Cliffs Jumps Most in Seven Years as Profit Tops Estimates

Updated on
  • Cliffs stock surges 25% in biggest advance since 2008
  • CEO sees `consistent signs of a real recovery' in U.S steel

Cliffs Natural Resources Inc., the biggest U.S. iron-ore miner, jumped the most in more than seven years after first-quarter earnings exceeded estimates and the company announced supply-contract renewals with steelmakers.

Cliffs rose 25 percent to $5.39 at 4 p.m. in New York, the biggest gain since November 2008. The closing price was the highest since June. The Cleveland-based company’s shares have more than tripled this year as commodities including iron ore rallied.

Cliffs cut its cash production costs by more than a quarter in the U.S. and Asia, and Chief Executive Officer Lourenco Goncalves said in a statement that “consistent signs of a real recovery” in the domestic steel market are helping bolster orders at clients. The company boosted its capital spending forecast as it develops a new iron-ore pellet with ArcelorMittal, and reached a supply agreement with U.S. Steel Canada.

Cliffs “has leverage to a rapidly improving domestic steel market,” Anthony Rizzuto, a New York-based analyst at Cowen & Co. LLC, said in a note Thursday.

Cliffs increased its 2016 capital expenditures expectation to $75 million from its previous projection of $50 million. The investment required to produce the new pellet with Luxembourg-based ArcelorMittal is part of the revised forecast, Goncalves said on a conference call with analysts.

Essar Steel Algoma said in a separate statement that its pellets contract with Cliffs was reinstated after the companies settled a contract dispute. Cliffs restarted its idled Northshore mining operation in the first quarter and announced plans to resume mining at its United Taconite operation later this year.

Earnings were $36.3 million before interest, taxes, depreciation and amortization, the company said in a statement Thursday. The result beat the $27 million average of eight analysts’ estimates compiled by Bloomberg. Net income attributable to Cliffs’ common shareholders was $108 million, or 62 cents a share, and included a $179 million gain on restructuring debt. Sales fell 32 percent to $305.5 million.

Cliffs maintained its outlook to produce about 17.5 million tons of iron ore in the U.S. this year and 11.5 million tons in its Asia/Pacific region.

The price of iron ore delivered to Qingdao, China, fell by 22 percent to average $48.65, according to data compiled by Bloomberg. The metal has jumped 44 percent this year.

Cliffs reduced its cost to produce iron ore in the U.S. by 26 percent to $48 per ton, the company said. Administrative costs were $28 million, down 3 percent from the first quarter last year.

(Updates with closing share price in second paragraph.)
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