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CLF November 2010 Investor Presentation






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    CLF November 2010 Investor Presentation CLF November 2010 Investor Presentation Presentation Transcript

    • Cliffs Natural Resources Inc. November 2010
    • “ Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995 This presentation includes predictive information that is intended to be made as “forward-looking” within the safe harbor protections of the Private Securities Litigation Reform Act of 1995. Although the Company believes that its forward-looking information is based on reasonable assumptions, such information is subject to risks and uncertainties, which could cause materially different results. Important factors that could cause actual results to differ materially from those in the forward-looking information are set forth in the Company’s most recent Annual Report and reports on Form 10-K and 10-Q, and news releases filed with the Securities and Exchange Commission. All reports and news releases are available on Cliffs’ website www.cliffsnaturalresources.com.
    • Overview of Cliffs Natural Resources Inc.
            • Cliffs Natural Resources (NYSE: CLF) (Paris: CLF) is an international mining and natural resources company. A member of the S&P 500, it is the largest producer of iron ore pellets in North America, a major supplier of direct-shipping lump and fines iron ore out of Australia and a significant producer of metallurgical coal
            • Cliffs is executing a strategy designed to increase scale and diversity and focused on serving the world’s largest and fastest growing steel markets
            • The Company boasts a conservatively managed balance sheet with low debt and strong liquidity
            • 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
    • Cliffs Natural Resources Global Footprint
        • Access to high-growth Asian markets
        • Pricing correlates to Australian benchmark for lump and fines
        • Largest iron ore producer in North America
        • Significant position in North American metallurgical coal
        • A developing project in a low-cost mining district
    • Cliffs’ Strategic Imperatives Scale Through Diversification Global Execution Operational Excellence
        • Building scale through diversification
        • Multiple Revenue Streams
        • Product Diversification
        • Geographic Presence
        • Operational excellence
        • Safety
        • Technical Competencies
        • Operating Efficiencies
        • Global execution
        • Competencies of the Firm
        • Outlook of Personnel
        • Global Scalability
        • Shareholder returns
        • Shareholder Value
        • Risk Management
        • “ Earning the Right to Grow”
      Shareholder Returns
    • Impact of Strategic Execution ($ in Millions)
        • Strategic milestones
        • Business evolution
      Share price performance since January 2004
      • 2005
      • Acquired 80% of Portman Limited, then the third largest iron ore mining company in Australia
      Sales: $1,203 Sales: $1,740 Sales: $1,922 North American Coal 10% Other 4% Sales: $2,275 Sales: $3,609 Sales: $2,342
      • 2007
      • Acquired 30% interest in Amapá iron ore project in Brazil
      • Acquired 45% economic interest in Sonoma, hard coking and thermal coal mine in Queensland, Australia
      • Acquired PinnOak, Central Appalachian high-quality, low-volatile met coal mines
      • 2008
      • Acquired remaining stake in Portman Limited (20%)
      • Acquired remaining stake in United Taconite (30%)
      • Acquired stake in Golden West, an Australian iron ore junior mining company
      Asia Pacific Iron Ore 24% North American Iron Ore 62%
      • 2009
      • $347mm in net proceeds from equity offering executed in May
      • Added to S&P 500 Index
      • 2010E
      • Acquired remaining stake (73%) in Wabush Mines
      • Acquired Freewest Resources and Spider Resources, world-class chromite assets in Ontario, Canada
      • Acquired INR Energy, high-volatile met coal and thermal coal
      2010E Sales: $4.4B 2005 2006 2007 2008 2009 2004
    • Financial Overview Track record of growth ($mm) Strong balance sheet Japan 7% United States 45% China 30% Canada 10% Other 8% Diverse end-market exposure (2004 – 2009) 1 Revenue EBITDA 2004 2009 United States 76% Canada 19% China 5% Other 1% Revenue by end-market
    • 2010 Financial Highlights
        • Record-breaking first-half results:
          • Revenues of $1.9 billion, up 124%
          • Net income of $354 million, up 830%
          • Free cash flow of $173 million, up 178%
        • $1 billion in acquisitions:
          • Wabush remaining stake $88 million
          • Freewest acquisition $186 million
          • INR Energy’s coal operations $757 million
        • First-half North American Iron Ore shipments total 11 million tons, up 154%
        • North American Coal contributes $23 million to second-quarter sales margin
        • Asia Pacific Iron Ore first-half revenue reaches $469 million, up 95%
        • The Company achieved investment grade rating from Standard and Poor and Moody’s
    • Business Segment Overview
      • North American Iron Ore
              • Manage and operate six North American mines located in Michigan, Minnesota, and Eastern Canada
              • Annual equity production capacity of 29.5mm tons of iron ore pellets
              • Over 90% of 2010 volume committed under contract
              • North American Coal
              • Own and operate five metallurgical coal mines and one thermal coal mine in West Virginia and Alabama
              • 2011 production capacity in excess of 7mm tons
              • A significant portion of revenue comprised of exports
              • Asia Pacific Iron Ore
              • Operations include 100%-owned Koolyanobbing complex and 50% equity interest in Cockatoo Island
              • 9mm tonnes of current capacity, with upgrade underway to reach 11mm tonnes by 2012
              • Direct-shipping lumps and fines ore sold on the seaborne market
      North American Iron Ore 62% Asia Pacific Iron Ore 23% North American Coal 9% Other 6% 2009 Revenue 1 Partial year
    • M&A and Development Strategy
        • Diversify business into other end-markets and other steel-related minerals
        • Expand geographically into low-political-risk geographies
        • Objective is to strike a balance among cash-flow positive, profitable, commercial-stage businesses and targets in the early stage of development
    • INR Energy's Coal Operations Acquisition
        • Demonstrates Cliffs’ commitment to further diversify its business into coal
        • $757 million acquisition funded through available liquidity, including cash on hand and Cliffs’ $600 million credit facility
        • Transaction will increase Cliffs’ total global coal equity production capacity to nearly 11 million tons by 2012, from today’s current annualized equity production of approximately 7 million tons
          • Significant metallurgical coal reserves
          • Expands global reserve base to over 232 million tons
        • Southern West Virginia multi-mine complex with features that are complementary to our North American Coal operations
          • Two underground continuous mining operations and one open surface mine
          • Assets include several metallurgical coal development mines
        • Increases Cliffs’ products portfolio through the addition of high-volatile metallurgical coal and thermal coal
    • INR Energy's Coal Operations Southern West Virginia Mining Complex Operations located in near proximity to Cliffs Pinnacle Mine Metallurgical Coal Operations Thermal Coal/ PCI Operations Developmental Projects
      • Two operating underground mines:
      • Powellton
      • Chilton-Dingess
      • One operating surface mine:
      • Toney Fork #2
      • Two additional underground metallurgical coal mines in active development
      • Several additional metallurgical coal mines in permitting phase
    • Ring of Fire – Chromite Project
          • Freewest Resources and Spider Resources Acquisitions position Cliffs to become the leading North American primary chromite and ferrochrome producer and exporter
          • Customers would include global stainless steel producers
          • World-class chromite deposits within the “Ring of Fire” in Northern Ontario, Canada
            • 100% Black Thor
            • 100% Black Label
            • 73.5% Big Daddy
          • Anticipate mining 1 million to 2 million tonnes of high-grade chromite ore to produce 400,000 to 800,000 tonnes of ferrochrome annually with a >30-year mine life
          • Prefeasibility studies and initial First Nation discussions are underway; production anticipated to commence around 2015
          • Financed with stock and cash
          • Estimated capex of $800mm required to develop the site
          • Options for financing capex include:
            • Internal cash flow
            • Joint-venture partner
            • Other financial options
          • Capex will be deployed only after certain project milestones are satisfactorily achieved
          • Cliffs has the opportunity to evaluate proceeding with the development of the assets over the next 5 years
            • Majority of capex spending would occur in 2013 and 2014
      Ring of Fire – Chromite Project Capex Requirements
    • Ring of Fire – Chromite Project World-Class Assets CHROMITE DEPOSITS BLACK THOR BLACK LABEL BIG DADDY
      • Industry Overview
    • Steel Is a Large, Growing, Global Business BRIC economic growth is substantial and appears inevitable.
      • In 2009, China’s steel consumption was nine times that of the U.S.
      • As countries industrialize, per capita steel consumption increases as GDP per capita expands through the maturing process
      Note: Size of bubbles represents size of absolute 2008 finished steel consumption in each respective country Source: Metals Strategies, CIA World Factbook
    • The Long-Term Outlook Remains Strong World steel demand (millions of tonnes) Source: Metal Strategies % of crude steel production Growth in global steel production using blast furnaces 2010-2015 CAGR 3.4% Source: Metal Strategies 2010-2015 CAGR 2.6% (millions of tonnes)
    • North American Steel Producers Are Particularly Well-Positioned to Participate in an Economic Recovery Source: Metal Strategies Net imports as a % of consumption 17% 12% 19% 11% 9% 10% 9% 10% 10% 11% 11% 11% U.S. steel supply/demand (mm tons) ’ 09 – ’15 Consumption CAGR +5.4%
    • Steel Center Inventories Remain Low Relative to Historical Levels Source: Metal Strategies Months supply Tons (mm) Service center inventories
          • Iron ore
            • New projects commissioned in countries with medium to high sovereign risk
            • High-end of cost curve requiring significant capital deployment
            • Suppliers farther inland from deep-water ports, economic logistics
            • Further tightening of Indian supply as increased export regulatory pressure has emerged
          • Metallurgical coal
            • At top of cycle in 2008, Appalachian supplies declined (mines deeper, seams thinner)
            • Environmental and safety regulations make permitting more difficult to secure
            • Other global metallurgical coal basins in challenging political geographies (Mongolia, Mozambique, etc.)
      Steelmaking Raw Materials Supply-Side Considerations
    • Pricing for Core Products Has Corrected Sharply Metallurgical coal prices ($/metric ton) Source: Metal Strategies, equity research, Company estimates $209 * 62% Iron ore prices ($/metric ton based on 64% iron content) $73 (48%) $62 (33%) $85 (44%) Source: Cliffs and various industry publications/reports $149 75% $153 109 % $129 108 % $129 (57%) ($ price and % change) ($ price and % change) * Latest quarterly Settlement
    • Business Unit Overview
    • North American Leader in Iron Ore Source: Company data Cliffs Managed 45% % capacity U.S. Steel 25% Iron Ore Co. of Canada 16% Arcelor Mittal 14%
      • Firmly established as a critical supplier to the leading U.S.-based integrated steelmakers
      • Virtually 100% of sales volume is committed under long-term supply agreements
      • Formula-based supply agreements capture steel prices, iron ore prices and wholesale inflation while mitigating volatility
      • Cost effectively increased production base during most recent cycle
      • Over 900 million tons of proven and probable reserves
      Financial overview Equity production (MM gross tons) North America pellet production
    • The North American Market Is Geographically Protected Source: Company data ArcelorMittal Mines
    • North American Iron Ore Pellet Contract Pricing
        • Virtually all pellet capacity under long-term contracts
        • Annual price adjustments are based on a variety of factors including:
          • Seaborne pellet prices
          • Various PPI indices
          • Hot-band steel prices
          • Contractual-based price increases, lag-year adjustments and capped pricing
        • A 48% decrease in pricing in 2009 resulted in average prices for Cliffs decreasing only 11%
        • 2010 guidance: 27 million tons of sales volume, $98 - $103 per ton
          • Assumes 96% increase in seaborne pellet prices, $600 - $650 hot band steel
    • North American Coal Source: Company data Overview Reserves by Mining Complex Cliffs North American Coal Production (millions of tons)
        • Cliffs will produce primarily high-volatile and low-volatile metallurgical coal, with some thermal coal production
        • Reserve base of 225 million tons contains some of the highest quality metallurgical coal in the world
        • NAC capacity will be over 9 million tons in 2012
        • Coal is sold in both domestic and export markets
      Oak Grove 19% INR Met 30% Geographic overview Financial overview 1 Partial year
      • INR Mines:
        • Powellton Mine
        • Chilton-Dingess Mine
        • Toney Fork #2 Mine
      225 mm tons INR Thermal 23% Pinnacle 28% Oak Grove Mine
      • Pinnacle Complex
        • Pinnacle Mine
        • Green Ridge Mine
    • Asia Pacific Iron Ore Source: Company data Business overview
        • Asia Pacific iron ore operations located in Western Australia:
          • Koolyanobbing mine (100% owned)
          • Cockatoo Island Joint Venture (50% owned)
        • Serves the Asian iron ore markets with direct-shipping fines and lump ore, with 2012 capacity to reach 11mtpy
        • 88mm tonnes of proven and probable reserves
        • Near mine drilling program targeting substantial reserve additions
      China 85% Customer overview (2009) Financial overview Cockatoo Island Koolyanobbing Complex Japan 15% Geographic overview Production (millions of tonnes)
    • Sonoma Coal Business overview
        • 45% economic interest, shipments commenced in 2008
        • 2009 equity sales volume: 1.4mm tonnes
        • 21.6 million tonnes of reserves
        • Mix of metallurgical and thermal coal
        • Supply agreements in place with JFE, China Steel (metallurgical) and a Korean utility (thermal)
        • Moves by rail to the Abbot Point Bulk Coal Terminal for export
        • $142 million investment has returned a total sales margin of $82 million since operations commenced two years ago
      Geographic overview Sonoma Source: Company data
    • Amapá Project Source: Company data Business overview
        • 30% owned by Cliffs, 70% owned by Anglo American
        • Consists of a significant iron ore deposit, a 192-kilometer railway connecting mine to port, and 71 hectares of real estate for a loading terminal
        • Majority of production committed under long-term supply agreement with operator of an iron oxide pelletizing plant in Bahrain
        • $62 million equity loss in 2009 and expectations of profitability in 2010
      Geographic overview Amapá Project
    • In Summary
        • Steel and the raw materials to make it are extremely important
          • Building block of society
          • Essential to modernization of Brazil, Russia, India and China
        • Raw materials will continue to be scarce in the long-term
          • Very few meaningful iron ore or metallurgical coal projects came online at the top of the last cycle
          • Worldwide economic recovery is resulting in increased demand
        • Cliffs is well positioned in its current markets and to benefit from the current environment
          • Active business development targeting program
          • Strong balance sheet and significant financial flexibility
    • Cliffs Natural Resources Inc.
    • Appendix – 2010 Outlook Summary
    • 2010 Outlook Summary Sonoma Coal - Equity sales and production of 1.5 million tonnes - 60%/40% thermal-met mix - Average revenue per tonne of $120 - $125 - Average cost per tonne of $80 - $85 Amapá Iron Ore Project - Profitable in 2010 for Cliffs’ equity interest
      • SG&A Expenses and Other Expectations
      • SG&A expenses of approximately $200 million
      • Global Exploration costs of $30 million to $35 million
      • Chromite project costs of approximately $15 million
      • - Full year tax rate approximately 30%
      • Depreciation and amortization approximately $325 million
      • Cash from operations
      • - More than $1.3 billion
      • Capital expenditures
      • - Approximately $275 million