The Rising Influence of Rising Affluence

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CLF Lowers 2010 Guidance for Coal Volume and Margin

[The reduction in North American coal volume for the full year is expected to be 0.6M tons or about 15% of the prior guidance of 3.9M tons. The reduction in pricing and slight increase in cost of sales leaves the North American coal segment with essentially zero GAAP profit for 2010, although the cash profit (excluding DD&A and acquisition-related costs) is expected to be $60M.

This PR came out after the close and, surprisingly, caused no sell-off in the AH session. CLF’s stock has been on fire, having more than doubled during the past 12 months and increased six-fold since Mar 2009.]

http://finance.yahoo.com/news/Cliffs-Natural-Resources-Inc-bw-1667814903.html?x=0&.v=1

›Cliffs Natural Resources Inc. Updates Full-Year 2010 North American Coal Outlook

Monday September 13, 2010, 6:05 pm EDT

CLEVELAND--(BUSINESS WIRE)--Cliffs Natural Resources Inc. (NYSE: CLF ) today announced that it is updating its full-year 2010 North American Coal outlook to include the Company’s recent acquisition of INR Energy’s coal operations and to adjust the production outlook for its legacy coal operations in West Virginia and Alabama.

Cliffs indicated it now expects total full-year 2010 North American Coal sales volume of 3.9 million tons, with an approximate sales mix of 3.4 million tons metallurgical and 500,000 tons thermal. Incremental tons related to the acquisition of INR Energy’s coal operations are anticipated to be approximately 500,000 tons metallurgical coal and 500,000 tons thermal coal. Cliffs reduced its 2010 sales volume expectation from its legacy coal operations in West Virginia and Alabama to 2.8 million tons, from a previous expectation of 3.4 million tons. The decrease is primarily driven by an adverse geological condition at Cliffs’ Pinnacle Mine, which has slowed production. As previously announced, the Company is installing a new automated longwall system at Pinnacle Mine in the fourth quarter 2010, which, combined with other capital projects, is anticipated to improve future production rates.

With additional thermal coal sales from the INR coal operations acquisition (which carry lower average selling price) and lower than previously anticipated spot sales of uncommitted met coal, Cliffs said it now expects North American Coal revenue per ton to be $115 - $120, a decrease from the prior guidance of $140 - $145 per ton. As a result of the production volume changes and acquisition-related accounting adjustments, per-ton costs are expected to increase to $115 - $120 per ton, from the prior expectation of $110 - $115 per ton. [I.e., the GAAP operating margin on North American coal is now expected to be approximately nil, down from $30/ton in the prior guidance.] Costs are expected to be impacted by lower fixed cost absorption given the decline in production at the legacy coal operations. The revised per-ton costs include non-cash expenses of approximately $16 per ton of depreciation, depletion and amortization and $2 per ton related to acquisition accounting adjustments for the INR Energy coal operations.

Joseph A. Carrabba, Cliffs’ chairman, president and chief executive officer, said, “This geological condition is unfortunate, but underground mining challenges are part of the inherent risks of coal mining. Fortunately, this adjustment represents a small impact to our full-year 2010 EBITDA expectations and does not alter our positive outlook for North American Coal in 2011.”

Cliffs currently anticipates North American Coal to achieve 2010 cash margin of over $60 million and nearly breakeven in sales [i.e. GAAP] margin.‹