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Cleveland-Cliffs’s Cash Costs Were Higher in Q2, but No Worries

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Unit cost progression in USIO

Cleveland-Cliffs’s (CLF) cash cost of goods sold for its US Iron Ore (or USIO) division was $62.30 per ton for Q2 2018, an increase of 4.8% YoY (year-over-year) and 9.2% sequentially. The increase in cash cost was mainly due to the favorable shift in product mix. Due to increased customer demand, the company is producing a higher percentage of the higher-cost, higher-margin Mustang pellet, which it originally expected. It believes that will be a net positive for the company. Higher energy, labor, and royalty rates also impacted the company’s cash costs during the current quarter.

The company maintained its cash cost guidance at $58–$63 per long ton for 2018 and also expects its cash cost in the second half of 2018 to be consistent with the second quarter.

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CLF’s Asia-Pacific Iron Ore division

Cleveland-Cliffs (CLF) ended its direct exposure to the seaborne iron ore trade through its APIO (Asia-Pacific Iron Ore) division as of June 30. The company previously announced on April 6 that it expected to close its Australian operations by June 30. CLF’s CEO has noted several times that due to the strategies followed by seaborne iron ore miners (PICK) such as BHP Billiton (BHP), Vale (VALE), Rio Tinto (RIO), Fortescue Metals Group (FSUGY), and Roy Hill, the iron ore market is in rough shape. Moreover, CLF’s Australian operations produced sub-benchmark grade iron ore, which was attracting discounts in the current market, making the business unprofitable.

Discontinued operations

Cleveland-Cliffs has moved the results for its Asia Pacific unit to discontinued operations starting in the second quarter. The closure-related charges for contract terminations and severance and actual operating losses from CLF’s remaining sales during the quarter made up most of its $64 million loss from discontinued operations.

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