Impressive Cost-Cutting in Cliffs’ Asia–Pacific Iron Ore Segment



Cliffs’ Asia–Pacific iron ore

Cliffs Natural Resources’ (CLF) current direct exposure to the seaborne iron ore trade only remains in its APIO (Asia–Pacific iron ore) division. Management wants to exit this division and region as soon as possible. The company idled the high-cost Windarling sites in May 2015.

Currently, Cliffs is operating out of two sites in APIO, Koolyanobbing, and Mount Jackson. This will also expedite Cliffs’ exit from the Asia–Pacific region, as the mine life decreases to 3.5 years, compared with 4.5 years for Windarling.

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Volume declines, costs improve

APIO’s volume for the 2Q15 decreased 5% to 2.8 million tons, compared with the same period last year. The decline is due to the scheduled port maintenance activities.

Costs, on the other hand, improved compared with the prior year’s quarter. Cash costs for APIO came in at $34.30 per ton for 2Q15, which are 33% lower year-over-year (or YoY). Cash costs for June were still lower at $28 per ton. Reduced mining and administrative costs, along with a favorable exchange rate, led to this decline. Favorable exchange rates helped costs to the extent of $7 per ton in 2Q15.

The depreciation of the Australian dollar against the US dollar helped lower the production and operating costs of all Australian iron ore producers, including Rio Tinto (RIO), BHP Billiton (BHP), and Fortescue Metals Group (FSUGY). This should continue to positively impact its APIO results going forward. The Brazilian real is also depreciating against the US dollar, which is favorable for Vale SA (VALE).

Cliffs Natural Resources forms 3% of the SPDR S&P Metals and Mining ETF (XME). XME invests in global metals and mining companies.

APIO guidance maintained

The volume guidance for the Australian business was maintained at 11 million tons. Based on an exchange rate of $0.77 to the Australian dollar, Cliffs also maintained the cash cost guidance at $35–$40 per ton.


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