Cleveland-Cliffs Reports Second Quarter 1999 Earnings 07/22:
Yesterday Cleveland-Cliffs Inc reported 1999 second quarter earnings of $7.8 million, or $.70 per diluted share, and 1999 first-half earnings of $10.5 million, or $.94 per diluted share. Comparable earnings in 1998 were $16.9 million, or $1.48 per diluted share in the second quarter, and $17.4 million, or $1.52 per diluted share in the first half.
The $9.1 million decrease in second quarter earnings and $6.9 million decrease in first-half earnings were mainly due to lower sales volume and price realization, increased costs of ferrous metallics activities, and higher interest expense. Partly offsetting were higher royalties and management fees, lower mine operating costs and lower administrative costs. Cliffs' iron ore pellet sales in the second quarter of 1999 were 2.4 million tons, compared to the record high 3.9 million tons sold in the second quarter of 1998. Pellet sales were 2.7 million tons in the first half, a 1.9 million ton decrease from 1998 first-half sales of 4.6 million tons.
John S. Brinzo, Cliffs' president and chief executive officer said, "We currently expect pellet sales in the second half of 1999 to be about 6.3 million tons, a 1.2 million ton decrease from the 7.5 million tons sold in the second-half of 1998. This is lower than our previous forecast and will reduce full year 1999 sales to about 9.0 million tons versus record sales of 12.1 million tons in 1998. Second-half results will be adversely affected by significant production curtailments that are expected to take place over the last five months of 1999. Although we are working aggressively to increase volume and reduce costs in order to mitigate the effects of the shutdowns, we anticipate second-half earnings to be below expectations."
With the high levels of steel pouring in from offshore, North American steelmakers operated at a sluggish 80 percent of capacity in the first half of 1999. Iron ore consumption by integrated steel producers was significantly below the first half of 1998 due to the outage of several blast furnaces. Rouge Industries, a major customer of Cliffs, incurred an extended shutdown of its blast furnaces due to an explosion on February 1st at the power generating facility that supplies Rouge. Cliffs is pursuing a business interruption claim under its property insurance program, which would partially mitigate the earnings impact of losing pellet sales to Rouge. Cliffs' reduced sales expectations in the second half of 1999 reflect the continuation of lower hot metal production at the steel plants of certain customers primarily due to unfairly traded semi-finished steel slab imports. Steelmakers using slabs in their finishing operations are displacing raw steel production from blast furnaces that consume iron ore pellets.
Iron ore pellet production at Cliffs-managed mines increased to 10.5 million tons in the second quarter of 1999 from 10.0 million tons in the second quarter of 1998. First-half production was 20.1 million tons, up from 19.4 million tons in 1998. The increases in 1999 are mainly due to higher production at the Tilden Mine, which experienced an equipment outage in 1998.
The increase in Cliffs' share of production, along with the 1.9 million ton decrease in first-half sales, combined to push Cliffs' June 30, 1999 pellet inventory to 5.1 million tons, a 2.6 million ton increase from the middle of 1998. Given the high inventory level and the sales forecast for the second half of 1999, Cliffs intends to substantially reduce its share of production in the second half of 1999. The exact schedule of production curtailments is dependent on the outcome of labor contract negotiations underway at the United Steelworkers Union represented mines. Cliffs' wholly-owned Northshore Mine will take down its smallest pelletizing furnace between July 22 and November 24, and tentatively plans to shut down the remainder of the operation from October 30 through November 24.
Labor contract negotiations are currently in progress at several steel company partners and customers and at four of the mines managed by Cliffs. The steel company contracts, and contracts at the Empire, Hibbing, LTV Steel Company, and Tilden Mines, expire on August 1. Talks to date have been constructive, and the Company is hopeful of a settlement prior to the contract deadline. A new five-year contract covering the bargaining unit employees of the Wabush Mine was ratified by the membership earlier this month.
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 six iron ore mines in North America and hold equity interests in five of the mines. Cliffs has a major iron ore reserve position in the United States, is a substantial iron ore merchant, and is beginning production of hot briquetted iron at a joint venture plant in Trinidad and Tobago.
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