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Strong Seaborne Iron Ore Prices Boost CLF’s Asia-Pacific Division

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Nov. 1 2016, Updated 9:04 a.m. ET

Asia-Pacific Iron Ore division

Cliffs Natural Resources’s (CLF) current direct exposure to the seaborne iron ore trade is in its APIO (Asia-Pacific Iron Ore) division. The remaining life for this operation is close to four years.

The APIO segment directly competes in the seaborne iron ore market with iron ore giants like BHP Billiton (BHP), Rio Tinto (RIO), Vale (VALE), and Fortescue Metals Group (FSUGY). Vale forms 2.9% of the iShares MSCI Brazil Capped ETF (EWZ).

Seaborne iron ore prices have held firm since the start of 2016 despite market participants calling for a downturn.

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APIO volumes

  • The sales volumes for APIO in 3Q16 totaled 2.8 million tons, which is a decline of 4% year-over-year.
  • The year-over-year decline was mainly due to shipment timings as a result of adverse weather conditions at the port at the end of September.
  • Cliffs Natural Resources (CLF) maintained its 2016 sales volume for APIO at 11.5 million tons, which is flat year-over-year. The product mix is expected to be 50% lump sum and 50% fines.

Realized prices

Due to more stable seaborne iron ore prices in 3Q16, Cliffs Natural Resources’s realized prices for APIO also stood their ground. Its realized revenue per ton was $42.90, which is 2% higher sequentially. On a year-over-year basis, the growth was 10%.

During the company’s 2Q16 earning call, CLF’s CFO, Kelly Tompkins, said that a seaborne price higher than $50 per ton allows APIO to be a “healthy cash flow generator” for the company.

During the 3Q16 earnings call, Cliffs Natural Resources’s CEO, Lourenco Goncalves, said that it will continue to operate APIO through the four years of the remaining mine life. He added, “To the extent we locate more saleable or in pricing remains constructive, this could modestly increase.”

In the next part of this series, we’ll look at Cliffs Natural Resources’s cost-cutting efforts.

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