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Shares of iron ore and coal producer Cliffs Natural Resources were up 8.57 percent, at $6.97, at close of day Monday. The rise followed the release of the company’s results for Q4 2014, as well as 2014 as a whole.
Shares of iron ore and coal producer Cliffs Natural Resources (NYSE:CLF) were up 8.57 percent, at $6.97, at close of day Monday following the release of the company’s results for Q4 2014, as well as 2014 as a whole.
Q4 consolidated revenues came to $1.3 billion, down $231 million, or 15 percent, from the previous quarter, largely due to lower revenues from the company’s Asia Pacific Iron Ore and Eastern Canadian Iron Ore segments.
That might sound negative, but as Bloomberg points out, excluding $1.4 billion in writedowns and other one-time items, Cliffs recorded Q4 adjusted net income of $166 million, or $1 per share. That’s miles away from the 13-cent average predicted by 17 analysts polled by Bloomberg — no doubt a pleasant surprise for shareholders.
Lourenco Goncalves, however, has taken the results in stride. The chairman, president and CEO of Cliffs said in a statement, “[t]he execution of our strategy is starting to show results. We have demonstrated our discipline and commitment to fix Cliffs by exiting unprofitable operations, divesting non-core mines, reducing a significant amount of debt and focusing on cost reductions at all levels of the business.”
Goncalves took over Cliffs last year following a protracted battle with the company’s former management. Backed by Casablanca Capital, which then had about a 5.2-percent stake in Cliffs, he was keen to see the company spin off its international assets rather than pursue the more stringent cost-cutting measures the team at Cliffs was gunning for. In particular, Goncalves and Casablanca were opposed to the company’s exposure to the seaborne iron ore market via its Asia Pacific assets and believed the Bloom Lake project was dead weight.
As the exec emphasizes in Monday’s release, he and his team have held to their word. Indeed, in just the last week or so Cliffs has made two key announcements regarding its plan to get back on track, noting that during Q4 2014 and the beginning of January it reduced its net debt by over $400 million and stating that it is seeking creditor protection for Bloom Lake. The company also revealed plans to scrap its $0.15 quarterly dividend in an effort to speed further debt reduction.
In terms of what’s next, Cliffs said that in 2015 it expects sales and production volume of 22 million long tons for its US Iron Ore business, 11 million metric tons for its Asia Pacific Iron Ore business and 5.5 million short tons for its North American Coal business. It anticipates capex of $125 to $150 million for the year, and has reduced its SG&A expenses by about $70 million, to $140 million.
Finally, investors can of course expect Cliffs to continue its plan to jettison its non-US assets. As Goncalves concluded in Monday’s release, “[w]hile other mining companies will continue to suffer the consequences of an oversupplied seaborne iron ore market, Cliffs is focused on its core business in the United States.”
While that might sound harsh, it seems like the policies Goncalves and his team are following are paying off — certainly something not every iron ore producer can say in today’s tough markets.
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
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Casablanca Capital Wins Battle for Cliffs Natural Resources