Cleveland-Cliffs Inc. (NYSE: CLF) on Thursday said its wholly owned Northshore Mining Co. will resume work next week, joining Hibbing Taconite and Minntac Mine in returning to production after closures related to impacts from the COVID-19 economic downturn.
The announcement came during Cliffs' quarterly conference call with stock analysts, when the corporation reported revenues of $1.1 billion compared with the prior year's second-quarter consolidated revenues of $743 million.
The company recorded a net loss of $108 million during the second quarter of 2020, and a loss of $0.31 per diluted share attributable to Cliffs' shareholders. This compares to net income of $161 million, or $0.57 per diluted share, recorded in the prior-year second quarter.
For the six months ended June 30, the company recorded a net loss of $157 million, compared with net income of $139 million during the same period in 2019.
For the second quarter of 2020, the company reported an adjusted EBITDA loss of $82 million. This amount includes $159 million in idle costs and $32 million in corporate margin eliminations related to intercompany pellet sales.
“The second quarter was an unusual one, with the full impact of the COVID-19 pandemic hitting our clients. Our main concern then was preserving our liquidity during a time we were not able to ship steel to our clients in all markets we serve, and particularly in our main end-market, the automotive industry," Cliffs' Chairman, President, and CEO Lourenco Goncalves said. "As of today, our clients are back to healthy levels of operation, and our liquidity now sits solidly above the $1.1 billion mark. That happened way ahead of our conservative assumptions, creating a very exciting business prospect for a strong second semester.”
“In any given year, the second quarter is always the time when our iron ore clients replenish their pellet inventories, depleted during the winter. Our success in continuing to sell pellets during this second quarter was also very important to our results, showing a clear differentiation between Cleveland-Cliffs and other companies in our space," Goncalves added.
“We are excited, but not surprised, with the potential we are unleashing from the AK Steel footprint. We have already implemented all the synergy initiatives we disclosed at the time of the acquisition, with the updated amount of $151 million coming in much higher than the original target of $120 million in synergies. In the second half of this year, we will finish the construction of our HBI plant, creating another highly profitable business for Cleveland-Cliffs in 2021 and beyond. At this time, based on our unique fully integrated and self-sufficient footprint, from iron ore pellets to highly sophisticated carbon and stainless steels and automotive parts, we are laser-focused on growing our business with our traditional automotive clients and on adding new ones from the roster of new manufacturers of electric vehicles, trucks and SUVs.”
Steel and Manufacturing cost of goods sold of $860 million during the second quarter of 2020 included idle-related costs of approximately $119 million and amortization of fair value inventory step-up of $36 million. Cost of goods sold as a percentage of Revenues was unfavorably impacted by product sales mix primarily due to the COVID-19 pandemic, which resulted in lower sales volumes to automotive customers.
Second-quarter Mining and Pelletizing pellet sales volume of 4.8 million long tons included 1.0 million long tons of intercompany sales. Cash cost per ton of $78 per long ton included approximately $8 per long ton of idle costs.
The Adjusted EBITDA loss of $60 million from Corporate and Eliminations for the second quarter of 2020 included: intercompany profit eliminations for iron ore sales from the Mining and Pelletizing Segment to the Steel and Manufacturing Segment of $32 million; corporate selling, general and administrative expenses, net of adjustments, of approximately $18 million; and corporate allocated selling, general and administrative expenses of $10 million.
As of July 28, the company had total liquidity of approximately $1.125 billion, consisting of approximately $170 million in cash and $955 million of availability under its ABL credit facility. During the second quarter, the company repaid $250 million in outstanding ABL borrowings.
Outlook and market commentary
"Now that nearly all our facilities which were idled during the second quarter have resumed normal operations, during the second half of 2020 we will be able to demonstrate the potential of our new Cleveland-Cliffs footprint," Goncalves said. "With demand accelerating faster and more consistently than originally expected, we were pleased to record positive adjusted EBITDA during the month of June, way ahead of our initial forecast made earlier in Q2. Also, we expect idle costs to be less than $50 million during the third quarter and minimal in the fourth quarter, which will lead to a significant improvement in unit cost performance. As the market currently stands, we expect to see positive free cash flow in the second half of the year, which includes the capital spending necessary to complete the Toledo HBI project."
The capital spending expectation for the remainder of the year is $250 million, which includes approximately $110 million in remaining HBI spend and $25 million in capitalized interest. The company expects to generate over $100 million in cash from working capital release during the second half of the year.