Cliffs Natural Resources Earnings Call Insights: Bloom Lake and Terms of the Capital Structure

Cliffs Natural Resources Inc. (NYSE:CLF) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Bloom Lake

Mitesh Thakkar – FBR: My first question is just on Bloom Lake. Can you help us understand what has changed between the last quarter and this quarter that you have to increase the guidance range. Just a follow-up on that. If you’re spending additional CapEx versus your previous guidance. Is that in some way going to help you bring Bloom Lake, up a little bit?

Joseph A. Carrabba – Chairman, President and CEO: Yes, Mitesh, from a cash costs increase from 60% to 70%. We are looking – for 2013 we are looking at 70% to 75% for Bloom Lake with $15 of additional items related to stripping, opening up the new pit and continued cost for tailings in managements to get us to the $85 range for $29. From a capital standpoint, we are looking at the preliminary numbers of 700 million to 800 million was early in our process. As you went through the detailed plan through the year end, we needed invest additional capital relating to tailings management and water management and that was driving the additional increase in capital.

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Mitesh Thakkar – FBR: So, is it fair to say that you’ll need to spend another $400 million or so in 2014 to get the Phase II up and running? And can you also explain us a little bit on the schedule of that?

Joseph A. Carrabba – Chairman, President and CEO: Mitesh, this is Joe. I can talk about that. The work that’s continuing through this year is primarily around the in-pit crushing system, the conveyer belt to the plant and ore shed which again lowers cost as you might imagine versus trucking it into the facility as it goes in from there. It’s also an expansion of the tailings and water management system that goes with it. We’ve taken a long-term view rather than build short-term sales, if you will, to preserve capital. We want to get that footprint out there, particularly all this is gearing up to get ready for Phase II. So that’s where the bulk of the time and money will be spent this year. What we did stop was the concentrator and the load-out system from that. So, the next phase as we move into the new year, in 2014, will be essentially around those pieces, really executing mostly on getting the concentrator. The equipment is set for the most part. The mill is set. When we stopped them, we were still setting equipment and we were into the piping and starting with some of the wiring to go with it. So we need to complete the final stages of the concentrator and then build the load-out system the second load-out system for the rail facility. So that will come in the latter half. We could startup Phase II and get going on the ramp-up without the second load-out, so we’ll build that as the last stage of the construction.

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Terms of the Capital Structure

Timna Tanners – Bank of America Merrill Lynch: A lot to digest, so just want to ask a similar question, but more to the point of what happened in the last time we got an update from you to this time more and not in terms of Bloom Lake but in terms of the decision on in terms of the capital structure?

Terrance Paradie – SVP and CFO: Well, as we started looking at 2013 and looking at our balance sheet, we wanted to make sure that with volatile pricing environment that we have the financial flexibility and liquidity get through this cycle. So, with pricing and what happened in the third quarter through the fourth quarter to where we’re today, you can see the volatility. So when we looked at our balance sheet and we looked at our growth platform, we said, we need to shore up our balance sheet, and therefore that’s why we’re looking at from a capital standpoint, we went through the amendment process and where we’re at today.

Joseph A. Carrabba – Chairman, President and CEO: That’s right. Timna, I’ll just add. Probably what happened, the actual event that happened was in the third and fourth quarter when prices summed to below $100 for several weeks with that, and I think for most of the folks in the iron ore business, that did caused a time for pause and for people to reassess going forward on numerous projects. Where pricing was going to end up, nobody knew late in the third quarter or the fourth quarter, and we did exactly the same. That’s when we took some pretty immediate action on shutting down Phase II, so we can preserve capital to see where the pricing was going to end up with, and then have a look at our balance sheet. So you got to think about this balance sheet work that we’re doing right now as risk mitigation, not future forecasting of iron ore pricing. We’re still bullish on the cycle. We do still think there’ll be a lot of pricing volatility that we’ve seen given these new pricing regime that we’re only in the second or third year and we just want to make sure that balance sheet is in shape to handle another one of these jolts if it were to occur.

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Timna Tanners – Bank of America Merrill Lynch: That’s helpful one to get your perspective. And then drilling down a little bit more on Eastern Canada, can you talk to us about Wabush and how you’re looking at the future of Wabush, and then how long you think the discounting of the concentrate might have to continue, so that we can get a perspective on pricing more medium term.

Joseph A. Carrabba – Chairman, President and CEO: I think on Wabush we’re looking at a number of operating strategies. I think as we’ve reported back with that we are starting to hone in on that as always it’s as always just a trade-up of CapEx versus OpEx that goes with it. I do think with our – when we do look at the new Wabush, if you will, with that we’ve to reduce some CapEx pretty significantly for that facility, and we will probably be shrinking the footprint of Wabush. We should have that work completed this quarter and be able to get on with our operating we plan and be able to report back. On your reference to the discount at concentrator, I think that goes back to the Bloom Lake not the Wabush in such pellets. I think as we continue to move into the new markets as I discussed in my earlier comments, with that we are continuing to get test trials into the marketplace. We continue to diversify the product. And we will use the commercial tools that we need well into getting all of the product placed including going into the 14 million ton. So, it will come in a variety of ways to variety of different customers, where we are at with different stages of negotiation in trial.