Cliffs Natural Resources: An operations overview



Cliffs Natural Resources

Cliffs Natural Resources (CLF) is mainly an iron ore producer. A small percentage of its revenue comes from metallurgical coal sales. Iron ore and metallurgical coal are key raw materials used in steel production.

Cliffs accounts for close to 46% of North America’s iron ore pellet supply. Pellets are produced through agglomeration and thermal treatment. Iron ore grades range from 67% to 72%.

Cliffs has operations in the United States, Eastern Canada, and Australia.

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Cliffs’s key segments

Cliffs’s key segments are organized mainly by product and geography. The following are Cliffs’s key segments:

  • U.S. Iron Ore
  • Eastern Canadian Iron Ore
  • Asia Pacific Iron Ore
  • North American Coal

Revenue and EBITDA contribution

An operations overview reveals that iron ore accounts for most of Cliffs’s production and earnings. In 3Q14, iron ore contributed 87% of the company’s total sales value. The rest of its total sales were from coal.

The company’s earnings before interest, tax, depreciation, and amortization (or EBITDA) contribution from iron ore is still higher. It’s close to 90% of the total. Coal contributes the rest. Out of its iron ore subdivisions, U.S. Iron Ore production is the key driver of the company’s EBITDA.

More than 50% of Cliffs’s sales are linked to the benchmark price. The benchmark price is 62% of cost and freight (or CFR) in China. Meanwhile, the remainder of sales is more stable, contributed by the U.S. Iron Ore segment. Long-term contracts make it much more predictable.

Key driver

Cliffs’s key driver, as for any other iron ore and metallurgical coal company, is global demand for the raw materials used to make steel. Much of this demand comes from emerging and developed economies. China and the United States are Cliffs’s two key markets.

The company’s main competitors operate in mostly the seaborne market and include BHP Billiton Limited (BHP), Rio Tinto plc (RIO) in Australia, and Vale SA (VALE) in Brazil. Cliffs makes up 4.63% of the SPDR S&P Metals & Mining ETF (XME), which provides broad exposure to the iron ore industry.


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