What Are Cleveland Cliffs’ Key Sources of Revenue?

by Trefis Team
Cleveland-Cliffs Inc.
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Ever since activist hedge fund Casablanca Capital took control of Cliffs’ board in a proxy contest victory in 2014, the company’s management has been working toward its long-term objective of converting the company into a purely U.S.-focused iron ore miner. The U.S. iron ore operations are the company’s most profitable business segment and the company management prefers focusing solely on these operations in the long term. Cliffs’ Eastern Canadian iron ore operations filed for bankruptcy towards the end of 2014 and the company completed the sale of its U.S. coal mining operations toward the end of 2015. A sell-off of the company’s Asia-Pacific (APAC) Operations seems to be the next step to reshape Cliffs’ as a pure-play U.S. iron ore producer.

APAC Operations Likely to Cease to Exist By The End of 2018

The company’s APAC division reported a negative EBITDA for the first time in Q4 2017. The company had initially decided against extending the life of its Koolyanobbing iron ore mine based in Australia, which constitutes the company’s Asia Pacific Iron Ore division. This would have resulted in the ceasing of the mine’s operations from 2019 onward. However, as the company’s APAC operations no longer breaking-even, primarily impacted by China’s structural change with their increased demand for higher-grade iron ore fines, contrary to Cliffs’ access to lower-grade ores, the company has guided toward a possibility of the sell-off of its APAC mines by 2018.

U.S. Iron Ore Operations to Drive Revenue in 2018

Cliff’s U.S. operations have been a major strength for the company throughout the years. Revenue increased by ~20% in 2017, driven by an improving business environment in the U.S. Furthermore, an anticipated favorable stance taken by Pres. Trump regarding his directed probe of Section 232 coupled with the governments expected implementation of the $1.5 trillion infrastructure spending plan would give a significant boost to the company’s revenue and exhibit further strength to the company’s operations.

We expect the company’s revenue to grow by ~4% in 2018, being negatively impacted by the declining revenue from its APAC operations. You can view our interactive dashboard to better understand the break-up of the company’s revenue and the estimated figures for 2018.

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