Cliffs Natural Resources Inc. has reported fourth-quarter and full-year results for the periods ended Dec. 31, 2009. Full-year revenues of $2.34 billion decreased 35% from the previous year. The decrease was attributed to lower year-over-year demand and pricing for steelmaking raw materials due to the global economic crisis and recessionary environment in some of the Company's markets. Net income attributable to Cliffs shareholders for the year was $205.1 million, or $1.63 per diluted share, compared with $515.8 million, or $4.76 per diluted share, in 2008. The Company ended the year with $503 million in cash and equivalents.

Joseph A. Carrabba, Cliffs' chairman, president and chief executive officer, said, "Despite an extremely challenging environment through most of 2009, Cliffs achieved strong financial and strategic performances, delivering respectable earnings and ending the year in a position of strength. This was the result of exceptional execution by our management team, whose experience and professionalism allowed them to recognize 2009's challenges and opportunities ? and act to position the Company to benefit from each."

Fourth-Quarter Consolidated Results

Consolidated fourth-quarter revenues were $820.5 million, a decrease of 10% compared with $916.3 million in the same quarter last year. The decrease for the quarter was driven primarily by lower year-over-year pricing in each of the Company's businesses, somewhat offset by higher sales volumes in Cliffs' Asia Pacific businesses.

In the fourth quarter, Cliffs' sales margin declined 39% to $175.0 million, from $285.9 million in the same period of 2008. This decrease was also primarily the result of lower year-over-year pricing, offset partially by strong cost-control efforts, in each of the Company's business segments.

Consolidated operating income for the fourth quarter increased 6% to $155.6 million, from $147.3 million in the 2008 fourth quarter. Cliffs indicated its 2009 fourth-quarter operating income benefited from an $11.7 million gain on the sale of a non-core asset in Australia, while 2008 fourth-quarter operating income was negatively impacted by $90.1 million in costs related to a terminated merger agreement. Selling, general and administrative (SG&A) expenses declined 26% to $37.1 million during the quarter, reflecting lower year-over-year variable compensation, management salary reductions and other cost-reduction initiatives.

Fourth-quarter 2009 net income increased 101% to $108.2 million, or $0.82 per diluted share, from $53.9 million, or $0.47 per diluted share, in 2008. Cliffs noted that fourth-quarter 2009 net income was impacted by the $11.7 million pre-tax gain referenced above.
Cliffs also said its fourth-quarter 2008 net income included approximately $209.1 million pre-tax, or $1.43 per diluted share, of non-recurring items, including:
•    The $90.1 million pre-tax impact from terminated merger costs, referenced above;
•    $93.9 million pre-tax of negative mark-to-market adjustments related to currency hedging; and,
•    $25.1 million pre-tax related to the impairment of investment securities in two junior mining and exploration companies.
As a result of these items, fourth-quarter 2008 also included an income tax benefit of $29.4 million, compared with an income tax expense of $35.4 million in 2009.

North American Coal

For the fourth quarter, metallurgical coal sales volume was 748,000 tons, with average revenue per ton of $90.64. This compares with sales volume of 773,000 short tons in the fourth quarter of 2008 and average revenue per ton of $100.78. The decrease in revenue per ton was the result of a weak market for metallurgical coal throughout 2009 in North America and Europe, as well as a number of test shipments sold to customers in Asia at lower than full year average pricing.

Cost per ton for the fourth quarter was $102.01, down 8% from the year-ago period on 3% less sales volume. The 8% decrease in cost per ton is the result of efforts in 2009 to reduce costs at Cliffs' North American coal mines.

The net effect of the above factors was a fourth-quarter loss of $8.5 million at the sales margin level, compared with a sales-margin loss of $7.6 million in last year's fourth quarter.
For the full year, sales volume totaled 1.9 million tons. Revenue per ton was virtually flat with the prior year at $93.44, with cost per ton of $131.80. Costs throughout 2009 were impacted by low fixed-cost leverage.

North American Coal Production

Cliffs produced 729,000 short tons of metallurgical coal in the fourth quarter and 1.7 million tons for the full year.

Sonoma Coal

In the fourth quarter of 2009, Cliffs' share of sales volume for its 45% economic interest in the Sonoma Coal Project was 405,000 tonnes. Revenues and sales margin loss generated for Cliffs were $33.1 million and $2.7 million, respectively. Cliffs noted that unfavorable exchange rate variances during the quarter impacted costs at Sonoma by $9.3 million.

Cliffs' share of sales volume for the full year was 1.4 million tonnes. Revenues and sales margin generated during the year were $144.7 million and $21.4 million, respectively.

Outlook

Cliffs expects continued stabilization of the macroeconomic environment throughout 2010 and corresponding improvements for steelmaking raw material demand. The Company noted that annual price settlements for iron ore products in 2010 are not yet concluded. As such, Cliffs is using the following assumptions based on an average of widely published industry analyst estimates to provide expectations for its iron ore businesses. Cliffs' iron ore businesses use settlement prices as factors in determining individual customer pricing. Average realized price will be impacted by any deviation from the following assumptions:
•    Increases of 40% for world blast furnace iron ore pellet price settlements;
•    Increases of 35% and 30%, respectively, for Australian lump and fines benchmark price settlements; and,
•    North America hard coking coal prices of $125 per short ton FOB mine.
Based on the above assumptions, the following table provides a summary of Cliffs' 2010 guidance for its three business segments (with further detail below):

North American Coal Outlook

In its North American Coal business segment, Cliffs said it is increasing its sales volume expectations to approximately 3.4 million tons, up from a previous expectation of 3.0 million tons.

Cliffs begins 2010 with approximately 1.4 million tons of coal priced and under contractual obligation, or approximately 40% of its current annual production guidance. This coal is priced at an average of $110 per ton, which includes production earmarks to fulfill obligations for 2009 international contracts ending March 31, 2010. Cliffs indicated approximately 30% of its 2010 production volume is committed, but not yet priced, as benchmark pricing has not yet settled. The Company currently expects to sell the remaining 30% of uncommitted production on a spot basis throughout the year.

In 2010, Cliffs anticipates cost per ton for the year of approximately $105 - $110, with approximately $14 per ton comprised of depreciation, depletion and amortization.