CLIFFS DEC 2010 Investor Slide Deck
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Transcript of CLIFFS DEC 2010 Investor Slide Deck
OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIP
Cliffs Natural Resources IncCliffs Natural Resources Inc.
December 2010
OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIP
“S f H b ” St t t d th P i t S iti“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995
This presentation includes predictive information that is intended to be made as“forward-looking” within the safe harbor protections of the Private Securities LitigationReform Act of 1995. Although the Company believes that its forward-looking informationis based on reasonable assumptions, such information is subject to risks anduncertainties, which could cause materially different results. Important factors that couldcause actual results to differ materially from those in the forward-looking information areset forth in the Company’s most recent Annual Report and reports on Form 10-K andset forth in the Company s most recent Annual Report and reports on Form 10-K and10-Q, and news releases filed with the Securities and Exchange Commission. All reportsand news releases are available on Cliffs’ website www.cliffsnaturalresources.com.
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OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIP
Overview of Cliffs Natural Resources IncOverview of Cliffs Natural Resources Inc.
Cliffs Natural Resources (NYSE: CLF) (Paris: CLF) is an international mining and natural resources company A member of the S&P 500 it is the largest producer ofnatural resources company. A member of the S&P 500, it is the largest producer of iron ore pellets in North America, a major supplier of direct-shipping lump and fines iron ore out of Australia and a significant producer of metallurgical coal
Cliffs is executing a strategy designed to increase scale and diversity and focusedCliffs is executing a strategy designed to increase scale and diversity and focused on serving the world’s largest and fastest growing steel markets
The Company boasts a conservatively managed balance sheet with low debt and strong liquidityg q y
With core values of environmental and capital stewardship, our colleagues across the globe endeavor to provide all stakeholders operating and financial transparency as embodied in the Global Reporting Initiative (GRI) framework
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Cliffs Natural Resources Global FootprintCliffs Natural Resources Global Footprint
Access to high-growth Asian markets
Pricing correlates to Australian benchmark for lump and fines
Largest iron ore producer in North America
Significant position in North American metallurgical coal
A developing project in a low-cost mining district
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Cliffs’ Strategic ImperativesCliffs Strategic Imperatives
Building scale through diversification Global execution
S l Gl b l
Multiple Revenue Streams
Product Diversification
Geographic Presence
Competencies of the Firm
Outlook of Personnel
Global Scalability
Scale Through
Diversification
GlobalExecution
Operational ShareholderOperationalExcellence
Operational excellenceSafety
Shareholder returnsShareholder Value
Shareholder Returns
Technical Competencies
Operating Efficiencies
Risk Management
“Earning the Right to Grow”
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Impact of Strategic Execution($ in Millions)
$150
($ in Millions)
tion
Share price performance since January 2004
North American Coal
10%
Other4% North American
Iron Ore62%
$120
ines
s ev
olut Asia Pacific
Iron Ore24%
$60
$90
esB
usi
2005
Sales: $1,2032005
Sales: $1,7402006
Sales: $1,9222007
Sales: $2,2752008
Sales: $3,6092009
Sales: $2,342
2007 2008 2009
2004
2010E
2010ESales: $4.4B
$30
$60
gic
mile
ston
e
Acquired 80% of Portman Limited, then the third largest iron ore mining company in Australia
Acquired 30% interest in Amapá iron ore project in Brazil
Acquired 45% economic interest in Sonoma, hard coking and thermal coal mine in Queensland,
Acquired remaining stake in Portman Limited (20%)
Acquired remaining stake in United Taconite (30%)
A i d t k i G ld
$347mm in net proceeds from equity offering executed in May
Added to S&P 500 Index
Acquired remaining stake (73%) in Wabush Mines
Acquired Freewest Resources and Spider Resources, world-class chromite assets in
$0Jan 2004 Sep 2004 May 2005 Jan 2006 Sep 2006 May 2007 Jan 2008 Sep 2008 May 2009 Feb 2010
Stra
teg mine in Queensland,
Australia
Acquired PinnOak, Central Appalachian high-quality, low-volatile met coal mines
Acquired stake in Golden West, an Australian iron ore junior mining company
chromite assets in Ontario, Canada
Acquired INR Energy, high-volatile met coal and thermal coal
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Financial OverviewTrack record of growth ($mm) Strong balance sheet
Financial Overview
Revenue EBITDA
Credit and liquidity metrics 2008 2009
1
y
Total debt / EBITDA 0.6x 1.0x
Net debt / EBITDA 0.4x 0.0x
Debt / Total capitalization 23.0% 17.1%
Total debt ($mm) 525 525
Diverse end-market exposure (2004 – 2009)
Cash balance ($mm) 179 503
Availability under credit facility ($mm) 587 569
Japan 7%
United States45%
d
Other 8%
2004 2009
Canada19%
China 5% Other 1%
Revenue by end-market
China30%
Canada10%
United States76%
19%
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2010 Financial Highlights2010 Financial Highlights
Record-breaking nine months ended results:
- Revenues of $3 3 billion up 114%- Revenues of $3.3 billion, up 114%
- Net income of $627 million, up 547%
- Free cash flow of $481 million, up 575%
Over $1 billion in acquisitions:
- Wabush remaining stake $88 million
- Freewest acquisition $186 million
- INR Energy’s coal operations $757 million
North American Iron Ore shipments total 18.6 million tons, up 88%
North American Coal revenues of $323 million, up 158%
Asia Pacific Iron Ore sales margin of $383 million, up 468%
Strengthened balance sheet by raising $1.4 billion in public debt
The Company achieved investment grade rating from Standard and Poor and Moody’s
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Business Segment Overview
North AmericanIron Ore
62%Asia Pacific
North AmericanCoal9%
Other 6%
2009 Revenue
North American Iron OreManage and operate six North
North American Coal
Own and operate five
Asia Pacific Iron Ore
Operations include 100%-owned
62%Iron Ore23%
American mines located in Michigan, Minnesota, and Eastern Canada
Annual equity production capacity of 29.5mm tons of iron
Own and operate five metallurgical coal mines and one thermal coal mine in West Virginia and Alabama
2011 production capacity in excess of 7mm tons
Operations include 100% owned Koolyanobbing complex and 50% equity interest in Cockatoo Island
9mm tonnes of current capacity, with upgrade underway to reach 11mm tonnes by 2012ore pellets
Over 90% of 2010 volume committed under contract
excess of 7mm tons
A significant portion of revenue comprised of exports
tonnes by 2012
Direct-shipping lumps and fines ore sold on the seaborne market
($mm) 2007 2008 2009 ($mm) 20071 2008 2009 ($mm) 2007 2008 2009
Revenue $1,745 $2,370 $1,448
Sales margin 398 804 276
Tons shipped 22.3 22.7 16.4
Revenue $85 $346 $207
Sales margin (32) (46) (72)
Tons shipped 1.2 3.2 1.9
Revenue $445 $770 $542
Sales margin 96 349 87
Tonnes shipped 8.1 7.8 8.5
1 Partial year
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M&A and Development StrategyM&A and Development Strategy
Diversify business into other end-markets Cliffs’ strategy: geographic and mineral Diversify business into other end markets and other steel-related minerals
Expand geographically into low-political-risk geographies
gy g g pdiversification
Minerals Geographies
g g p
Objective is to strike a balance among cash-flow positive, profitable, commercial-stage businesses and targets in the early
NORTH ASIA PACIFIC SOUTH AMERICA
NORTH AMERICAN SEABORNE IRON ORE
SEABORNE MET COAL
stage of developmentNORTH
AMERICA (AUSTRALIA) AMERICA(BRAZIL)
AMERICAN MET COAL
SEABORNEIRON ORE
IRON ORE
SEABORNEFERROALLOYS
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INR Energy's Coal Operations AcquisitionINR Energy s Coal Operations AcquisitionDemonstrates Cliffs’ commitment to further diversify its business into coal
$757 million acquisition funded through available liquidity, including cash on hand and Cliffs’ $600 $ 5 o acqu s t o u ded t oug a a ab e qu d ty, c ud g cas o a d a d C s $600million credit facility
Transaction will increase Cliffs’ total global coal equity production capacity to nearly 11 million tons by 2012, from today’s current annualized equity production of approximately 7 million tons
Si ifi t t ll i l lSignificant metallurgical coal reserves
Expands global reserve base to over 232 million tons
Southern West Virginia multi-mine complex with features that are complementary to our North American Coal operationsAmerican Coal operations
Two underground continuous mining operations and one open surface mine
Assets include several metallurgical coal development mines
Increases Cliffs’ products portfolio through the addition of high-volatile metallurgical coal andIncreases Cliffs products portfolio through the addition of high volatile metallurgical coal and thermal coal
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INR Energy's Coal OperationsINR Energy s Coal Operations
Southern West Virginia Mining ComplexSouthern West Virginia Mining Complex
Metallurgical Coal Operations
Thermal Coal/PCI Operations
• Two operating underground • One operating surfaceTwo operating underground mines:1. Powellton2. Chilton-Dingess
One operating surface mine:1. Toney Fork #2
Developmental Projects
• Two additional underground metallurgical coal mines inmetallurgical coal mines in active development
• Several additional metallurgical coal mines in permitting phase
Operations located in near proximity to Cliffs
Pinnacle Mine
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Pinnacle Mine
OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIP
Ring of Fire – Chromite ProjectFreewest Resources and Spider Resources Acquisitions position Cliffs to become the leading North American primary chromite and ferrochrome producer and exporter
Ring of Fire Chromite Project
Customers would include global stainless steel producers
World-class chromite deposits within the “Ring of Fire” in Northern Ontario, Canada– 100% Black Thor– 100% Black Label– 73.5% Big Daddy
Anticipate mining 1 million to 2 million tonnes of high-grade chromite ore to produce 400 000 to 800 000 tonnes of ferrochrome annually with a >30-year mine life400,000 to 800,000 tonnes of ferrochrome annually with a >30-year mine life
Prefeasibility studies and initial First Nation discussions are underway; production anticipated to commence around 2015
Financed with stock and cashFinanced with stock and cash
12
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Ring of Fire – Chromite Project Capex Requirements
Estimated capex of $800mm required to develop the site
Ring of Fire – Chromite Project Capex Requirements
Options for financing capex include:– Internal cash flow– Joint-venture partner
Oth fi i l ti– Other financial options
Capex will be deployed only after certain project milestones are satisfactorily achieved
Cliffs has the opportunity to evaluate proceeding with the development of the assets over the next 5 years– Majority of capex spending would occur in 2013 and 2014
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Ring of Fire – Chromite Project g jWorld-Class Assets
CHROMITEDEPOSITS BLACK THOR
BLACK LABEL
DEPOSITS
BIG DADDY
14
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Industry Overview
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Steel Is a Large Growing Global Business
1,200
Steel Is a Large, Growing, Global BusinessIn 2009, China’s steel consumption was nine times that of the U.S.
S. Korea
800
1,000
onsu
mpt
ion
As countries industrialize, per capita steel consumption increases as GDP per capita expands through h i
JapanChina
Oceania400
600
Kg/
Cap
ita S
teel
Co the maturing process
U.S.Canada
MexicoBrazil
EU 27CISIndia
0
200
2009
0 10 20 30 40 50 602009 GDP Per Capita ($US 000s)
BRIC economic growth is substantial and appears inevitable.
Note: Size of bubbles represents size of absolute 2008 finished steel consumption in each respective countrySource: Metals Strategies, CIA World Factbook
16
OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIP
The Long Term Outlook Remains StrongThe Long-Term Outlook Remains StrongWorld steel demandWorld steel demand(millions of tonnes)
500
1,000
1,500
Source: Metal Strategies
0
500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E 2012E 2013E 2014E 2015E
% of crude steel production
Growth in global steel production using blast furnacesGrowth in global steel production using blast furnaces(millions of tonnes)
75%
100%
1,200
1,400
0%
25%
50%
75%
400
600
800
1,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E 2012E 2013E 2014E 2015E
17
Source: Metal Strategies
OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIP
North American Steel Producers Are Particularly W ll P iti d t P ti i t i E i R
U.S. steel supply/demand (mm tons)U.S. steel supply/demand (mm tons)Well-Positioned to Participate in an Economic Recovery
Production Consumption
110105 108 108
101 98107 111 114 116
133
119
135
122
110101
113118
123127
66
9298
65
89
Net imports as a % of
consumption17% 12% 19% 11% 9% 10% 9% 10% 10% 11% 11% 11%
2004 2005 2006 2007 2008 2009 2010E 2011E 2012E 2013E 2014E 2015E
Source: Metal Strategies
18
OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIP
Steel Center Inventories Remain Low Relative to Hi t i l L l
Months supplyTons (mm)
Service center inventoriesService center inventories
Historical Levels
Months supplyTons (mm)
5
14
16
18
3
4
10
12
24
6
8
10
2
2005 2006 2007 2008 2009 2010
Source: Metal Strategies
19
OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIP
Steelmaking Raw Materials Supply-Side ConsiderationsIron ore– New projects commissioned in countries with medium to high sovereign risk
Hi h d f t i i i ifi t it l d l t
Steelmaking Raw Materials Supply-Side Considerations
– High-end of cost curve requiring significant capital deployment– Suppliers farther inland from deep-water ports, economic logistics– Further tightening of Indian supply as increased export regulatory pressure
has emerged
Metallurgical coal– At top of cycle in 2008, Appalachian supplies declined
(mines deeper, seams thinner)– Environmental and safety regulations make permitting more difficult to secure– Other global metallurgical coal basins in challenging political geographies
(Mongolia, Mozambique, etc.)
20
OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIP
Pricing for Core Products Has Corrected Sharplyg p yIron ore prices ($/metric ton based on 64% iron content)
150175 Pellets Lumps Fines $149
75%
$153109%
($ price and % change)
0255075
100125150
$73(48%)$62
(33%)
$85(44%)
75%
$129108%
Metallurgical coal prices ($/metric ton)
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
E
Source: Cliffs and various industry publications/reports
($ i d % h )
50100150200250300
$209 *62%
$129
($ price and % change)
050
199
0
199
1
199
2
199
3
199
4
199
5
199
6
199
7
199
8
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
20
10
E
$129(57%)
* Latest quarterly Settlement
21
Source: Metal Strategies, equity research, Company estimates
OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIP
Business Unit OverviewBusiness Unit Overview
22
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North American Leader in Iron OreFirmly established as a critical supplier to the leading U.S.-based integrated steelmakersVirtually 100% of sales volume is committed under long-term supply agreements
North American Leader in Iron Ore
($mm) 2006 2007 2008 2009
Revenue $1 561 $1 745 $2 370 $1 448
Financial overview
supply agreementsFormula-based supply agreements capture steel prices, iron ore prices and wholesale inflation while mitigating volatilityCost effectively increased production base during most recent cycleOver 900 million tons of proven and probable reserves
Revenue $1,561 $1,745 $2,370 $1,448
Sales margin 327 398 804 276
Capex 81 64 53 43
DD&A 33 41 66 74
% capacity
A l Mi l
Equity production (MM gross tons) North America pellet production
Cliffs Managed45%
Iron Ore Co. of Canada
16%
Arcelor Mittal14%
U.S. Steel25%
16%
23
Source: Company data
OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIP
The North American Market Is Geographically ProtectedThe North American Market Is Geographically ProtectedArcelorMittal Mines
24
Source: Company data
OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIP
North American Iron Ore Pellet Contract PricingVirtually all pellet capacity under long-term contracts
Annual price adjustments are based on a variety of factors including:
North American Iron Ore Pellet Contract Pricing
— Seaborne pellet prices
— Various PPI indices
— Hot-band steel pricesp
— Contractual-based price increases, lag-year adjustments and capped pricing
A 48% decrease in pricing in 2009 resulted in average prices for Cliffs decreasing only 11%
2010 guidance: 27 million tons of sales volume $98 - $103 per ton2010 guidance: 27 million tons of sales volume, $98 $103 per ton
— Assumes 96% increase in seaborne pellet prices, $600 - $650 hot band steel
25
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North American CoalOverview
Cliffs will produce primarily high-volatile and low-volatile
North American Coal
($mm) 20071 2008 2009
Financial overview
Cliffs will produce primarily high volatile and low volatile metallurgical coal, with some thermal coal production
Reserve base of 225 million tons contains some of the highest quality metallurgical coal in the world
NAC capacity will be over 9 million tons in 2012
C l i ld i b th d ti d t k t
( )
Revenue $85 $346 $207
Sales margin (32) (46) (72)
Capex 11 97 21
Reserves by Mining ComplexCliffs North American Coal Production (millions of tons)
Coal is sold in both domestic and export markets
k
Geographic overview
DD&A 18 52 38
1 Partial year
Pi l10 Oak Grove19%
Pinnacle28%
4+
7+
4
6
8
10
INR Met30%
Oak Grove Mine
Pinnacle ComplexPinnacle MineGreen Ridge Mine
INR Mines:Powellton MineChilton-Dingess MineToney Fork #2 Mine
225 mm tons
INR Thermal23%
1.74
0
2
2009 2010E 2011E
Source: Company data
26
OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIP
Asia Pacific Iron OreBusiness overview
Asia Pacific iron ore operations located in Western Australia:
Financial overview
Asia Pacific Iron Ore
($mm) 2006 2007 2008 2009– Koolyanobbing mine (100% owned)
– Cockatoo Island Joint Venture (50% owned)
Serves the Asian iron ore markets with direct-shipping fines and lump ore, with 2012 capacity to reach 11mtpy
88mm tonnes of proven and probable reserves
($ )
Revenue $361 $445 $770 $542
Sales margin 87 96 349 87
Capex 32 39 68 96 88mm tonnes of proven and probable reserves
Near mine drilling program targeting substantial reserve additions
Customer overview (2009)
Cockatoo Island
Geographic overview Production (millions of tonnes)
DD&A 41 49 74 111
Cockatoo Island
Japan15%
China85%
Koolyanobbing
Complex
27
Source: Company data
OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIP
Sonoma CoalBusiness overview
45% economic interest, shipments commenced in 2008
Geographic overview
Sonoma Coal
2009 equity sales volume: 1.4mm tonnes
21.6 million tonnes of reserves
Mix of metallurgical and thermal coal
Supply agreements in place with JFE China Steel
Sonoma
Supply agreements in place with JFE, China Steel (metallurgical) and a Korean utility (thermal)
Moves by rail to the Abbot Point Bulk Coal Terminal for export
$142 million investment has returned a total sales margin gof $82 million since operations commenced two years ago
28
Source: Company data
OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIP
Amapá ProjectBusiness overview
30% owned by Cliffs, 70% owned by Anglo American
Geographic overview
Amapá Project
Consists of a significant iron ore deposit, a 192-kilometer railway connecting mine to port, and 71 hectares of real estate for a loading terminal
Majority of production committed under long-term supply agreement with operator of an iron oxide
Amapá Project
supply agreement with operator of an iron oxide pelletizing plant in Bahrain
$62 million equity loss in 2009 and expectations of profitability in 2010
Source: Company data
29
OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIP
In SummarySteel and the raw materials to make it are extremely important
— Building block of society
— Essential to modernization of Brazil, Russia, India and China
Raw materials will continue to be scarce in the long-termg
— Very few meaningful iron ore or metallurgical coal projects came online at the top of the last cycle
— Worldwide economic recovery is resulting in increased demand
Cliffs is well positioned in its current markets and to benefit from the current environment
— Active business development targeting program
— Strong balance sheet and significant financial flexibility
30
OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIP
Cliffs Natural Resources IncCliffs Natural Resources Inc.
OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIP
Appendix – 2010 Outlook SummaryAppendix 2010 Outlook Summary
OPERATIONAL EXCELLENCE | A WORLD LEADER | STEWARDSHIP
2010 Outlook Summary2010 Outlook Summary
North American North American Asia PacificIron Ore (1) Coal (2) Iron Ore
Current Previous Current Previous Current PreviousOutlook Outlook Outlook Outlook Outlook Outlook
Sales volume (million tons/tonnes) 27.0 27.0 3.6 3.9 9.0 8.8
Revenue per ton/tonne $98 - $103 $107 - $112 $115 - $120 $115 - $120 $115 - $120 $110 - $115
Cost per ton/tonne $65 - $70 $65 - $70 $120 - $125 $115 - $120 $55 - $60 $55 - $60
Sonoma Coal- Equity sales and production of 1.5 million tonnes
SG&A Expenses and Other Expectations- SG&A expenses of approximately $200 million
(1) Assumes a range of hot band steel pricing of $600 - $650 per ton.(2) North American Coal outlook includes the impact from INR Energy's coal operations.
- 60%/40% thermal-met mix- Average revenue per tonne of $120 - $125- Average cost per tonne of $80 - $85
Amapá Iron Ore Project- Profitable in 2010 for Cliffs’ equity interest
- Global Exploration costs of $30 million to $35 million- Chromite project costs of approximately $15 million- Full year tax rate approximately 30%- Depreciation and amortization approximately $325 million
Cash from operationsMore than $1 3 billion- More than $1.3 billion
Capital expenditures- Approximately $275 million
33