What to Expect from Cliffs Natural Resources’ 4Q15 Earnings
(Continued from Prior Part)
Cliffs Natural Resources’ cost-cutting initiatives
Cliffs Natural Resources (CLF) reduced its capex (capital expenditure) budget for 2015 from $100–$125 million to $85–$95 million. The reduction was mainly due to the spending discipline across the business. This capex figure also includes the expenditure relating to the company’s coal assets that it divested. This should drive the further decline in capex going forward.
During its 3Q15 results, Cliffs Natural Resources (CLF) also reduced its estimate for SG&A (selling, general, and administrative) expenses from $120 million to $110 million due to reduced headcount and external services expenses. Sustainable long-term SG&A expenses could be lower than this number, as this includes some expenses to support the Asia-Pacific Iron Ore division and the North American Coal division.
Cliffs Natural Resources (CLF) reduced unit costs substantially for its U.S. (VTI) Iron Ore, or USIO, division, and its Asia Pacific Iron Ore, or APIO, division. The APIO division’s unit cash cost reduction to $26.9 per ton in 3Q15 was quite impressive. Any more favorable movement in the exchange rate could lead to further cost reductions.
Other updates
Investors will be watching Cliffs Natural Resources’ (CLF) 4Q15 results and earnings closely for any further updates on the venture into the direct reduced iron business and negotiations with ArcelorMittal (MT).
With the coal assets sale, CLF is not left with many options to generate cash except for generating operating cash flow, which seems like a daunting task in this depressed commodity price environment.
Other mining companies, including BHP Billiton (BHP), Rio Tinto (RIO), and Vale (VALE), have also embarked on various measures to divest their noncore assets. BHP Billiton did so through a spin-off in the form of a new company called South32 (SOUHY).
Rio Tinto and BHP Billiton form 10.7% and 17.8%, respectively, of the iShares MSCI Global Metals & Mining Producers ETF (PICK). CLF forms 3.6% of the SPDR S&P Metals and Mining ETF (XME).
For the latest updates on the iron ore sector, visit Market Realist’s Iron Ore page.
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