Cliffs Announces Outlook Post-Twister for Acquired Operations

Cliffs Natural Resources (NYSE:CLF) recently announced the outlook for its newly acquired Consolidated Thompson operations. ^[1] The company also released the outlook for its North American coal operations. These operations have been hit recently by severe weather – including a tornado – that led to the company deferring its annual outlook for this business division. A Fortune 500 company, Cliffs is the largest producer of iron ore pellets in North America and a major supplier of direct-shipping lump and fines iron ore out of Australia. It is also a significant producer of metallurgical coal. It competes with other international mining and natural resources companies including Vale (NYSE:VALE), BHP Billiton (NYSE:BBL) and Rio Tinto (NYSE:RIO).
We maintain a $103 price estimate for Cliffs Natural Resources stock, a notable premium to market price.

The Consolidated Thompson mines will run at full capacity this year

Cliffs announced that operations at the Bloom Lake Mine acquired from Consolidated Thompson recently are ramping up to reach 8 million tons of iron ore for the year. ^[1] Cliffs can claim production for seven-and-a-half months for 2011,  and so this is expected to result in sales of about 4.8 million tons of iron ore for the company’s North American iron ore division.

We include the iron ore sold from this mine in our estimates for iron ore sold to customers other than ArcelorMittal, Severstal and Algoma. We have already included 8 million tons sold from Bloom Lake mine in 2012 in our forecast.

But the North American coal division will see a loss in sales for the year

Cliffs coal operations at its Oak Grove mine in Alabama were hit by a tornado earlier this year, which significantly damaged its preparation plant and overland conveyor system. With underground operations largely unaffected, Cliffs was able to resume production within a fortnight of the storm, and began stockpiling the coal.

While repair costs for the overland system will be covered by the insurance settlements Cliffs’ will receive, the company estimates five to seven months of effort in fixing these systems. As a result, the sales for the division as a whole has been revised downwards from the 6.5 million tons earlier to 5.1 million tons. ^[1] As you can see from the chart above, the lower sales figure has negligible impact on our $103 price estimate for Cliffs’ share.

See our full analysis for Cliffs Natural Resources

1. Cliffs Announces Outlook for Recently Acquired Consolidated Thompson Operations and Update for North American Coal Business Segment, Cliffs Press Releases, Jun 2 2011 [↩] [↩] [↩]