CLIFFS DEC 2010 Investor Slide Deck

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CLIFFS DEC 2010 Investor Slide Deck

  1. 1. OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIPCliffs Natural Resources Inc Inc. December 2010
  2. 2. OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIP“Safe Harbor” Statement under the Private Securities“S f H b ” St t t d th P i t S itiLitigation 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 Company s 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.1
  3. 3. OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIPOverview of Cliffs Natural Resources Inc 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 company 500 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 g q y 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) framework2
  4. 4. OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIP Cliffs Natural Resources Global Footprint Access to high-growth Asian markets Largest iron ore producer in North America A developing project in a low-cost mining district Pricing correlates to Australian benchmark Significant position in North American for lump and fines metallurgical coal3
  5. 5. OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIPCliffsCliffs’ Strategic Imperatives Building scale through diversification Global execution Multiple Revenue Streams Competencies of the Firm Product Diversification Outlook of Personnel Geographic Presence Global Scalability Scale S l Global Gl b l Through Execution Diversification Operational Shareholder Excellence Returns Operational excellence Shareholder returns Safety Shareholder Value Technical Competencies Risk Management Operating Efficiencies “Earning the Right to Grow”4
  6. 6. OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIP Impact of Strategic Execution ($ in Millions) $150 Share price performance since January 2004 Other North 4% North American tion American Coal Iron Ore 10% 62% iness evolut Asia Pacific Iron Ore $120 24% Busi $90 Sales: $1,203 Sales: $1,740 Sales: $1,922 Sales: $2,275 Sales: $3,609 Sales: $2,342 Sales: $4.4B 2004 2005 2006 2007 2008 2009 2010E es 2005 2007 2008 2009 2010E $60Strateg milestone Acquired 80% of Acquired 30% interest in Acquired remaining $347mm in net proceeds Acquired remaining Portman Limited, Amapá iron ore project in stake in Portman Limited from equity offering stake (73%) in Wabush then the third Brazil (20%) executed in May Mines largest iron ore Acquired 45% economic Acquired remaining Added to S&P 500 Index Acquired Freewest mining company interest in Sonoma, hard stake in United Taconite Resources and Spider in Australia $30 coking and thermal coal (30%) Resources, world-class gic mine in Queensland, chromite assets in Acquired stake in Golden A i d t k i G ld Australia Ontario, Canada West, an Australian iron Acquired PinnOak, Central ore junior mining Acquired INR Energy, Appalachian high-quality, company high-volatile met coal low-volatile met coal mines and thermal coal $0 Jan 2004 Sep 2004 May 2005 Jan 2006 Sep 2006 May 2007 Jan 2008 Sep 2008 May 2009 Feb 2010 5
  7. 7. OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIPFinancial Overview Track record of growth ($mm) Strong balance sheet Revenue EBITDA Credit and liquidity metrics y 2008 2009 Total debt / EBITDA 0.6x 1.0x Net debt / EBITDA 0.4x 0.0x Debt / Total capitalization 23.0% 17.1% Total debt ($mm) 525 525 1 Cash balance ($mm) 179 503 Availability under credit facility ($mm) 587 569 Diverse end-market exposure (2004 – 2009) Revenue by end-market 2004 2009 Other 1% Other 8% United States China 5% 45% Canada Japan 7% 19% Canada d 10% United States China 76% 30%6
  8. 8. OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIP2010 Financial Highlights Record-breaking nine months ended results: - Revenues of $3.3 billion, up 114% $3 3 billion - Net income of $627 million, up 547% - Free cash flow of $481 million, up 575% Over $1 billion in acquisitions: - Wabush remaining stake $88 million - Freewest acquisition $186 million - INR Energy’s coal operations $757 million North American Iron Ore shipments total 18.6 million tons, up 88% North American Coal revenues of $323 million, up 158% Asia Pacific Iron Ore sales margin of $383 million, up 468% Strengthened balance sheet by raising $1.4 billion in public debt The Company achieved investment grade rating from Standard and Poor and Moody’s7
  9. 9. OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIPBusiness Segment Overview 2009 Revenue North American Other 6% Coal 9% North American Asia Pacific Iron Ore Iron Ore 62% 23% North American Iron Ore North American Coal Asia Pacific Iron Ore Manage and operate six North Own and operate five Operations include 100% owned 100%-owned American mines located in metallurgical coal mines and Koolyanobbing complex and 50% Michigan, Minnesota, and one thermal coal mine in equity interest in Cockatoo Island Eastern Canada West Virginia and Alabama 9mm tonnes of current capacity, with Annual equity production 2011 production capacity in upgrade underway to reach 11mm capacity of 29.5mm tons of iron excess of 7mm tons tonnes by 2012 ore pellets A significant portion of Direct-shipping lumps and fines ore Over 90% of 2010 volume revenue comprised of exports sold on the seaborne market committed under contract ($mm) 2007 2008 2009 ($mm) 20071 2008 2009 ($mm) 2007 2008 2009 Revenue $1,745 $2,370 $1,448 Revenue $85 $346 $207 Revenue $445 $770 $542 Sales margin 398 804 276 Sales margin (32) (46) (72) Sales margin 96 349 87 Tons shipped 22.3 22.7 16.4 Tons shipped 1.2 3.2 1.9 Tonnes shipped 8.1 7.8 8.5 1 Partial year8
  10. 10. OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIPM&A and Development Strategy Diversify business into other end markets end-markets Cliffs’ strategy: geographic and mineral gy g g p and other steel-related minerals diversification Minerals Geographies Expand geographically into low-political- risk geographies g g p Objective is to strike a balance among cash-flow positive, profitable, commercial- SEABORNE MET COAL stage businesses and targets in the early NORTH NORTH ASIA PACIFIC SOUTH AMERICAN SEABORNE IRON ORE AMERICA stage of development MET COAL IRON ORE AMERICA (AUSTRALIA) (BRAZIL) SEABORNE FERROALLOYS9
  11. 11. OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIPINR Energy s Coal Operations Acquisition Energys Demonstrates Cliffs’ commitment to further diversify its business into coal $ 5 $757 million acquisition funded t oug a a ab e liquidity, including cas o hand a d C s $600 o acqu s t o u ded through available qu d ty, c ud g cash on a d and Cliffs’ 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 Si ifi t t ll i l l 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 Cliffs high-volatile thermal coal10
  12. 12. OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIP INR Energy s Coal Operations Energys Southern West Virginia Mining Complex Metallurgical Coal Thermal Coal/ Operations PCI Operations• Two operating underground • One operating surface mines: mine: 1. Powellton 1. Toney Fork #2 2. Chilton-Dingess Developmental Projects • Two additional underground metallurgical coal mines in active development • Several additional metallurgical coal mines in Operations located in near permitting phase proximity to Cliffs Pinnacle Mine 11
  13. 13. OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIPRing 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 400,000 800,000 400 000 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 cash12
  14. 14. OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIPRing of Fire – Chromite Project Capex Requirements Estimated capex of $800mm required to develop the site Options for financing capex include: – Internal cash flow – Joint-venture partner – Oth financial options Other fi i l ti Capex will be deployed only after certain project milestones are satisfactorily achieved Cliffs has the opportunity to evaluate proceeding with the development of the assets over the next 5 years – Majority of capex spending would occur in 2013 and 201413
  15. 15. OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIPRing of Fire – Chromite Project g j World-Class Assets BLACK LABEL CHROMITE DEPOSITS BLACK THOR BIG DADDY 14
  16. 16. OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIP Industry Overview15
  17. 17. OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIP Steel Is a Large, Growing Global Business Large Growing, In 2009, China’s steel consumption 1,200 was nine times that of the U.S. 1,000 S. Korea As countries industrialize, per capita steel consumption increases onsumption 800 as GDP per capita expands through the maturing process h i 2009 Kg/Capita Steel Co 600 China Japan 400 Oceania Canada U.S. 200 EU 27 CIS India Mexico Brazil 0 0 10 20 30 40 50 60 2009 GDP Per Capita ($US 000s)Note: Size of bubbles represents size of absolute 2008 finished steel consumption in each respective countrySource: Metals Strategies, CIA World Factbook BRIC economic growth is substantial and appears inevitable. 16
  18. 18. OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIPThe Long-Term Outlook Remains Strong Long Term World steel demand (millions of tonnes) 1,500 1,000 500 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E 2012E 2013E 2014E 2015E Source: Metal Strategies Growth in global steel production using blast furnaces (millions of tonnes) % of crude steel production 1,400 100% 1,200 75% 1,000 50% 800 600 25% 400 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E 2012E 2013E 2014E 2015E Source: Metal Strategies17
  19. 19. OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIPNorth American Steel Producers Are ParticularlyWell-Positioned t P ti i t i an EW ll P iti d to Participate in Economic R i Recovery U.S. steel supply/demand (mm tons) Production Consumption 133 135 127 122 123 119 118 114 116 110 113 111 108 108 110 105 107 101 101 98 92 89 66 65 2004 2005 2006 2007 2008 2009 2010E 2011E 2012E 2013E 2014E 2015E Net imports as a % of 17% 12% 19% 11% 9% 10% 9% 10% 10% 11% 11% 11% consumption Source: Metal Strategies18
  20. 20. OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIPSteel Center Inventories Remain Low Relative toHistorical LevelsHi t i l L l Service center inventories Tons (mm) Months supply 18 5 16 14 4 12 10 3 8 6 2 4 2 0 1 2005 2006 2007 2008 2009 2010 Source: Metal Strategies19
  21. 21. OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIP Steelmaking Raw Materials Supply-Side Considerations Iron ore – New projects commissioned in countries with medium to high sovereign risk – Hi h d of cost curve requiring significant capital deployment High-end f t ii i ifi t it l d l t – 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.)20
  22. 22. OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIPPricing for Core Products Has Corrected Sharply g py Iron ore prices ($/metric ton based on 64% iron content) ($ price and % change) $153 175 Pellets Lumps Fines 109% $149 150 75% 125 $85 $129 (44%) 100 108% 75 $73 50 $62 (48%) 25 (33%) 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E Source: Cliffs and various industry publications/reports Metallurgical coal prices ($/metric ton) ($ price and % change) i d h ) 300 250 $209 * 62% 200 150 100 50 $129 0 (57%) 2010E 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 * Latest quarterly Settlement Source: Metal Strategies, equity research, Company estimates21
  23. 23. OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIP Business Unit Overview22
  24. 24. OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIPNorth American Leader in Iron Ore Financial overview Firmly established as a critical supplier to the leading U.S.-based integrated steelmakers ($mm) 2006 2007 2008 2009 Virtually 100% of sales volume is committed under long-term supply agreements Revenue $1,561 $1 561 $1,745 $1 745 $2,370 $2 370 $1,448 $1 448 Formula-based supply agreements capture steel prices, iron ore prices and wholesale inflation while mitigating volatility Sales margin 327 398 804 276 Cost effectively increased production base during most recent cycle Capex 81 64 53 43 Over 900 million tons of proven and probable reserves DD&A 33 41 66 74 Equity production (MM gross tons) North America pellet production % capacity Arcelor Mi l A l Mittal 14% Cliffs Managed 45% Iron Ore Co. of Canada 16% U.S. Steel 25% Source: Company data23
  25. 25. OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIPThe North American Market Is Geographically Protected ArcelorMittal Mines Source: Company data24
  26. 26. OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIPNorth 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 p — 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 volume — Assumes 96% increase in seaborne pellet prices, $600 - $650 hot band steel25
  27. 27. OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIPNorth American Coal Overview Financial overview 1 Cliffs will produce primarily high-volatile and low volatile high volatile low-volatile ( ($mm) ) 2007 2008 2009 metallurgical coal, with some thermal coal production Revenue $85 $346 $207 Reserve base of 225 million tons contains some of the highest Sales margin (32) (46) (72) quality metallurgical coal in the world NAC capacity will be over 9 million tons in 2012 Capex 11 97 21 Coal i C l is sold in both domestic and export markets ld i b th d ti d t k t DD&A 18 52 38 1 Partial year Cliffs North American Coal Geographic overview Reserves by Mining Complex Production (millions of tons) 10 Oak Grove k Pinnacle Pi l 19% 28% 8 7+ 6 4+ 4 Pinnacle Complex 1.74 INR Thermal Pinnacle Mine Green Ridge Mine 2 23% INR Met 30% INR Mines: 0 Powellton Mine Chilton-Dingess Mine 2009 2010E 2011E 225 mm tons Oak Grove Mine Toney Fork #2 Mine Source: Company data26
  28. 28. OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIPAsia Pacific Iron Ore Business overview Financial overview Asia Pacific iron ore operations located in Western Australia: ($ ($mm) ) 2006 2007 2008 2009 – Koolyanobbing mine (100% owned) Revenue $361 $445 $770 $542 – Cockatoo Island Joint Venture (50% owned) Sales margin 87 96 349 87 Serves the Asian iron ore markets with direct-shipping fines and lump ore, with 2012 capacity to reach 11mtpy Capex 32 39 68 96 88mm tonnes of proven and probable reserves DD&A 41 49 74 111 Near mine drilling program targeting substantial reserve additions Geographic overview Production (millions of tonnes) Customer overview (2009) Cockatoo Island Japan 15% China 85% Koolyanobbing Complex Source: Company data27
  29. 29. OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIPSonoma Coal Business overview Geographic overview 45% economic interest, shipments commenced in 2008 Sonoma 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 JFE, (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 g of $82 million since operations commenced two years ago Source: Company data28
  30. 30. OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIPAmapá Project Business overview Geographic 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 Amapá Project 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 Source: Company data29
  31. 31. OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIP 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 g — 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 flexibility30
  32. 32. OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIPCliffs Natural Resources Inc Inc.
  33. 33. OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIPAppendix – 2010 Outlook Summary
  34. 34. OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIP 2010 Outlook Summary 2010 Outlook Summary North American North American Asia Pacific Iron Ore (1) Coal (2) Iron Ore Current Previous Current Previous Current Previous Outlook Outlook Outlook Outlook Outlook OutlookSales volume (million tons/tonnes) 27.0 27.0 3.6 3.9 9.0 8.8Revenue per ton/tonne $98 - $103 $107 - $112 $115 - $120 $115 - $120 $115 - $120 $110 - $115Cost per ton/tonne $65 - $70 $65 - $70 $120 - $125 $115 - $120 $55 - $60 $55 - $60(1) Assumes a range of hot band steel pricing of $600 - $650 per ton.(2) North American Coal outlook includes the impact from INR Energys coal operations.Sonoma Coal SG&A Expenses and Other Expectations- Equity sales and production of 1.5 million tonnes - SG&A expenses of approximately $200 million- 60%/40% thermal-met mix - Global Exploration costs of $30 million to $35 million- Average revenue per tonne of $120 - $125 - Chromite project costs of approximately $15 million- Average cost per tonne of $80 - $85 - Full year tax rate approximately 30% - Depreciation and amortization approximately $325 millionAmapá Iron Ore Project- Profitable in 2010 for Cliffs’ equity interest Cash from operations - More than $1.3 billion $1 3 Capital expenditures - Approximately $275 million 33
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