Cliffs Natural Resources (CLF, Financial) is strategically executing various cost-cutting initiatives and improving its overall productivity. Also, the company is selling off its non-core assets such as Wabush Scully that have been underperforming for quite a time now, while exploring new sites with enhanced productivity and lower costs.
Besides, Cliffs has tactically developed a rich product mix that carries higher premium and better margin that should enhance its performance for the bottom line going forward. Moves such as these should help the company remain profitable amid declining iron ore prices globally. Cliffs managed to generate approximately $300 million in adjusted EBITDA through these initiatives in the last reported quarter.
Core business looks promising
Cliffs is experiencing strength in its core business in United States, Canada and Asia Pacific. Cliffs is strategically focusing on to reinforce the groundwork of its U.S. iron ore business as well as to rationalize its portfolio of assets. It expects to deliver approximately 22.00 tons of iron ore from its assets across United State this year. Also, the company’s long-term contracts with lower cash cost production are supporting the company to have better selling price. Its cash cost per ton is expected to remain $48 per ton in 2015. Moreover, the company remains confident in its product mix that should carry an advantage for the company going forward.
In addition, Cliffs expects its Canadian Bloom Lake mine to produce approximately 7 million tons of iron ore this year. The company remains on track to construct phase II for the Bloom Lake mine with reduced cash cost of $50 per ton. The phase II is being developed in partnership of three new equity offtake partners that will share capital expenditure. The Phase II is expected to produce 66% of high quality iron ore content, low silica concentrate and potential high performance DR pellets. It expects Bloom Lake phase II to dislocate its existing or new capacity seaborne market and offer its product to the type of customers who value its premium qualities for their steel making processes. This move should drive its growth and create wealth for the shareholders in the long-run.
Furthermore, its iron-ore business remains quite profitable in Asia-Pacific regions despite not-so-friendly pricing environment. The company continues to generate strong cash flow and healthy EBITDA from its Asia-Pacific iron ore. It generated about $46 million or EBITDA and had cash cost of $50 per ton in the reported quarter. Further, the company expects its Asia-Pacific production to remain healthy in the future that should enhance its growth.
Impressive moves
Cliffs is considering to sell its Australian assets that could be valued as much as $878 million. Cliffs expects these assets to have a negative sales margin going forward. This should help the company to reduce its debt and invest in potential assets in the future. Meanwhile, the company expects its Koolyanobbing mine to become major iron ore production in the future. The company said that they are not in a hurry to sell its Koolyanobbing though they have no plan to continue its production in Australia. The company plans to operate its Koolyanobbing mine for another six years. This mine had produced a very competitive iron ore product with a 50%-50% mix of high quality, 61% iron content lumps and 59.5% content fines in the reported quarter.
Conclusion
Cliffs Natural Resources looks good with plenty of strategic initiatives that should assist the company to withstand its growth amidst tough pricing environment for iron ore globally. The analysts have estimated CAGR of 75.90% for the next quarter. Its balance sheet carries total cash of $244.00 million and has total debt of $3.43 billion. It has operation cash flow of $564.0 million and leverage free cash flow of $456.95 million.
