Cleveland-Cliffs Reports First Quarter 2001 Results04/27:
Wednesday Cleveland-Cliffs Inc reported a net loss of $9.6 million or the first quarter of 2001. In the first quarter of 2000, Cliffs recorded a net loss of $3.5 million.
John S. Brinzo, Cliffs' Chairman and Chief Executive Officer, said, ``The deterioration of fundamentals in the North American steel industry is continuing to have a significant impact on our iron ore business. Our principal focus in 2001 is increasing cash flow to improve our financial condition and position the Company to take advantage of opportunities and deal with the restructuring of the North American steel industry. Financial results will be adversely impacted as we take the necessary actions to minimize year-end inventory levels in a period of excess production capacity.''
First quarter results are historically not representative of annual results due to limited shipments of iron ore pellets on the Great Lakes during the winter months. The higher loss in the first quarter of 2001 was mainly due to higher mine costs, lower pellet sales volume and a greater loss from Cliffs and Associates Limited (CAL), partly offset by a higher average price realization on pellet sales. Higher operating costs were principally due to costs associated with production curtailments at the Northshore and Hibbing Mines and higher natural gas and diesel fuel prices. Pellet sales in the first quarter of 2001 were .5 million tons versus .7 million tons in 2000. The average price realization increased in 2001 primarily due to the mix of sales under various contracts. First quarter 2001 results benefited from the sale of non-strategic lands and also included a $1.9 million pre-tax charge for restructuring activities.
Total iron ore pellet production at Cliffs-managed mines decreased to 6.9 million tons in the first quarter of 2001 from 9.8 million tons in 2000. Cliffs' share of first quarter production was 2.8 million tons, unchanged from 2000.
Following is a summary of production tonnage for the first quarter of 2001 and 2000:
(Tons in Millions)
First Quarter 2001 First Quarter 2000
Total Share Total Share
----- ----- ----- -----
Empire 1.9 .7 1.8 .4
Hibbing 1.0 .2 2.0 .3
LTV Steel Mining - - 1.8 -
Northshore .9 .9 1.1 1.1
Tilden 1.7 .7 1.7 .7
Wabush 1.4 .3 1.4 .3
----- ----- ----- -----
Total 6.9 2.8 9.8 2.8
----- ----- ----- -----
----- ----- ----- -----
The 2.9 million ton decrease in total production was principally due to the permanent closure of LTV Steel Mining Company at the beginning of 2001, and production curtailments at the Northshore and Hibbing Mines. On January 9, 2001, Northshore idled its smaller pelletizing line for an estimated nine-month period to reduce full year 2001 production by approximately 700,000 tons. Hibbing operations were idled for six weeks in the first quarter. Cliffs' share of production in the quarter was unchanged despite the curtailments at Northshore and Hibbing due to the Company's increased ownership of the Empire Mine.
Difficult conditions in the North American steel industry have reduced the iron ore pellet requirements of Cliffs' customers and
some of the mines' steel company partners. Production curtailments have been implemented at the Northshore and Hibbing
Mines in Minnesota, and reductions at the Empire and Tilden Mines in Michigan are scheduled this summer.
While there continues to be uncertainty regarding the pellet requirements of certain customers, Cliffs' pellet sales for the full year
2001 are currently expected to approximate 11 million tons. This assumes about three million tons of sales to LTV Corporation
after considering LTV's recent announcement that it will close one of its blast furnaces in Cleveland by the middle of 2001.
While Cliffs' sales projection for 2001 assumes LTV will purchase its iron ore pellet requirements from the Company, LTV has
neither affirmed nor rejected its ore purchase contract with Cliffs. Separately, LTV continues to meet its obligations as a 25
percent partner in the Empire Mine, but has neither affirmed nor rejected its ownership in Empire.
On April 23, 2001, Algoma Steel Inc., a 45 percent owner of the Tilden Mine, announced that it was initiating a financial
restructuring and, as part of the process, had obtained an Order for protection under the Companies' Creditors Arrangement
Act in the Ontario Superior Court of Justice. The Order protects Algoma from creditors during the restructuring process. The
Company expects Algoma to continue to meet its obligations at the Tilden Mine.
Given Cliffs' production capacity of 12.8 million tons, and the plan to significantly reduce inventory by the end of the year, the
Company currently expects to curtail its share of mine production by about 4 million tons, or roughly one-third of capacity.
With fixed costs representing approximately one-third of total production costs, Cliffs' financial results for the balance of the
year will be significantly impacted by costs associated with the production curtailments.
Brinzo said, ``Cliffs is taking decisive actions to reduce its cost structure, strengthen its competitiveness and ensure that the
Company remains well positioned during this very challenging period.'' To partially mitigate the adverse impact of production
curtailments, the Company has intensified its cost reduction efforts, including the following:
- A 20 percent salaried workforce reduction at the Empire Mine in January.
- A 25 percent reduction in the Cleveland Office staff in early March.
- A 15 to 20 percent salaried workforce reduction at the Hibbing Mine in April.
- Employment levels and organizational structure are being evaluated at other locations.
- Outsourcing of various support services is being implemented.
- We are working with suppliers of purchased materials and equipment to further reduce prices.
- Continuous improvement and employee involvement efforts as part of our ForCE 21 initiative are beginning to show
benefits in operating efficiencies and maintenance costs.
- All mine operations are taking actions to minimize energy costs. The adverse impact of high energy costs, which
penalized Cliffs' operating earnings by $14 million in 2000, is continuing in 2001.
Brinzo concluded, ``While we cannot control the marketplace for iron ore and other ferrous metallics products, we can
minimize adverse impacts by producing the highest quality products at the lowest possible cost. I am confident that Cliffs will
successfully meet the challenges and take advantage of the opportunities that are ahead in 2001.''
Cleveland-Cliffs is the largest supplier of iron ore products to the North American steel industry and is developing a significant
ferrous metallics business. Subsidiaries of the Company manage and hold equity interests in five iron ore mines in Michigan,
Minnesota and Eastern Canada. Cliffs has a major iron ore reserve position in the United States and is a substantial iron ore
Reported by: Cleveland-Cliffs Inc.