UPDATE 2-Cliffs Natural posts loss after writedown, cuts payout

Tue Feb 12, 2013 6:39pm EST

* Shares of Cliffs drop 7.5 pct after regular trading hours

* Dividend slashed by 76 pct, a reversal from last year

* Cliffs plans share offering to repay debt

Feb 12 (Reuters) - Cliffs Natural Resources Inc reported a quarterly loss on Tuesday, dragged down by a writedown in the value of a Canadian acquisition, higher costs and lower iron ore prices, prompting the miner to slash its dividend by 76 percent.

Shares of the Cleveland-based producer of iron ore and metallurgical coal dropped 7.5 percent to $33.86 in after-market trading. The writedown was announced previously, but the dividend cut was a surprise.

The reduced payout was a sharp reversal from last March, when Cliffs more than doubled its payout and pledged to focus on boosting shareholder returns.

The business also felt the impact of a sharp drop in iron ore prices, which plunged to $86.70 a tonne, in September from more than $180 a tonne in September 2011.

That partly reflected on falling demand from China, the world's largest producer and consumer of steel. Benchmark 62-percent grade iron ore has since recovered to about $155 a tonne.

"In their Canadian operations, which is really their platform for future growth, it cost on a cash basis $117 a tonne and they sold each ton at $101," said Morningstar analyst Daniel Rohr. "So when your main growth area is turning in those kind of numbers, it's not so hot."

The company also announced plans for a share offering, with proceeds earmarked to repay debt outstanding under its term loan facility. It has not set a final price for the offer.

Rohr said the company's share price were likely down on both the lackluster result and the plans to raise capital through an offering, which he estimated to be worth about $900 million.

SALES EXPECTATIONS

The net loss amounted to $1.62 billion, or $11.36 a share, compared with a profit of $185.4 million, or $1.30, a year earlier.

Excluding the impairment charge and other items, earnings fell to a stronger-than-expected $89 million, or 62 cents a share, compared with $213 million, or $1.49, a year earlier.

Cliffs, which supplies iron ore from its mines in Canada, the United States and Australia to steelmakers in North America and Asia Pacific, said it expected 2013 sales to be in line with its 2012 sales. It expects prices will remain volatile.

It is boosting its capital spending budget for the year to a range of $800 million to $850 million, up from a previous forecast of $700 million to $800 million, due to additional investments planned for its Eastern Canadian iron ore business.

The company's coal mining business is smaller than its iron ore segment, in part because it recently sold off its interest in Australia's Sonoma Coal. Almost all of Cliffs' production is metallurgical coal, also used by steelmakers.

In the fourth quarter, the North American coal business boosted sales volume by 94 percent over a year earlier, when weather damage hit production at one of its mines. But revenue per short ton fell 12 percent to $110.14.

BLOOM LAKE

Revenue generated by the miner in the fourth quarter slid to $1.42 billion from $1.53 billion, as a 14 percent fall in sea-borne iron ore prices offset increased sales volumes. Cost of goods sold rose 15 percent.

In January, the company said it would write down $1 billion in goodwill related to its takeover of Consolidated Thompson Iron Mines Ltd, which it bought for C$4.07 billion ($4.06 billion) in 2011.

The Consolidated Thompson acquisition gave Cliffs a mine and processing plant near Bloom Lake in Fermont, Quebec. Wuhan Iron & Steel Co, China's third-biggest steelmaker, owns a fourth of the property.

The writedown followed word in November that Cliffs would delay a planned expansion at Bloom Lake, and idle parts of its U.S. operations.

Bloom Lake is near its other Canadian operations in the Labrador Trough, the region that extends south-southeast through Quebec and Labrador. It is home to vast deposits of iron ore.

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