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Cliffs Natural Resources (CLF) C. Lourenco Goncalves on Q1 2016 Results - Earnings Call Transcript

Q1 2016 Earnings Call

April 28, 2016 10:00 am ET

Executives

P. Kelly Tompkins - Chief Financial Officer & Executive Vice President

C. Lourenco Goncalves - Chairman, President & Chief Executive Officer

Analysts

Nicholas Jarmoszuk - Stifel, Nicolaus & Co., Inc.

Anthony Rizzuto - Cowen and Company

Michael F. Gambardella - JPMorgan Securities LLC

Matthew Fields - Bank of America Merrill Lynch

Evan L. Kurtz - Morgan Stanley & Co. LLC

Operator

Good morning, ladies and gentlemen. My name is Sally, and I am your conference facilitator today. I would like to welcome everyone to Cliffs Natural Resources 2016 First Quarter Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

The company reminds you that certain comments made on today's call will include predictive statements that are intended to be made as forward-looking within the Safe Harbor protections of the Private Securities Litigation Reform Act of 1995. Although the company believes that its forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties that could cause actual results to differ materially. Important factors that could cause the results to differ materially are set forth in reports on Forms 10-K and 10-Q, and news releases filed with the SEC, which are available on the company website.

Today's conference call is also available and being broadcast at cliffsnaturalresources.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. Reconciliation for Regulation G purposes can be found in the earnings release, which was published this morning.

At this time, I would like to introduce Kelly Tompkins, Executive Vice President and Chief Financial Officer.

P. Kelly Tompkins - Chief Financial Officer & Executive Vice President

Thank you, Sally, and thanks to everyone joining us on this morning's call. I'm joined today by our Chairman and CEO, Lourenco Goncalves. I will lead off the call with a review of our first quarter results, outlook for the remainder of this year and provide some additional comments around our most recent debt exchange.

Once again this quarter, the performance at our U.S. and Australian operations was outstanding despite a challenging commodity environment. Disciplined cost control coupled with an uptick in iron ore and steel prices not only drove our strong first quarter financial performance but also suggest a more optimistic outlook on the balance of the fiscal year.

Starting with the U.S. market, the impact of successful trade case rulings and a drop in imports have pushed steel prices dramatically higher since our last conference call with hot-rolled steel prices settling above $520 per short ton compared to the sub $400 per short ton prices in the fourth quarter. If the current steel prices persist, let alone improve, our cash margins in the U.S. should improve as well. For now we are holding our current price forecast for hot-rolled steel at $450 per short ton for the full year but will adjust as the market and our order book evolves.

In the first quarter, we realized $84 per long ton of pellets. Our cash production cost at USIO was $48 per long ton during the quarter, a 26% reduction from the $65 per long ton performance reported in the 2015 first quarter. This quarter-over-quarter reduction in production costs can be attributed to reduced repair costs, lower diesel fuel and natural gas rates and drastically reduced labor expenses. Just to reaffirm our full year 2016 guidance, we are maintaining our outlook on full year cash production costs of $50 to $55 per long ton as well as our cash cost of goods sold guidance of $55 to $60 per long ton.