MESSAGE FROM THE CEO
During my first quarterly earnings call at Cliffs, I explained how certain misperceptions about the Company are damaging to the business. Once again, I will state these important facts about Cliffs.
Fact #1: There is no major iron ore producer in the world whose business model is tied less to seaborne iron ore, than Cliffs. USIO does not compete in the seaborne market. More than half of Cliffs’ iron ore production is sold through stable long-term contracts that are built on formula-based pricing, which helps to mitigate the volatility of seaborne pricing. Even under current market conditions, our U.S. iron ore business realized an average price above $100 per ton in Q3-2014 which is very good against an average spot price of $90 per ton.
Fact #2: Cliffs U.S. Iron Ore business unit is a low cost producer. Directly comparing our tailor-made pellets to seaborne iron ore fines is incorrect and misleading. In reality, our U.S. franchise is cost competitive, has low capex requirements, healthy cash flows, strong margins, and generates more than half of our total revenues. Cash production costs in the third quarter of 2014 were $59 per ton, which included the cost to mine, concentrate, pelletize, and transport product to Great Lakes blast furnaces. Our deep understanding of our customer’s unique pellet needs has led to co-dependent and long-term relationships.
Fact #3: Cliffs is as cost competitive in Australia as the majors. Our efficient and well-run Asia Pacific iron ore business yields a rich product mix that commands a higher premium from Asian customers. Cash production cost in Q3-2014 was in the low $50 per ton range, and we expect costs to reduce further in 2015 to $48 per ton. Over the remaining Life of Mine, the Capex requirements are estimated to only be $50 million for the next six years which equates to roughly $0.93 per ton. In comparison, the Big Three miners’ strategy to ramp up production will not only escalate their operating costs, but also result in massive capital needs over the next few years.
Looking ahead, we are focused on delivering on our commitments to our customers and partners, while restoring and enhancing value for shareholders.
Chairman, President & Chief Executive Officer
Cliffs Natural Resources Inc.