Cliffs Natural Resources Inc.

January 2014
FORWARD-LOOKING STATEMENTS
This presentation contains forward-looking statements within the meaning of the federal securit...
CLIFFS NATURAL RESOURCES - A LEADING, GLOBAL IRON ORE MINER
REVENUE BY PRODUCT

Coal
13%

Cliffs Natural Resources (NYSE: ...
CLIFFS’ STRATEGIC IMPERATIVES

Building scale through diversification

Global execution

• Multiple Revenue Streams
• Prod...
GLOBAL FOOTPRINT - FOCUSED ON SCALE, DIVERSITY AND GROWTH

7
mt2
14mt3

25mt4

6mt1
9mt

PRODUCT KEY
Iron Ore
Coal

11mt

...
U.S. IRON ORE
U.S. IRON ORE
PROVEN & PROBABLE MINERAL RESERVES
(IN LONG TONS)
Empire
6mt

United
Taconite
126mt

Tilden
24...
EASTERN CANADIAN IRON ORE
BLOOM LAKE

WABUSH

BLOOM LAKE CAPITAL EXPENDITURES
($ MILLIONS)

Phase II expansion
2011 &
2012...
ASIA PACIFIC IRON ORE

SALES VOLUME1

PROVEN & PROBABLE RESERVES

(MILLIONS OF METRIC TONS)

(MILLIONS OF METRIC TONS)

12...
NORTH AMERICAN COAL
NORTH AMERICAN COAL SALES VOLUME
(MM SHORT TONS)

2.500

2.000

1.9
1.8
1.7
1.5

1.500

1.4

1.3

• Sh...
Q3 2013 HIGHLIGHTS & CONSOLIDATED RESULTS

SALES
MARGIN

OPERATING
INCOME

YTD SG&A
EXPENSE

$349M

$224M

$168M

76%

194...
CURRENT PENDING DECISIONS
BLOOM LAKE – PHASE II DECISION
• Future volume & EBITDA

• Stabilization of phase I
• Tailings i...
LIQUIDITY AND CAPITAL STRUCTURE
TOTAL DEBT AND CREDIT FACILITY1

CASH & CASH EQUIVALENTS

(OUTSTANDING, IN BILLIONS)

(IN ...
IRON ORE PRICING VOLATILITY EXPECTED – LONGER TERM FUNDAMENTALS INTACT

Constructive long term
iron ore trends
New supply ...
SERVING THE RIGHT MARKETS – CHINA & U.S.

MILLION METRIC TONS

CHINESE ANNUAL CRUDE STEEL PRODUCTION AND WEEKLY IRON ORE I...
SUMMARY

• Focused on improving our cost profile through reductions across the Company

• Managing capital spending with d...
2012 PERFORMANCE
U.S. Iron Ore
($mm)
Revenue
Sales margin
Shipments 2

2010
$2,444
788
23.0

Eastern Canadian Iron Ore
201...
Q3 2013 OUTLOOK
2013 Segment Expectations
U.S. Iron Ore
•
•
•

Sales volume of 21 million long tons
Cash cost per ton of $...
Cliffs Natural Resources Inc.

January 2014
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2014 January 2014 - Investor Presentation

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2014 January 2014 - Investor Presentation

  1. 1. Cliffs Natural Resources Inc. January 2014
  2. 2. FORWARD-LOOKING STATEMENTS This presentation contains forward-looking statements within the meaning of the federal securities laws. Although the Company believes that its forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties relating to Cliffs' operations and business environment that are difficult to predict and may be beyond Cliffs' control. Such uncertainties and factors may cause actual results to differ materially from those expressed or implied by forward-looking statements for a variety of reasons including without limitation: uncertainty or weaknesses in global economic conditions, including downward pressure on prices, reduced market demand and any slowing of the economic growth rate in China; trends affecting our financial condition, results of operations or future prospects, particularly the continued volatility of iron ore and coal prices; our ability to successfully integrate acquired companies into our operations and achieve post-acquisition synergies, including without limitation, Cliffs Quebec Iron Mining Limited (formerly Consolidated Thompson Iron Mining Limited); our ability to successfully identify and consummate any strategic investments and complete planned divestitures; the outcome of any contractual disputes with our customers, joint venture partners or significant energ y, material or service providers or any other litigation or arbitration; the ability of our customers and joint venture partners to meet the ir obligations to us on a timely basis or at all; our ability to reach agreement with our iron ore customers regarding modifications to sales contract pricing escalation provisions to reflect a shorter-term or spot-based pricing mechanism; the impact of price-adjustment factors on our sales contracts; changes in sales volume or mix; our actual economic iron ore and coal reserves or reductions in current mineral estimates, including whether any mineralized material qualifies as a reserve; the impact of our customers using other methods to produce steel or reducing their steel production; events or circumstances that could impair or adversely impact the viability of a mine and the carrying value of associated assets; the results of prefeasibility and feasibility studies in relation to projects; impacts of existing and increasing governmental regulation and related costs and liabilities, including failure to receive or maintain required operating and en vironmental permits, approvals, modifications or other authorization of, or from, any governmental or regulatory entity and costs related to implementing improvements to ensure compliance with regulatory changes; our ability to cost-effectively achieve planned production rates or levels; uncertainties associated with natural disasters, weather conditions, unanticipated geological conditions, supply or price of energy, equipment failures and other unexpected events; adverse changes in currency values, currency exchange rates, interest rates a nd tax laws; availability of capital and our ability to maintain adequate liquidity and successfully implement our financing plans; our ability to maintain appropriate relations with unions and employees and enter into or renew collective bargaining agreements on satisfac tory terms; risks related to international operations; availability of capital equipment and component parts; the potential existence of significant deficiencies or material weakness in our internal controls over financial reporting; problems or uncertainties with productivity, tons mined, transportation, mine-closure obligations, environmental liabilities, employee-benefit costs and other risks of the mining industry; and other factors and risks that are set forth in the Company's most recently filed reports with the Securities and Exchange Commission . The information contained herein speaks as of the date of this release and may be superseded by subsequent events. Except as may be required by applicable securities laws, we do not undertake any obligation to revise or update any forward-looking statements contained in this presentation. 1
  3. 3. CLIFFS NATURAL RESOURCES - A LEADING, GLOBAL IRON ORE MINER REVENUE BY PRODUCT Coal 13% Cliffs Natural Resources (NYSE: CLF) (Paris: CLF) is an international mining and natural resources company. A member of the S&P 500 Index, the Company is a major global iron ore producer and a significant producer of metallurgical coal Other 6% Iron ore 81% GLOBAL MARKET EXPOSURE (2012 REVENUE OF $5.9 BILLION) Other 18% U.S. 36% Canada 12% Cliffs is executing a strategy designed to increase scale and diversity and focused on serving the world’s largest and fastest growing steel markets China 34% With core values of environmental and capital stewardship, our colleagues across the globe endeavor to provide all stakeholders operating and financial transparency as embodied in the Global Reporting Initiative (GRI) framework Source: Company filings and presentations. 2
  4. 4. CLIFFS’ STRATEGIC IMPERATIVES Building scale through diversification Global execution • Multiple Revenue Streams • Product Diversification • Geographic Presence • Competencies of the Firm • Outlook of Personnel • Global Scalability Operational excellence Shareholder returns • Safety • Technical Competencies • Operating Efficiencies • Shareholder Value • Risk Management • “Earning the Right to Grow” 3
  5. 5. GLOBAL FOOTPRINT - FOCUSED ON SCALE, DIVERSITY AND GROWTH 7 mt2 14mt3 25mt4 6mt1 9mt PRODUCT KEY Iron Ore Coal 11mt Chromite END MARKET KEY North America Asia Pacific Europe Note: The volumes listed above represent Cliffs’ production capacity as reported in the Company’s 2012 Form 10-K. 1 Wabush current annual capacity. Phase I and Phase II capacity. 4 Based on Cliffs’ equity share of annual rated production capacity, converted to million metric tons. 4 2 100% of Bloom Lake Phase I capacity. 3 100% of Bloom Lake
  6. 6. U.S. IRON ORE U.S. IRON ORE PROVEN & PROBABLE MINERAL RESERVES (IN LONG TONS) Empire 6mt United Taconite 126mt Tilden 247mt 823 Million Tons Northshore 361mt Hibbing 83mt • Pioneers in developing the beneficiation and pelletizing process CLIFFS’ USIO SHIPMENTS (MILLION METRIC TONS1) 23 25 22 21 22 - 23 • Largest merchant supplier of iron ore pellets to U.S.based steel mills • Significant portion of U.S. Iron Ore volume contracted for the next decade 14 2009 2010 2011 2012 2013E 2014E • Cliffs’ U.S. mines are well capitalized, well maintained and run by world-class operators CLIFFS EXPECTS TO SUSTAIN ITS LONG-TERM VOLUMES IN U.S IRON ORE Source: Company filings 5 1 Converted from long tons.
  7. 7. EASTERN CANADIAN IRON ORE BLOOM LAKE WABUSH BLOOM LAKE CAPITAL EXPENDITURES ($ MILLIONS) Phase II expansion 2011 & 2012 • Successfully idled the pelletizer in the second quarter 2013 • Number of processing lines in the concentrator expected to be reduced • If $100 cash costs at Wabush are not achieved by year-end, a more permanent solution will be considered • Currently selling Wabush's iron ore concentrate product on a short-term spot basis $739 Phase II expansion1 Remaining $900 CASH COSTS ($ PER METRIC TON) $90-$95 $70-$75 Mid-$60s 2013 Outlook Targeted Phase I cash costs Source: Management estimates, company filings and earnings releases 6 Long-term 1 Excludes sustaining capital
  8. 8. ASIA PACIFIC IRON ORE SALES VOLUME1 PROVEN & PROBABLE RESERVES (MILLIONS OF METRIC TONS) (MILLIONS OF METRIC TONS) 12 96 89 88 93 88 89 77 4 2005 2012 • Tripled sales volume through expansion projects and acquisitions • 2012 execution of a large-scale expansion project completed on time and on budget 1 2005 sales reflect Cliffs’ 80% ownership of Portman Limited 7 2006 2007 2008 2009 2010 2011 2012 • Maintained reserve base despite significant sales volume growth
  9. 9. NORTH AMERICAN COAL NORTH AMERICAN COAL SALES VOLUME (MM SHORT TONS) 2.500 2.000 1.9 1.8 1.7 1.5 1.500 1.4 1.3 • Sharpened focus on metallurgical coal 1.1 1.000 • Significant sales volume growth achieved through the successful completion of several large capital projects 0.9 0.9 0.7 0.500 0.3 0.4 0.3 0.3 0.3 0.3 0.2 0.2 0.1 0.1 0.2 0.2 Q1 '11 Q1 '11 Q2 '11 Q2 '11 Q3 '11 Q3 '11 Q4 '11 Q4 '11 Q1 '12 Q1 '12 Q2 '12 Q2 '12 Q3 '12 Q3 '12 Q4 '12 Q4 '12 Q1 '13 Q1 '13 Q2 '13 Q2 '13 Q3 '13 Q3 '13 0.000 Metallurgical 8 Thermal • Substantially lower cash costs through project execution and new management • Recent sales volume increases driven by higher premium metallurgical coal sales
  10. 10. Q3 2013 HIGHLIGHTS & CONSOLIDATED RESULTS SALES MARGIN OPERATING INCOME YTD SG&A EXPENSE $349M $224M $168M 76% 194% YTD EBITDA $1.1B 17% HISTORICAL CONSOLIDATED FINANCIAL HIGHLIGHTS 1 • Announced Gary Halverson as President and Chief Operating Officer. ($ IN MILLIONS) 1,547 1,536 1,489 1,220 1,198 1,545 1,297 1,347 1,141 903 • Achieved lower cost-per-ton rates across all business segments, and reduced exploration and SG&A expenses, excluding special items. • U.S. Iron Ore strong sales volumes expectation of 22 – 23 million tons in 2014. Q3 2013 Q2 2013 Q1 2013 Revenue 1Source: Company filings 9 COGS Q4 2012 Q3 2012
  11. 11. CURRENT PENDING DECISIONS BLOOM LAKE – PHASE II DECISION • Future volume & EBITDA • Stabilization of phase I • Tailings investment • Rail take or pay contract • Future iron ore pricing WABUSH – OPERATION’S FUTURE • High quality producing asset • Sound logistics in place • High cost structure • Challenging labor conditions • Future iron ore pricing 10
  12. 12. LIQUIDITY AND CAPITAL STRUCTURE TOTAL DEBT AND CREDIT FACILITY1 CASH & CASH EQUIVALENTS (OUTSTANDING, IN BILLIONS) (IN MILLIONS) $4.1 $299 $287 $263 $3.9 $195 $3.4 $3.3 $3.3 $36 1 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 DEBT MATURITY PROFILE (IN MILLIONS) Baa3 / Stable BBB- / Stable $1,750 $900 $500 $0 $0 $0 2013 11 $0 2014 2015 2016 Source: Company filings. 1 $700 $800 2021 2040 $0 2017 2018 2019 2020
  13. 13. IRON ORE PRICING VOLATILITY EXPECTED – LONGER TERM FUNDAMENTALS INTACT Constructive long term iron ore trends New supply sources challenged by rising costs, capital constraints and delays • Developing markets’ iron ore and steel demand remains strong • Inflation in Australia, Brazil and China • Marginal cost producers are expected to set pricing floor • • • • Resource depletion, reduced quality and decreasing yields Lack of suitable infrastructure and qualified labor New supply delayed during 2H 2012 due to volatility Government intervention is restricting supply expansion globally IRON ORE 62% FE FINES, CFR CHINA SPOT PRICE (US$/METRIC TON) $200 $160 $134 $120 $80 $40 Nov-08 Source: Platts 12 Jul-09 Mar-10 Oct-10 Jun-11 Jan-12 Sep-12 May-13 Dec-13
  14. 14. SERVING THE RIGHT MARKETS – CHINA & U.S. MILLION METRIC TONS CHINESE ANNUAL CRUDE STEEL PRODUCTION AND WEEKLY IRON ORE INVENTORY Annual crude steel production Weekly port iron ore inventory 120 800 700 100 600 80 500 60 400 Jan-08 Sep-09 Mar-11 Aug-12 40 Dec-13 Source: Bloomberg, World Steel Association • China's crude steel production continues to be healthy, with year-to-date 2013 annualized run rate averaging over 750 million tons • Iron ore inventories at the Chinese ports are at multi-year lows • In the U.S., strong positives have the potential to drive growth for the remainder of 2013 • Consumer spending has strengthened • Labor market appears to have started an upward trend • Housing is recovering MILLION METRIC TONS STEEL PRODUCTION U.S. 100 91 86 80 Canada 87 89 80 58 60 40 20 15 9 13 13 14 12 0 2008 2009 2010 2011 2012 2013E Source: World Steel Association A BALANCED END-MARKET MIX ENABLES CLIFFS TO GENERATE HEALTHY CASH FLOWS FROM ITS U.S. BUSINESS AND BENEFIT FROM CHINA'S GROWTH 13
  15. 15. SUMMARY • Focused on improving our cost profile through reductions across the Company • Managing capital spending with discipline • Enhance balance sheet strength to ensure that our current debt profile is maintained or improved • Secure the longer-term sustainability of our core operations through long-term sales contracts and prudent capital allocation decisions • Looking forward to the mining experience, expertise, and leadership Gary Halverson will bring as the new President and COO. 14
  16. 16. 2012 PERFORMANCE U.S. Iron Ore ($mm) Revenue Sales margin Shipments 2 2010 $2,444 788 23.0 Eastern Canadian Iron Ore 2011 $3,510 1,679 24.2 2012 $2,723 976 21.6 • 2012 Revenue 2012 volume decline driven primarily by specific customer financial circumstances. • ($mm) Revenue Sales margin Shipments 1 2011 margin favorably impacted by arbitration settlements. • 2010 $478 133 3.3 2011 $1,178 291 7.4 2012 $1,009 (121) 8.9 • 2011 volume increase attributed to Consolidated Thompson acquisition (3.9mm tons). • 2012 margin decline driven by reductions in market pricing combined with higher spending on contractors, repairs and maintenance. 17% Due to reductions in market pricing, limited tonnage was delivered in export market in 2012. 46% 22% North American Coal ($mm) Revenue Sales margin Shipments 3 • 2011 $512 (58) 4.2 2012 $881 (2) 6.5 Volume increase in 2012 attributable to 2011 operational issue at Pinnacle and tornado damage at Oak Grove along with strong production performance. 15% 2012 margin driven by fixed-cost leverage improvement and cost reductions at lowvolatile mines. Million metric tons; 15 15 2 Million long tons; 3 Million short tons. ($mm) Revenue Sales margin Shipments 1 2010 $1,124 566 9.3 2011 $1,364 700 8.6 2012 $1,259 311 11.7 • U.S. Iron Ore Asia Pacific Iron Ore 2012 volume increase driven by completion of Koolyanobbing expansion project. • 2012 margin decline driven by reductions in market pricing combined with increased stripping costs and logistics costs. Eastern Canadian Iron Ore North American Coal • 1 2010 $438 (29) 3.3 Asia Pacific Iron Ore
  17. 17. Q3 2013 OUTLOOK 2013 Segment Expectations U.S. Iron Ore • • • Sales volume of 21 million long tons Cash cost per ton of $65 - $70 Depreciation, depletion & amortization of $6 per ton Other 2013 Guidance SG&A and other expenses • Full-year SG&A of $215 million Other outflows of $65 million − Exploration & drilling programs: $15 million − Chromite project: $50 million Depreciation, depletion & amortization of $575 million • • Eastern Canadian Iron Ore • • • Sales volume of 8.5 - 9 million metric tons Cash cost per ton of $100 - $105 Depreciation, depletion & amortization of $19 per ton Cash flows and capex • 2013 Revenue Price Sensitivity • Asia Pacific Iron Ore • • • Sales volume of 11 million metric tons Cash cost per ton of $65 - $70 Depreciation, depletion & amortization of $15 per ton • • • Sales volume of 7 million short tons Revenue per ton of $100 - $105 Cash cost per ton of $85 - $90 Depreciation, depletion & amortization of $17 per ton • • • • 1 16 Based on YTD iron ore pricing of $135/ton, the following is the sensitivity to a $10 change in the benchmark price across our iron ore business segments1: − USIO: $110-$115 (+/- $1) per ton2 − ECIO: $110-$115 (+/- $2) per ton3 − APIO: $110-$115 (+/- $2) per ton4 2014 Sales Volume Guidance North American Coal • Full-year capex of $950 million U.S. Iron Ore: 22 – 23 million long tons Eastern Canadian Iron Ore: 5.5 – 6 million metric tons for Bloom Lake Asia Pacific Iron Ore: 10 – 11 million metric tons North American Coal: 6 – 7 million short tons The year-to-date iron ore price is the average 62% Fe seaborne iron ore fines price (CFR China) as of September 30, 2013. Cliffs expects to update the year-to-date average iron ore price and the related sensitivities for its respective iron ore business segments in future reporting periods. 2 U.S. Iron Ore tons are reported in long tons. 3 Eastern Canadian lron Ore tons are reported in metric tons, F.O.B. Eastern Canada. 4 Asia Pacific Iron Ore tons are reported in metric tons, F.O.B. the port.
  18. 18. Cliffs Natural Resources Inc. January 2014
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