2. FORWARD-LOOKING STATEMENTS
This presentation contains statements that constitute "forward-looking statements" within the meaning of the federal securities laws. As a general matter,
forward looking statements relate to anticipated trends and expectations rather than historical matters. Forward-looking statements are subject to uncertainties
and factors relating to Cliffs’ operations and business environment that are difficult to predict and may be beyond our control. Such uncertainties and factors
may cause actual results to differ materially from those expressed or implied by the forward-looking statements. These statements speak only as of the date of
this presentation, and we undertake no ongoing obligation, other than that imposed by law, to update these statements. Uncertainties and risk factors that could
affect Cliffs’ future performance and cause results to differ from the forward-looking statements in this presentation include, but are not limited to: trends affecting
our financial condition, results of operations or future prospects, particularly the continued volatility of iron ore and coal prices; uncertainty or weaknesses in
global economic conditions, including downward pressure on prices, reduced market demand, increases in supply and any slowing of the economic growth rate
in China; our ability to successfully identify and consummate any strategic investments or capital projects and complete planned divestitures; 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 cost effectively achieve planned production rates or levels; changes in sales volume
or mix; the outcome of any contractual disputes with our customers, joint venture partners or significant energy, material or service providers or any other
litigation or arbitration; the impact of price-adjustment factors on our sales contracts; the ability of our customers and joint venture partners to meet their
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; 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, as well as any
resulting impairment charges; the results of prefeasibility and feasibility studies in relation to development projects; impacts of existing and increasing
governmental regulation and related costs and liabilities, including failure to receive or maintain required operating and environmental 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; 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 and 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 satisfactory terms; risks related to international operations; the potential existence of
significant deficiencies or material weakness in our internal controls over financial reporting; and problems or uncertainties with leasehold interests, productivity,
tons mined, transportation, mine-closure obligations, environmental liabilities, employee-benefit costs and other risks of the mining industry. The information
contained herein speaks as of the date of this presentation 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.
Important Additional Information
Cliffs, its directors and certain of its executive officers may be deemed to be participants in the solicitation of proxies from Cliffs shareholders in connection with
the matters to be considered at Cliffs' 2014 Annual Meeting. Cliffs intends to file a proxy statement with the U.S. Securities and Exchange Commission (the
"SEC") in connection with any such solicitation of proxies from Cliffs shareholders. CLIFFS SHAREHOLDERS ARE STRONGLY ENCOURAGED TO READ
ANY SUCH PROXY STATEMENT AND ACCOMPANYING WHITE PROXY CARD WHEN THEY BECOME AVAILABLE AS THEY WILL CONTAIN
IMPORTANT INFORMATION. Information regarding the ownership of Cliffs' directors and executive officers in Cliffs shares, restricted shares and options is
included in their SEC filings on Forms 3, 4 and 5. More detailed information regarding the identity of potential participants, and their direct or indirect interests, by
security holdings or otherwise, will be set forth in the proxy statement and other materials to be filed with the SEC in connection with Cliffs' 2014 Annual Meeting.
Information can also be found in Cliffs' Annual Report on Form 10-K for the year ended Dec. 31, 2012, filed with the SEC on Feb. 12, 2013. Shareholders will be
able to obtain any proxy statement, any amendments or supplements to the proxy statement and other documents filed by Cliffs with the SEC for no charge at
the SEC's website at www.sec.gov. Copies will also be available at no charge at Cliffs' website at www.cliffsnr.com or by contacting Carolyn Cheverine, Vice
President, General Counsel & Secretary at (216) 694-7605. Shareholders may also contact D.F. King & Co., Inc., Cliffs’ proxy solicitor, toll-free at (800) 4874870 or by email at cliffs@dfking.com.
2
3. CLIFFS’ EXECUTIVE MANAGEMENT
Gary Halverson
President & Chief Executive Officer
Terry Paradie
Executive Vice President & Chief Financial Officer
Kelly Tompkins
Executive Vice President, External Affairs & President Global Commercial
3
4. FIRST 90 DAYS AS PRESIDENT & CHIEF EXECUTIVE OFFICER
Joins Cliffs as
President &
Chief Operating
Officer
Performs global
asset review and
interacts with key
customers
November
Announces plan to
halt development of
the Chromite Project
indefinitely
Conducts
organizational review
and management
restructuring
December
Reduces long-term
debt by $380 million,
net debt improves to
$2.7 billion
Announces plans to idle
the Wabush Mine and
significantly reduce 2014
capital expenditures
January
Announces $90 million
reduction in expected
2014 SG&A and
exploration spending
February
Cliffs’ Board
appoints Gary
Halverson to
President & CEO
WITH STRONG BOARD ENGAGEMENT, NEW EXECUTIVE LEADERSHIP HAS
MOVED QUICKLY TO RESET STRATEGIC DIRECTION AND IMPOSE FINANCIAL
AND OPERATING DISCIPLINE
4
5. TWO FUNDAMENTAL CHANGES FOR 2014
Capital Discipline
Organizational Structure
CAPITAL EXPENDITURES1
SG&A and EXPLORATION1
($ IN MILLIONS)
($ IN MILLIONS)
$1,128
54%
$425
31%
$881
$862
$328
$291
$200
$375 - $425
2014E
2013
2012
2014E
2011
2013
SG&A
2012
2011
Exploration
•
Focus on free cash flow generation
•
“Right-size” and delayer top levels
of management
•
Improve performance of currently
owned assets
•
Create direct reporting line to CEO
from operations
•
Lower net debt position
•
Streamline the business’ support
functions by eliminating duplication
5
1Source:
Company filings
6. MACRO CONSIDERATIONS
•
In the US, Cliffs expects healthy increases in motor vehicle production and
construction activities to support demand for steelmaking raw materials.
•
Credit reforms in China are expected to support stable growth for the long term.
•
Increased pressure on emissions in China and an uptick in European steel production
is expected to heighten demand for premium / value-in-use iron ore products.
2014 SEABORNE IRON ORE SALES GUIDANCE 1
FE CONTENT PREMIUMS/DISCOUNTS SINCE JULY 1, 20132
100%
APIO
Lump
5 - 5.5mt
Standard
29%
Premium
71%
ECIO
Concentrate
6 - 7mt
US Export
Pellets
1mt
50%
0%
-50%
U.S. IRON ORE EXPECTED FULL-YEAR 2014 SALES VOLUME OF
Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14
22 - 23 MILLION TONS 65% Fe
58% Fe
6
1Source:
2 Platts
Company filings
IODEX Iron ore fines ($/dmt) C.F.R China
7. U.S. IRON ORE
• Sales volume for the quarter was 6.2
million tons, relatively flat versus the
prior year.
• Exported a record 2.4 million tons
from the lower Great Lakes into the
seaborne market during the year.
U.S. IRON ORE SALES VOLUME1
(IN MILLIONS OF TONS)
Domestic
25
22 - 23
23
21.3
21.6
21
19
17
15
2014
2014E
2013
2013
2012
2012
U.S. IRON ORE EXPECTED FULL-YEAR 2014 SALES VOLUME OF
22 - 23 MILLION TONS
7
1Source:
Company filings
8. EASTERN CANADIAN IRON ORE
• Reduced Bloom Lake Mine’s 2014 capital
budget to include only sustaining and
license-to-operate requirements.
• Examining alternatives for Bloom Lake
Mine, which could include a range of
outcomes, from strategic partner to sale.
• Bloom Lake’s production volume has
averaged over 500,000 tons per month
over last four months.
• Loaded and shipped first Chinamax vessel
from Port of Sept-Iles to China during
the quarter.
EASTERN CANADIAN IRON ORE EXPECTED FULL-YEAR 2014 SALES
VOLUME OF 6 – 7 MILLION TONS
8
9. ASIA PACIFIC IRON ORE
• Reported fourth-quarter sales
volume of 3.0 million tons versus
2.8 million tons sold in the fourth
quarter of 2012.
• Expect improved costs in 2014
from favorable foreign exchange
rates and implementation of
operating efficiencies.
• 2014 sales volume is comprised of
approximately 50% lump and
50% fines.
ASIA PACIFIC IRON ORE EXPECTED FULL-YEAR 2014 SALES VOLUME
OF 10 – 11 MILLION TONS
9
10. NORTH AMERICAN COAL
• Sales volume of 1.8 million tons
versus 1.9 million in the prior-year
quarter.
• Achieved record sales and
production volumes in 2013.
• Brought back a second shift of
workers at our Toney Fork thermal
coal mine in West Virginia due to
improved thermal demand.
NORTH AMERICAN COAL EXPECTED FULL-YEAR 2014 SALES VOLUME
OF 7 – 8 MILLION TONS
10
12. REVENUE-PER-TON OUTLOOK
IRON ORE BENCHMARK PRICE1
REALIZED REVENUE PER TON & SENSITIVITIES
(62% FE FINES PER DMT C.F.R. CHINA)
(FULL-YEAR 2014)
U.S. IRON
ORE
REVENUES
PER TON
EASTERN
CANADIAN
IRON ORE
$105 - $110
SENSITIVITY
PER TON
(+/-$10)
$148
ASIA
PACIFIC
IRON ORE
$95 - $100
$100 - $105
+/-$2
+/-$9
$135
$128
$133
$126
+/-$9
$122
Jan 2014 Q4 2013 Q3 2013 Q2 2013 Q1 2013 Q4 2012
•
The realized revenue per ton and sensitivities above are based on the average year-to-date 62% Fe seaborne
iron ore fines price (C.F.R. China) of $128 per ton as of Jan. 31, 2014.
•
Does not reflect Cliffs’ internal seaborne iron ore price assumption for the year.
•
The sensitivities consider various contract provisions and lag-year adjustments contained in certain supply
agreements. Actual realized revenue per ton for the full year will depend on iron ore price changes, customer
mix, freight rates, production input costs and/or steel prices (all factors contained in certain of Cliffs' supply
agreements).
12
1Platts
IODEX Iron ore fines 62% Fe ($/dmt) C.F.R China
13. U.S. IRON ORE FINANCIAL HIGHLIGHTS
Sales Margin - Per Long Ton
Q4 2013
Q4 2012
Revenues from product sales and services*
$112.70
$112.06
65.51
64.55
6.13
4.64
71.64
69.19
$41.06
$42.87
Cash cost**
Depreciation, depletion and amortization
Cost of good sold and operating expenses
Sales Margin
•
Revenues per ton increased due to higher pricing for one customer due to the reset of
their contract base rate. This increase was partially offset by customer mix, increased
sales to seaborne customers and an unfavorable true-up on hot-rolled steel pricing.
•
Cash cost per ton increased due to lower production volumes and the resulting
unfavorable impact on the mines’ cost-per-ton rate.
*Excludes revenues and expenses related to domestic freight, which are offsetting and have no impact on
sales margin. Revenues also exclude venture partner cost reimbursements.
**Cash cost per ton is defined as cost of goods sold and operating expenses per ton less depreciation,
depletion and amortization per ton.
13
14. EASTERN CANADIAN IRON ORE FINANCIAL HIGHLIGHTS
Sales Margin - Per Metric Ton
Q4 2013
Q4 2012
Revenues from product sales and services
$108.73
$100.70
110.03
116.56
22.27
18.30
132.30
134.86
$(23.57)
$ (34.16)
Cash cost*
Depreciation, depletion and amortization
Cost of good sold and operating expenses
Sales Margin
•
Revenues per ton increased due to higher seaborne iron ore pricing and quality
premiums, partially offset by product mix and higher freight rates.
•
Cash cost per ton decreased due to the absence of pelletizing costs from the
Pointe Noire pellet plant. This decrease was partially offset by higher mining
costs driven by increased year-over-year strip ratios and additional overburden
removal activities at Bloom Lake. Fourth-quarter 2013 cash costs included the
supplies inventory write-down of $28 million at Wabush Mine.
*Cash cost per ton is defined as cost of goods sold and operating expenses per ton less depreciation,
depletion and amortization per ton.
14
15. ASIA PACIFIC IRON ORE FINANCIAL HIGHLIGHTS
Sales Margin - Per Metric Ton
Q4 2013
Q4 2012
Revenues from product sales and services
$109.07
$99.96
Cash cost*
58.90
65.86
Depreciation, depletion and amortization
12.63
14.75
71.53
80.61
$37.54
$ 19.35
Cost of good sold and operating expenses
Sales Margin
•
Revenues per ton increase was due to higher market pricing and lump
premiums, partially offset by a foreign exchange hedging loss.
•
Cash cost per ton decreased due to favorable foreign exchange rate variances.
*Cash cost per ton is defined as cost of goods sold and operating expenses per ton less depreciation,
depletion and amortization per ton.
15
16. NORTH AMERICAN COAL FINANCIAL HIGHLIGHTS
Sales Margin - Per Short Ton
Q4 2013
Q4 2012
$89.70
$110.14
Cash cost**
85.14
98.07
Depreciation, depletion and amortization
16.43
15.00
101.57
113.07
$(11.87)
$ (2.93)
Revenues from product sales and services*
Cost of good sold and operating expenses
Sales Margin
•
Revenues per ton decrease was primarily driven by lower year-over-year market
pricing for metallurgical coal products and customer mix.
•
Cash cost per ton decreased due to a lower year-over-year cost rate, driven by
improved operating efficiencies.
*Excludes revenues and expenses related to domestic freight, which are offsetting and have no impact on
sales margin. Revenues also exclude venture partner cost reimbursements.
**Cash cost per ton is defined as cost of goods sold and operating expenses per ton less depreciation,
depletion and amortization per ton.
16
17. LIQUIDITY AND CAPITAL STRUCTURE
TOTAL DEBT AND CREDIT FACILITY1
(OUTSTANDING, IN BILLIONS)
$4.1
• Held $336 million in cash and
cash equivalents at December
31, 2013.
$3.4
$3.3
$3.3
Q3 2013
Q2 2013
• Generated $460 million in cash
from operations in the fourth
quarter of 2013.
$3.0
Q4 2013
Q1 2013
Q4 2012
Paid down $380 million in
borrowings from the revolving credit
facility during the quarter and
collected $103 million in cash
proceeds from equipment loan
financing arrangements.
17
1Source:
Company filings
• Reduced capital expenditures
by 64% to $119 million in the fourth
quarter of 2013.
• Exited the year with a Debt-toEBITDA leverage ratio of less
than 2.0x
18. Q&A
News releases and other information on the Company are available on the Internet at:
http://www.cliffsnaturalresources.com
Follow @CliffsNR on Twitter
20. 2014 OUTLOOK
Segment Expectations
U.S. Iron Ore
•
•
•
Sales volume of 22 - 23 million long tons
Cash cost per ton of $65 - $70
Depreciation, depletion & amortization of $7 per ton
Eastern Canadian Iron Ore
•
•
•
Sales volume of 6 - 7 million metric tons
Cash cost per ton of $85 - $90
Depreciation, depletion & amortization of $25 per ton
Other Guidance
SG&A and other expenses
•
Full-year SG&A of $185 million
Other outflows of $15 million
Depreciation, depletion & amortization of $600 million
•
•
Cash flows and capex
•
Full-year capex of $375 - $425 million
2014 Revenue Price Sensitivity
•
Asia Pacific Iron Ore
•
•
•
Sales volume of 10 - 11 million metric tons
Cash cost per ton of $60 - $65
Depreciation, depletion & amortization of $14 per ton
Based on Jan. YTD iron ore pricing of $128/ton,
the following is the sensitivity to a $10 change in
the benchmark price across our iron ore business
segments1:
− USIO: $105-$110 (+/- $2) per ton2
− ECIO: $95-$100 (+/- $9) per ton3
− APIO: $100-$105 (+/- $9) per ton4
North American Coal
•
•
•
•
20
20
20
Sales volume of 7 – 8 million short tons
Revenue per ton of $85 - $90
Cash cost per ton of $85 - $90
Depreciation, depletion & amortization of $15 per ton
1
The year-to-date iron ore price is the average 62% Fe seaborne iron ore fines price (CFR China) as of January 31, 2014. 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.
21. NON-GAAP RECONCILIATION – ADJUSTED EARNINGS
In addition to the consolidated financial statements presented in accordance with U.S. GAAP, the Company has presented Adjusted Net Income attributable to Cliffs’ shareholders,
which is a non-GAAP financial measure that management uses in evaluating operating performance. The presentation of this measure is not intended to be considered in isolation
from, as a substitute for, or as superior to, the financial information prepared and presented in accordance with U.S. GAAP. The presentation of this measure may be different from
non-GAAP financial measures used by other companies. A reconciliation of this measure to its most directly comparable GAAP measure is provided in the table below.
(In Millions, Except Per Share Amounts)
Three Months Ended
Year Ended
December 31,
December 31,
2013
NET INCOME (LOSS) FROM CONTINUING OPERATIONS
$
2012
(14.2)
$
2013
(1,901.4)
$
359.8
2012
$
(1,162.5)
Less non-cash items:
Goodwill impairment charges
(80.9)
Other impairment charges
(1,000.0)
(80.9)
(1,000.0)
(182.6)
Wabush-related costs*
(49.9)
(184.3)
(49.9)
—
(15.3)
—
(15.3)
Amapa impairment charge
—
(365.4)
MRRT valuation allowance
4.3
(314.7)
13.6
—
(226.4)
(24.4)
AMT valuation allowance
(67.6)
(365.4)
—
(226.4)
Tax impact
NET INCOME ATTRIBUTABLE TO CONTINUING
OPERATIONS, net of tax - ADJUSTED
INCOME and GAIN ON SALE FROM DISCONTINUED
OPERATIONS, net of tax
54.7
—
55.2
—
205.6
55.0
663.5
479.2
—
30.8
2.0
35.9
NET INCOME - ADJUSTED
205.6
85.8
665.5
515.1
57.5
252.4
51.7
227.2
(45.1)
(249.3)
(45.1)
(249.3)
LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST
Less special charges:
Noncontrolling interest adjustment
NET INCOME ATTRIBUTABLE TO CLIFFS
SHAREHOLDERS - ADJUSTED
PREFERRED STOCK DIVIDENDS
NET INCOME ATTRIBUTABLE TO CLIFFS COMMON
SHAREHOLDERS - ADJUSTED
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO
CLIFFS SHAREHOLDERS - ADJUSTED BASIC
Continuing operations
$
218.0
$
88.9
$
—
(12.8)
672.1
$
493.0
—
(48.7)
$
205.2
$
88.9
$
623.4
$
493.0
$
1.34
$
0.41
$
4.10
$
3.21
—
Discontinued operations
0.22
0.01
0.25
$
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO
CLIFFS SHAREHOLDERS - ADJUSTED DILUTED
Continuing operations
1.34
$
0.63
$
4.11
$
3.46
$
1.22
$
0.41
$
3.84
$
3.21
—
Discontinued operations
$
1.22
0.22
$
0.63
0.01
$
3.85
0.25
$
3.46
Weighted average number of shares:
Basic
Employee stock plans
Depositary Shares
Diluted**
21
21
21
153.0
142.4
151.7
142.4
0.7
—
0.5
—
25.2
—
22.1
—
178.9
142.4
174.3
142.4
*Wabush-related costs include write-downs of $28 million and $30 million in the fourth-quarter and full-year 2013, respectively. This was
attributed to a supplies inventory write down which is reported in Cost of Goods Sold on the Statement of Operations.
**Quarterly weighted-average diluted shares outstanding include shares that were considered antidilutive for calculating earnings per share.
22. NON-GAAP RECONCILIATION – EBITDA AND ADJUSTED EBITDA
In addition to the consolidated financial statements presented in accordance with U.S. GAAP, the Company has presented EBITDA and adjusted EBITDA, which are non-GAAP
financial measures that management uses in evaluating operating performance. The presentation of these measures is not intended to be considered in isolation from, as a
substitute for, or as superior to, the financial information prepared and presented in accordance with U.S. GAAP. The present ation of these measures may be different from nonGAAP financial measures used by other companies. A reconciliation of these measures to its most directly comparable GAAP measure is provided in the table below.
(In Millions)
(In Millions)
Three Months Ended
December 31,
Year Ended
December 31,
2013
Net Income (Loss)
2012
2013
2012
361.8
(14.2)
(1,870.6)
(1,126.6)
(44.6)
(59.8)
(179.1)
(195.6)
13.9
(491.1)
(55.1)
(255.9)
(144.0)—
(593.0)—
(526.0)
171.8 $
$
(1,175.7)—
1,189.0 —
$
(149.1)
(80.9)
(1,000.0)
Less:
Interest expense, net
Income tax (expense) benefit
Depreciation, depletion and amortization
EBITDA
(155.3)
$
Less non-cash items:
Goodwill impairment charges
Noncontrolling interest adjustment
(1,000.0)
45.0
Other impairment charges
249.0
45.0
249.0
(182.6)
Wabush-related costs*
(49.9)
(184.3)
(49.9)
(15.3)
—
Amapa impairment charge
Adjusted EBITDA
(80.9)
$
405.6 $
—
(365.4)
(9.4) $
—
(15.3)
(67.6)
1,492.1
(365.4)
$
1,017.2
*Wabush-related costs include write-downs of $28 million and $30 million in the fourth-quarter and full-year 2013, respectively. This was attributed to a supplies
inventory write down which is reported in Cost of Goods Sold on the Statement of Operations.
22
22
22
