Cleveland-cliffs Inc. · NYSE:CLF
Cleveland-cliffs — Cliffs Natural Resources — Investor Day (July 2012)
78 slides from Cleveland-cliffs's investor day presentation, Jul 31, 2012
Slide 1: Cliffs Natural Resources 2012 Analyst and Investor Day
CLIFFS NATURAL RESOURCES 2012 ANALYST AND INVESTOR DAY Exhibit 99.1
Slide 2: Safe Harbor Statement
“SAFE HARBOR” STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This presentation and accompanying oral remarks contain statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward- looking statem
Slide 3: Today's Agenda
1:00pm – 1:20pm Macro Overview and Cliffs in Canada J. Carrabba 1:20pm – 1:50pm Total Shareholder Return and Bloom Lake Financials L. Brlas 1:50pm – 2:10pm Bloom Lake Optimization and Operations D. Blake 2:10pm – 2:35pm Q&A and Break 2:35pm – 2:50pm Global Exploration C. Smith 2:50pm – 3:30pm Buildi
Slide 4: Joe Carrabba
CLIFFS NATURAL RESOURCES JOE CARRABBA
Slide 5: Our Strategic Imperatives Remain the Same
Building scale through diversification • Multiple Revenue Streams • Product Diversification • Geographic Presence Operational excellence • Safety • Technical Competencies • Operating Efficiencies Global execution • Competencies of the Firm • Outlook of Personnel • Global Scalability Shareholder retu
Slide 6: Safety performance: injury frequency and severity rates
All Injury Frequency Rate Total Severity Rate 59.36 2008 2009 2010 2011 2012 2012 - - v1; Tangs 2008 © 2009 2010-2011. 2012 Total Reportable Incident Rate Total Lost Time Incident Rate 40) 350 347 257 230 30 ZN. 26s 288 20 iso (185 asp 20 15 117 10 00 2008 ©2009 2010-2011. 2012 2008 = 2009-2010 2011
Slide 7: Cliffs Is a More Mature, Dynamic and Sophisticated Company in 2012
CLIFFS IS A MORE MATURE, DYNAMIC AND SOPHISTICATED COMPANY IN 2012 • International mining and natural resources company, member of the S&P 500 • Diverse, global footprint with major operations in the Upper Midwest and Appalachian United States, Eastern Canada and Western Australia • Developing an ad
Slide 8: New Sources of Supply: Megatrends
New Sources Of Supply MEGATRENDS: CHINA WILL KEEP GROWING, AFRICAN SUPPLY WILL CONTINUE TO FACE BARRIERS INCREMENTAL CHANGE STRUCTURAL SHIFT SMOOTH TRANSITION VOLATILE EVOLUTION
Slide 9: 2012 China Crude Steel Production Growing but Volatile
ANNUALIZED 2012 CHINESE STEEL PRODUCTION BY MONTH (MILLION METRIC TONS) SAMPLE OF CORRESPONDING MEDIA HEADLINES (JANUARY – JUNE) 2012 CHINA CRUDE STEEL PRODUCTION GROWING BUT VOLATILE JANUARY Slow Construction Sector in China Weighs on Steel Demand FEBRUARY Global Steel Production up in February as
Slide 10: Environment in China Is Dynamic, Full of Contradiction
ENVIRONMENT IN CHINA IS DYNAMIC, FULL OF CONTRADICTION • Fundamentals remain strong; property market crackdown now a year old – inflation in check • The People’s Bank of China reserve requirement and interest rate cuts positioning economy for accelerated second half growth • China Iron and Steel Ass
Slide 11: Past Industrialization Patterns Show China Volatility Imminent
PAST INDUSTRIALIZATION PATTERNS SHOWS CHINA VOLATILITY IMMINENT Source: The World Bank; Global Insights; National Bureau of Statistics China; ISI Emerging Markets; Japanese Statistics Bureau Japan (1945-1985) China – Base Case China – Low Scenario China – High Scenario South Korea (1970-2006) China
Slide 12: Overview – Global Iron Ore Supply
OVERVIEW – GLOBAL IRON ORE SUPPLY • The Big 4 are committed to short-term, large scale expansions of about 500mtpa in total • In addition, they are close to decisions on further expansions of over 500mtpa in total • Miners outside of the Big 4 have matched the Big 4’s expansion rates to date, but ma
Slide 13: Opposing Forces Impacting Supply Expansions
FORCES SUPPORTING SUPPLY RESPONSE FORCES HINDERING SUPPLY RESPONSE OPPOSING FORCES IMPACTING SUPPLY EXPANSIONS • Window of high prices encourages accelerated expansions and new entrants • Government approvals more stringent and more time intensive • Investors and boards pressure to return capital as
Slide 14: Monitoring Mining Developments in Africa
MONITORING MINING DEVELOPMENTS IN AFRICA Source: Global Iron Ore - Intierra, AME Iron Ore Outlook • Many deposits and prospects but little meaningful supply online • Lack of deep water ports, rail or required stability of political environments • Most likely project, Simandou, would have first produ
Slide 15: Long-Term Strategy Maintained Through Pricing Volatility
USIO 42% APIO 21% ECIO 20% 2005 2012F 21% CAGR NAC 14% 1 Other 3% SINCE 2005 WE HAVE MAINTAINED OUR LONG-TERM STRATEGY THROUGH TIMES OF PRICING VOLATILITY AND UNCERTAINTY APIO 14% $1.7B $6.4B SALES PRICE Iron Ore Price Share Price Share Price and Iron Ore Price data provided up until July 15, 2012 •
Slide 16: Developing a Value-Based Management System to Drive TSR
DEPLOY CLIFFS WIDE 2 ENGAGE TSR AS MANAGEMENT TOOL 1 INTEGRATE TSR INTO CONTROL SYSTEMS 3 ADOPTION OF TSR WILL ENHANCE THE ABILITY TO OPTIMALLY MANAGE TRADE OFFS AND MAXIMIZE SHAREHOLDER VALUE DESCRIPTION • Align goals with top-quartile relative TSR against our peers • Ensure discipline and prioriti
Slide 17: Typical Environmental Permitting and Approvals Process
TYPICAL ENVIRONMENTAL PERMITTING AND APPROVALS PROCESS… 4½ - 5 YEARS SCOPING STUDY PREFEASIBILITY STUDY (PFS) FEASIBILITY STUDY (FS) EARLY COMMITMENT PHASE GEOLOGY ~ 60% METALLURGY ~15% OTHER ~ 10% ENGINEERING ~ 15% CONSTRUCTION PHASE ENTIRE CAPITAL INVESTMENT SYSTEM (CIS) OCCURS WITHIN TYPICAL APPR
Slide 18: CIS Projects by Study Phase
CIS PROJECTS BY STUDY PHASE EXPECTED NEXT IPR Q1, 2013 Q3, 2012 Q2, 2013 IN PROGRESS COMPLETE CANADA ASIA PACIFIC CONCEPT SCOPING PREFEASBILITY FEASIBILITY EXECUTION DECAR BLOOM LAKE III BLOOM LAKE II KOOLYANOBBING EXPANSION Indicates project did not complete all stage-gates of CIS process due to ti
Slide 19: Summary
SUMMARY • Megatrends intact and Cliffs’ strategic direction positioning company to capitalize on Eastern Canada and Australia expansions • While volatile, Cliffs’ view is China continues as engine of demand for steelmaking raw materials, incumbent producers will benefit • Marginal cost producers wil
Slide 20: Laurie Brlas
CLIFFS NATURAL RESOURCES LAURIE BRLAS
Slide 21: Assessing How to Use Cash to Maximize Shareholder Value
Potential Uses Market Context Sustainability SINCE THE SECOND HALF OF 2011, WE HAVE BEEN ASSESSING HOW WE COULD USE OUR CASH TO MAXIMIZE SHAREHOLDER VALUE • Assessed current project pipeline • Analyzed drivers of relative valuation for Cliffs vs. peers • Reviewed potentially available M&A opportunit
Slide 22: Free Cash Flow: Sources and Uses of Cash in 2012
FREE CASH FLOW SOURCES AND USES OF CASH IN 2012 ($B) Dividends Debt Issuance/ (Repayment) & Other Financing CAPEX Operations Cash on Hand 12/31/11 Expected Cash on Hand 12/31/12 Operating Financing Cash generated Cash consumed 1.Operating cash flow includes effect of non-cash operating activities, i
Slide 23: Capital Allocation Prioritizes Organic Growth and Dividends
MOVING FORWARD, CAPITAL ALLOCATION TO BE DETERMINED BY CONTRIBUTION TO TOTAL SHAREHOLDER RETURNS ORGANIC GROWTH DIVIDENDS DEBT REDUCTION M&A BUYBACKS CAPITAL ALLOCATION STRATEGY PRIORITIZES ORGANIC GROWTH AND DIVIDENDS PRIORITY • Support and reinforce Cliffs’ profitable organic growth potential • Ab
Slide 24: Driving Shareholder Value with Sale of Sonoma
DRIVING SHAREHOLDER VALUE WITH SALE OF SONOMA DRIVING SHAREHOLDER VALUE WITH SALE OF SONOMA Total Investment IRR of 26% SONOMA INVESTMENT (US$M) 2007 - Total investment includes initial investment and capital expenses
Slide 25: Eastern Canada Positioned to Become Largest Business Segment
PHASE II – GROWTH TO 14.5 MTPA FUTURE GROWTH BEYOND 22 MTPA A B 3.3 5.6 6.0 14.5 22.0 20.0 A B EASTERN CANADA POSITIONED TO BECOME OUR LARGEST BUSINESS SEGMENT • Phase I “process learnings” and incorporated into Phase II startup • Overland conveyor investment • Mine development and tailings basin ex
Slide 26: Previous Marketing and Sales Strategy for Bloom Lake Concentrate
3 PRIOR TO CLIFFS’ CONTROL, MARKET STRATEGY DRIVEN BY FINANCIAL NECESSITY Wisco introduced to help meet capital needs 1 2 Initial marketing approach to use commodity traders Three customers acquired with CT acquisition 2012 Analyst & Investor Day PREVIOUS MARKETING AND SALES STRATEGY FOR BLOOM LAKE
Slide 27: Achieve Customer and Geographical Diversity
Identify ‘priority’ customers beyond Wisco base tons Technical evaluation of Bloom Lake concentrates Industrial plant trials with priority customers Alternative markets and other opportunities CLIFFS STRATEGY: ACHIEVE CUSTOMER AND GEOGRAPHICAL DIVERSITY • Promoting high Fe content and low impurities
Slide 28: Customer and Geographic Diversification for Bloom Lake Concentrate
BOTH CUSTOMER AND GEOGRAPHIC DIVERSIFICATION ACHIEVABLE FOR BLOOM LAKE CONCENTRATE PRODUCT FUTURE SALES DIVERSIFICATION TARGETS 2012 CURRENT ESTIMATE (PHASE I) TARGETED ANNUAL SALES (PHASE I & II) Sales Tons by Region Sales Tons by Region 6.3 14.5
Slide 29: Diversification Will Result in Higher FOB Prices and Cash Margins
$135 $144 $144 $50 $59 $69 DIVERSIFICATION WILL RESULT IN HIGHER FOB PRICES AND CASH MARGINS $ / t Note: For FOB China sales assumes $135/ton for 66% Fe and 5.5% SiO2 with $60 cash costs. For FOB Other Asia and FOB Europe assumes $9/ton Pricing Premium to $144/ton for 66% Fe and 4.5% SiO2 with $65 c
Slide 30: Anticipated Sales Margin Contribution from Bloom Lake
$900 $400 $1,800 $900 ANTICIPATED SALES MARGIN CONTRIBUTION FROM BLOOM LAKE WITH EXECUTED MARKETING AND OPERATIONAL PLANS (millions) Revenue EBITDA PHASE I – 7.2 MILLION TONS @ 4.5% SILICA (millions) Revenue EBITDA PHASE I & II – 14.5 MILLION TONS @ 4.5% SILICA $0 $500 $1,000 $1,500 $2,000 $0 $500 $
Slide 31: Bloom Lake Has Significant EBITDA Generation Potential
BULL CASE BASE CASE BEAR CASE Platts 62% Fe Price: Weighted Average Freight: Value in Use/Fe Premium for 66% Fe Bloom Concentrate: Cash Costs: BLOOM LAKE HAS SIGNIFICANT EBITDA GENERATION POTENTIAL EBITDA 14.5 Mpta RUN RATE $150/ton $20/ton $16 $60/ton $135/ton $20/ton $10 $62.5/ton $110/ton $20/ton
Slide 32: Opportunity Lies in Delivering Bloom Lake Cash Costs
3.3 5.6 5.7 7.2 $95 $63 $18 OPPORTUNITY LIES IN DELIVERING BLOOM LAKE MINE’S CASH COSTS PRODUCTION ESCALATION TO 7.2 MT RUN RATE BY DECEMBER, 2012 CASH COST PROGRESSION 2.0 3.0 4.0 5.0 6.0 7.0 8.0 2012F Dec $7 $4 $3 Current Cash Costs Volume Contractor Spend Tailings Management Transhipping Estimate
Slide 33: Bloom Lake Cash Costs Breakdown
Supplies & Materials 14% Labor 17% Energy 8% Mining 24% Logistics 37% Supplies & Materials 13% Labor 15% Energy 7% Mining 32% Logistics 33% OPPORTUNITY LIES IN DELIVERING BLOOM LAKE MINE’S CASH COSTS (CONT.) CURRENT STATE - $95/TON LONG-TERM ESTIMATE - $63/TON
Slide 34: Critical Next Steps
Achieve targeted production volumes and scale Human Resources Phase II preparations CRITICAL NEXT STEPS • Transition from contract to permanent labor force • Fly-in, Fly-out roster • Housing Management • Ore Characterization • Tailings • Logistics • Capitalize on lessons learned • Construction of Ph
Slide 35: Dave Blake
CLIFFS NATURAL RESOURCES DAVE BLAKE
Slide 36: Significant Long-Term Value Creation Potential for Bloom Lake
SIGNIFICANT LONG-TERM VALUE CREATION POTENTIAL FOR BLOOM LAKE One Billion tons of resources Operating concentrator Rail and port facilities Phase II project to double production by end of 2013
Slide 37: Increase in Resource Base Positions Bloom Lake for Future Expansion
Future Expansions Total Ore (million metric tonnes) INCREASE IN RESOURCE BASE POSITIONS BLOOM LAKE FOR FUTURE EXPANSION • Leverage Phase I & II infrastructure • No third crusher required ($50 million) • Mature mine development, tailings basin and logistics base 1,051 1,200 Acquisition Model Resource
Slide 38: Bloom Lake Concentrator Flow Sheet
BLOOM LAKE CONCENTRATOR FLOW SHEET CRUSHING MILLING FILTRATION SPIRAL SEPARATION
Slide 39: Producing a Lower Silica Product at Bloom Lake
Cutter Closing Decreases Silica in Concentrate PRODUCING A LOWER SILICA PRODUCT AT BLOOM LAKE • Ore Control – Mine plan is sequenced to optimize plant feed targets over time • Grind Control – Circuit optimized to increase silica liberation • Spiral Classifiers – Cutter bar position, water addition a
Slide 40: Phase I Key Stabilization Steps
TAILINGS BASIN ORE CHARACTERIZATION LOGISTICS PHASE I KEY STABILIZATION STEPS • Develop and implement Mature Development Block process • Focus on consistent concentrator feed to improve quality and lower costs • Expand tailings basin to support future growth • Lower operating costs through lower hea
Slide 41: Understanding Ore Characterization
DEVELOP MATURE OPERATIONAL BLOCK MODEL DATA ANALYSIS & INTERPRETATION PREDICTABILITY AND UNDERSTANDING UNDERSTANDING ORE CHARACTERIZATION • Test work on drill core • Chemical and metallurgical testing • Real-time mine to mill analysis of crude to concentrate behaviors • Improve consistency of concen
Slide 42: Redesign of Tailings Basin Supports 30 Years of Operations
A A B ORIGINAL TAILINGS BASIN DESIGN LIMITED LONG-TERM GROWTH REDESIGNED TAILINGS BASIN WILL SUPPORT GROWTH PLANS A B REDESIGN OF TAILINGS BASIN SUPPORTS 30-YEARS OF OPERATIONS Original design (2011) Re-designed (2012 – 2014) • Undersized and insufficient storage for future expansions • Footprint ad
Slide 43: Logistics Improvements at Dock and Train Unloading
DOCK TO VESSEL IMPROVEMENTS IMPROVEMENTS TO TRAIN UNLOADING CROSS CONVEYORS OVER LAST 6 WEEKS, VESSEL TURN TIME AVERAGE DOWN TO 4.5 VS. 9-10 DAYS WITH ORIGINAL LOGISTICS – POSITIONING MINE FOR EXECUTION OF GROWTH PLANS SYNERGIES BEING ACHIEVED FROM ORIGINAL BUSINESS PLAN • Physically tie the two doc
Slide 44: Learning from Phase I Designed into Phase II
LEARNING FROM PHASE I DESIGNED INTO PHASE II Improved Safety Design Hydrosizer Startup and Test Work Spiral Control and Optimization Mill Liner Design Mine Ore Control Plan Crusher Design Mill Cube Control
Slide 45: Approximately $1,400 Million in Capital to Spend
APPROXIMATELY $1,400 MILLION IN CAPITAL TO SPEND THROUGH 2013 • Tailings management solution for future growth • Cross-conveyors upgrades at the port • Additions to mobile fleet, shovels and drills CAPITAL SPEND TIMELINE (IN MILLIONS) CAPITAL SPEND BREAKOUT Concentrator Equipment Tailings Mine Devel
Slide 46: Focus on Fundamentals, Stabilize, Optimize and Develop
22 mtpa 14.5 mtpa 7.2 mtpa FOCUS ON FUNDAMENTALS, STABILIZE, OPTIMIZE AND DEVELOP KEY TO REALIZING FULL POTENTIAL OF ASSETS 2012-2013 2013-2014 2015-2016 • Permission to Operate • Mine Plan maturation • Maintenance Process • Phase II Startup & Stabilization • Maximize Phase I capabilities • Scoping
Slide 47: Strategic Fit: In Summary
STRATEGIC FIT Long-term Eastern Canada strategy and project value intact STABILIZATION OF OPERATIONS Focus on fundamentals for long-term sustainable operations FUTURE GROWTH Over 80% increase in reserve base from acquisition model IN SUMMARY
Slide 48: Cliff Smith
CLIFFS NATURAL RESOURCES CLIFF SMITH
Slide 49: Cliffs Global Exploration Group
CLIFFS GLOBAL EXPLORATION GROUP • Select group of geologists and exploration professionals located in Cliffs’ three primary geographies (North America, South America and Australia) • Current emphasis on near mine, Cliffs-owned properties in Eastern Canada, Western Australia, and Decar nickel project
Slide 50: Global Exploration Group Activities Are Measured and Focused
Brazil Canada Australia Mongolia DECAR PROJECT 15,000m drilling program Progress to Scoping Study LABRADOR TROUGH Bloom Lake Drilling Hobdab target initiated PERU Drilling campaign CHILE Airborne surveys, drilling campaigns AUSTRALIA Drilling campaigns in WA and near current operations MONGOLIA Magn
Slide 51: Worldwide Exploration Budget in 2012 Is $90 Million
7% 7% 84% 5% 5% 23% 14% 51% Met Coal (C) WORLDWIDE EXPLORATION BUDGET IN 2012 IS $90 MILLION Low Risk (Australia, Canada, Chile) Moderate Risk (Peru, Mexico) Moderate/Higher Risk (Mongolia) Iron (Fe) Nickel (Ni) Copper/Gold (Cu-Au) Manganese (Mn) BUDGET ALLOCATION BY COUNTRY RISK BUDGET ALLOCATION B
Slide 52: Exploration Work Outside of Bloom Lake in Labrador Trough
EXPLORATION WORK OUTSIDE OF BLOOM LAKE IN LABRADOR TROUGH LAMELEE AND PEPPLAR LAKE • Located 45km south of Bloom Lake • Drilling program first began in 2006. Total of 130 holes completed • Approximate 1 billion tonnes reported in compliance to NI43-101 standards • Deposits dominated by magnetite wit
Slide 53: Decar Project – Potential Game Changing Nickel Deposit
DECAR PROJECT - POTENTIAL GAME CHANGING NICKEL DEPOSIT • Cliffs’ 51% controlled interest in North Central British Columbia nickel-iron alloy deposit - not a nickel laterite or sulphide deposit • NI 43-101 estimate complete - 1.2 billion ton inferred resource at 0.113 Ni • Mineralization makes deposi
Slide 54: Decar Nickel Project – North Central British Columbia
DECAR NICKEL PROJECT - NORTH CENTRAL BRITISH COLUMBIA
Slide 55: High-Quality Concentrate Suitable for Many Potential Buyers
• Expected produced concentrates would contain no difficult impurities • Suitable and desirable feed into ferronickel plants with high value-in-use properties • Geographic location provides access to ferronickel plants in Asia • Small-scale smelting tests in South Africa demonstrate performance in c
Slide 56: Next Steps for Decar Nickel Project
CONTINUE TO ESTABLISH “LICENSE TO OPERATE” SCOPING STUDY UNDERWAY DECISION ON WHETHER TO MOVE TO PREFEASIBILITY NEXT STEPS FOR DECAR NICKEL PROJECT • Cliffs’ CIS process • Additional drilling to further define high-grade area • Metallurgical testing planned for Q3/Q4 • Scoping completion expected in
Slide 57: Bill Boor
CLIFFS NATURAL RESOURCES BILL BOOR
Slide 58: Chrome Ore End Markets
CHROME ORE 6% CHARGE/HIGH CARBON (HC) FERROCHROME LOW CARBON (LC) FERROCHROME Stainless Steel (Cr Input) Alloy Steel Others END USE MARKETS 66% 13% 13% 8% 94% Source: Heinz Pariser; Cliffs Analysis CHROME ORE END MARKETS METALLURGICAL (FeCr) Transport Consumer Durables Industrial Equipment Refinerie
Slide 59: Global Stainless Steel Consumption by End Use Category
GLOBAL STAINLESS STEEL CONSUMPTION BY END USE CATEGORY - Source: CRU, Cliffs analysis STAINLESS STEEL GROWTH 4.1% 5.0% 4.1% 5.3% 2.1% 1.6% 5.2% 5.7% 0.3% 4.1% 2011 -2016 CAGR 5% 6% 6% 9% 9% 11% 16% 17% 21% Refineries & Tubing Other Transport Motor Vehicles Chemical Manufacturing Other Equipment Hous
Slide 60: Global Stainless Steel Growth
GLOBAL STAINLESS STEEL GROWTH • Total stainless steel production is expected to rise through 2016 to 42.2 million tons from 33.6 million tons • Primarily driven by increasing income and economic growth in BRIC countries Source: CRU, Cliffs analysis 2012 F 2013 F 2014 F 2015 F 2016 F GLOBAL STAINLESS
Slide 61: Austenitic and Ferritic Stainless Steel
AUSTENITIC FERRITIC Source: Cliffs analysis AUSTENITIC • Consists of Cr (16-26%), Ni (5 - 22%) and iron • Recycled material provides about 40% of Cr content • Primary applications: food processing equipment, aeronautics, railway equipment, industrial piping and vessels Trend: Increasing use of scrap
Slide 62: Chromite Ore and Ferrochrome Production and Consumption
CHROMITE ORE AND FERROCHROME PRODUCTION AND CONSUMPTION Note: Map above excludes production and consumption from Turkey, Russia and ROW Source: Metal Bulletin, Heinz Pariser • SIGNIFICANT CHROMITE ORE AND FERROCHROME SUPPY DEFICITS EXIST IN NORTH AMERICA, EUROPE, AND CHINA
Slide 63: South Africa Dominant Global Player Across Value Chain
FECR PRODUCTION 2010 MILLION METRIC TONNES 13% 11% 7% 21% 42% 25% 11% 9% 13% 48% CHROMITE ORE OUTPUT 2010 MILLION METRIC TONNES 1 SOUTH AFRICA DOMINANT GLOBAL PLAYER ACROSS VALUE CHAIN, WHILE CHINA FERROCHROME SMELTING CAPACITY IS GROWING 1 Incl. HC/LC/MC 2 Includes UG2 ore output 3 Includes Zimbabw
Slide 64: Structural Factors Limiting Supply
STRUCTURAL FACTORS LIMITING SUPPLY SOUTH AFRICA COST PRESSURES ARE RESHAPING THE INDUSTRY Local Factor Cost Evolution Escalation of input costs Electricity and labor costs eroding competitiveness Regulatory Environment Potential government policy changes Potential export levy on chrome could reduce
Slide 65: South Africa Electricity Prices to Increase by ~75%
SOUTH AFRICAN INDUSTRIAL END USER TARIFF (AVERAGE YEARLY TARIFF) Real 2012 USDc per kWh +76% Likely scenario KEY FACTORS AFFECTING ELECTRICITY PRICES SOURCE: IRP (March 2011 version); EIU Inflation; Cliffs analysis Low case scenario High case scenario SOUTH AFRICA COST ESCALATION – ELECTRICITY PRICE
Slide 66: Cliffs Ferrochrome Product Competitive in the US Market
2012 2017 2022 2.50 2.00 1.00 0.50 1.50 2.50 2.00 1.50 1.00 0.50 CLIFFS FERROCHROME PRODUCT COMPETITIVE IN THE US MARKET… SOURCE: McKinsey chromite ore cost model, Cliffs analysis 10.0 Mt 12.3 Mt Operating capacity Million metric tonnes Operating capacity Million metric tonnes Operating capacity Mil
Slide 67: ... and Competitive in Distant Markets
2012 2017 2022 CIF China cost Nominal USD/lb Cr contained Operating capacity Million metric tonnes Operating capacity Million metric tonnes Operating capacity Million metric tonnes 0.50 1.00 2.00 1.50 ... AND COMPETITIVE IN DISTANT MARKETS SOURCE: McKinsey chromite ore cost model, Cliffs analysis 0.
Slide 68: Cliffs Concentrate Will Be Cost Competitive
2012 2017 2022 28.6 Mt 35.0 Mt Operating capacity ¹ Million metric tonnes Operating capacity ¹ Million metric tonnes Operating capacity ¹ Million metric tonnes CLIFFS CONCENTRATE WILL BE COST COMPETITIVE 42.8 Mt South Africa Other UG2 (Pt byproduct) Cliffs Demand SOURCE: McKinsey chromite ore cost m
Slide 69: Cost Curve Trends Will Drive Higher Industry Pricing
LIFE OF MINE REALIZED PRICING ASSUMPTIONS Concentrate ($/ tonne) Concentrate grade Ferrochrome ($/ lb cr content) FeCr grade $390 43% $1.40 58% COST CURVE TRENDS WILL DRIVE HIGHER INDUSTRY PRICING Note: Price outlook excludes impact of proposed South Africa export duties Source: Concentrate Pricing
Slide 70: Resource Estimates Have Exceeded Acquisition Basis by 96%
RESOURCE CATEGORY (Tons in Millions) ACQUISITION Q1 / 10 CURRENT Q1 / 12 OPPORTUNITY EXISTS TO FURTHER INCREASE RESOURCE FROM BLACK THOR AND INCORPORATE POTENTIAL FROM BIG DADDY AND BLACK LABEL RESOURCE ESTIMATES HAVE EXCEEDED ACQUISITION BASIS BY 96% CLIFFS PROJECT BASED ON THE BLACK THOR DEPOSIT •
Slide 71: Successful Tests in South Africa and Ontario Have Reduced Technical Risk
SUCCESSFUL TESTS IN SOUTH AFRICA AND ONTARIO HAVE REDUCED TECHNICAL RISK MINERAL PROCESSING • Metallurgical testing completed at Mintek (South Africa) confirmed the process flowsheet and material balance FERROCHROME PRODUCTION • 200 ton pilot furnace test at Mintek (South Africa) and small scale tes
Slide 72: Project Scope Locked in for Feasibility
MINE 8:1 Strip Ratio CONCENTRATOR TRANSPORATION ~100 70 ton trucks per day 334 km road CHINA ORE MARKET 1,100 KTPA FeCr PROCESSING FACILITY 4 DC Furnaces 60 MW each 560 KTPA FeCR WASTE ROCK 33,200 KTPA TAILINGS EXISTING RAIL SLAG 770KTPA FLUX 220 KTPA REDUCTANT 350 KTPA 1,100 KTPA 1,220 KTPA 4,150 K
Slide 73: Marketing Strategy Based on Geographies Offering Best Opportunity
Concentrate FeCr China U.S. Europe, Japan, Korea and Taiwan NEARLY 50% OF FECR PRODUCTION ALREADY COMMITTED THROUGH INDICATIONS OF INTEREST Natural market for chromite concentrates, as majority of future demand growth resides in China Competitively low delivered cost of FeCr Proximity and strong exi
Slide 74: Cliffs Cash Costs in Chrome Ore and Ferrochrome Will Be Competitive
CLIFFS CASH COSTS IN CHROME ORE AND FERROCHROME WILL BE COMPETITIVE TOTAL DELIVERED COST PER LB = $0.70 TOTAL DELIVERED COST PER TON = $200 OPEX BY ELEMENT CONCENTRATE OPEX BY ELEMENT FECR
Slide 75: The Overall Timeline Is Driven by Permitting
24.4mt CONSTRUCTION $2.1 – 3.0 B FEASIBILITY PHASE $200 M $400 M EARLY WORKS Permit Q3 2014 THE OVERALL TIMELINE IS DRIVEN BY PERMITTING • $90M OF FEASIBILITY STUDY COSTS WILL BE EXPENSED CAPITAL SPEND EXPECTATION
Slide 76: Expected Returns 14%–17%
EXPECTED RETURNS 14% - 17%* WORLD-CLASS DEPOSIT POSITIONS THE PROJECT FOR ADVANCEMENT AND SIGNIFICANT RETURNS KEY ASSUMPTIONS • Capital Expenditures between $2.7 - $3.6 billion • Ferrochrome: • Volumes: 560 ktpy • Price**: $1.40/lb contained Cr • Cost: $0.70/lb • Concentrate: • Volumes: 1,100 ktpy •
Slide 77: Closing
CLOSING • Megatrends continue to underpin Cliffs’ strategic decisions • Impressive pipeline of growth and expansion projects • Technical competencies and experienced operators position the Company for successful execution of large-scale projects • Cliffs is transitioning to a more sophisticated and
Slide 78: = CLIFFS
TS = CLIFFS