Cliffs Natural Resources Inc. (NYSE:CLF) Q3 2018 Earnings Conference Call Transcript

Oct 19, 2018 • 10:00 am ET

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Cliffs Natural Resources Inc. (NYSE:CLF) Q3 2018 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Good morning, ladies and gentlemen. My name is Lisa, and I am your conference facilitator today. I would like to welcome everyone to the Cleveland Cliffs 2018 Third Quarter Conference Call. (Operator Instructions)

(Forward-Looking Cautionary Statements)

Today's conference call is also available and being broadcast at cleveland-cliffs.com. At the conclusion of the call, it will be archived on the website and available for replay. The Company will also discuss results excluding certain special items. Reconciliations for Regulation G purposes can be found in the earnings release, which was published this morning.

At this time, I would like to introduce Tim Flanagan, EVP and CFO. Please go ahead.

Executive
Tim Flanagan

Thanks, Lisa, and thanks to everyone for joining us this morning. I'll start the call with some remarks on the quarter before turning it over to Lourenco for his comments.

For Q3, we reported total Company adjusted EBITDA of $250 million, a 66% increase from our EBITDA performance in the prior year's third quarter. Through just the first three quarters of 2018, we've already generated more EBITDA than we did in the full year for each of the last three years. Adjusted EBITDA from the US Iron Ore business was $280 million, reflecting continued industry high margins and reliably healthy demand from our customers. Sales volume of 6.5 million long tons came in line with our expectations as Great Lakes' blast furnaces remained persistent in their need for our pellets. Shipments will pick-up even further in the fourth quarter as the mill stock up ahead of winter, and we expect to ship the remainder of our 21 million long tons full year sales outlook.

Our Q3 USA ore pellet price realization of $106 per long ton represented a 17% improvement over the prior year. This was down from the previous quarter, mostly because we had a couple favorable one-time events last quarter and higher freight rates this quarter. We are still at the higher end of the guidance range on a year-to-date basis due to favorable customer mix as well as the positive impact of HRC price adjustments we had in the first and second quarters.

As we always note, our revenue rate expectation calculation is for the full year and is unchanged from the prior quarter as year-to-date average commodity prices remain pretty steady and freight rates have increased. With about 80% of the year's index pricing in the books, we are fairly confident there won't be much volatility to this calculation for the rest of the year. That said, we expect fourth quarter realizations to bring the full year rate more towards the midpoint of that range. The calculation is based on year-to-date averages of our relevant metrics applied to the full year. These averages are $839 per short ton of HRC, $69 per metric ton for the IODEX and $58 per metric ton to the Atlantic Pellet Premium as well as other management assumptions, including customer mix, freight and PPIs.

From a cash cost standpoint, as we guided to in the