Revenue for the quarter came in at $553 million versus the consensus estimate of $581.01 million.

The Company recorded a net loss of $28 million compared to net income of $6 million recorded in the prior-year quarter. The net loss during the third quarter of 2016 included an $18 million loss on extinguishment/restructuring of debt, primarily attributable to the full redemption of the Senior Notes due January 2018 (the "2018 Notes"), compared to a $79 million gain on extinguishment/restructuring of debt in the prior-year third quarter.

For the third quarter of 2016, adjusted EBITDA1 was $62 million, compared to $60 million reported in the third quarter of 2015.

Outlook

Cliffs provides full-year expected revenues-per-ton ranges based on different assumptions of seaborne iron ore prices. Cliffs indicated that each different pricing assumption holds all other assumptions constant, including customer mix, as well as industrial commodity prices, freight rates, energy prices, production input costs and/or hot-rolled coil prices (all factors contained in certain of Cliffs' supply agreements).

The U.S. Iron Ore table further assumes full-year hot-rolled coil pricing of approximately $470 per short ton. The Company notes that this estimate is based on its customers' realized prices and not an index or spot market price, valid through the end of 2016. This represents a $10 decrease from the previous full-year price estimate of $480 per short ton. For every $50 per short ton change in the customers' full-year hot-rolled coil prices, Cliffs U.S. Iron Ore revenue realizations per long ton in 2016 would be expected to increase or decrease $2.00 if steel prices increase or decrease, respectively.

The table below provides certain Platts IODEX averages for the remaining three months of 2016 and the corresponding full-year realization for the U.S. Iron Ore and Asia Pacific Iron Ore segments. The estimates consider actual Platts IODEX rates and Cliffs' actual revenue realizations for the first nine months of 2016.

2016 Full-Year Realized Revenues-Per-Ton Range Summary

Oct. - Dec. Platts IODEX (1)

U.S. Iron Ore (2)

Asia Pacific Iron Ore (3)

$40

$75 - $77

$38 - $40

$45

$75 - $77

$39 - $41

$50

$75 - $77

$40 - $42

$55

$75 - $77

$41 - $43

$60

$75 - $77

$42 - $44

$65

$75 - $77

$43 - $45

$70

$75 - $77

$45 - $47

(1)

The Platts IODEX is the benchmark assessment based on a standard specification of iron ore fines with 62% iron content (C.F.R. China).

(2)

U.S. Iron Ore tons are reported in long tons of pellets. This table assumes full-year hot-rolled coil pricing of approximately $470 per short ton, which is based on customer realizations and not a public index.

(3)

Asia Pacific Iron Ore tons are reported in metric tons of lumps and fines, F.O.B. the port.

U.S. Iron Ore Outlook (Long Tons)

Cliffs is maintaining its full-year sales volume expectation of 18 million long tons. The Company's 2016 production volume guidance of 16.5 million long tons is also maintained.

Cliffs is maintaining its cash production cost per long ton2 expectation of $50 - $55 and the cash cost of goods sold per long ton2 expectation of $55 - $60.

Cliffs anticipates depreciation, depletion and amortization to be approximately $5 per long ton for full-year 2016.

Asia Pacific Iron Ore Outlook (Metric Tons, F.O.B. the port)

The Company is maintaining its full-year 2016 Asia Pacific Iron Ore sales and production volume forecast of approximately 11.5 million metric tons. The product mix is expected to contain 50 percent lump and 50 percent fines.

Based on a full-year average exchange rate of $0.75 U.S. Dollar to Australian Dollar, the Company is maintaining its full-year 2016 Asia Pacific Iron Ore cash production cost per metric ton2 expectation of $25 - $30. Cliffs' cash cost of goods sold per metric ton2 is also unchanged at $30 - $35. Cliffs indicated that for every $0.01 change in this exchange rate for the remainder of the year, the Company's full-year cash cost of goods sold is impacted by approximately $2 million.

Cliffs anticipates depreciation, depletion and amortization to be approximately $2 per metric ton for full-year 2016.

The following table provides a summary of Cliffs' 2016 guidance for its two business segments:

2016 Outlook Summary

U.S. Iron Ore (A)

Asia Pacific

Iron Ore (B)

Sales volume (million tons)

18

11.5

Production volume (million tons)

16.5

11.5

Cash production cost per ton2

$50 - $55

$25 - $30

Cash cost of goods sold per ton2

$55 - $60

$30 - $35

DD&A per ton

$5

$2

(A) U.S. Iron Ore tons are reported in long tons of pellets.

(B) Asia Pacific Iron Ore tons are reported in metric tons of lumps and fines.

SG&A Expenses and Other Expectations

Cliffs' full-year 2016 SG&A expenses expectation is $104 million, a $4 million increase from the previous expectation, primarily driven by the un-forecasted $4 million USW labor contract signing bonus.

The Company's full-year 2016 interest expense is expected to be approximately $200 million. Of the $200 million expectation, approximately $170 million is considered cash and $30 million is considered non-cash.

Consolidated full-year 2016 depreciation, depletion and amortization is expected to be approximately $120 million.

For earnings history and earnings-related data on Cliffs Natural Resources (CLF) click here.



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