Cliff's Natural Resources is a mining company that was facing a serious downturn in success from 2014 to 2015. As a part of the Battle on Bay Case Competition, my team and I analyzed Cliff's to provide a strategic recommendation to turn around the company.

1. CLIFFS NATURAL
RESOURCES:
EXTRACTING
PRODUCTIVITY
JANUARY 16, 2015

2. CLIFFS NATURAL
RESOURCES:
EXTRACTING
PRODUCTIVITY
JANUARY 16, 2015

3. SITUATION
EXECUTIVE
SUMMARY
ANALYSIS
RISKS &
CONTINGENCIES
IMPLEMENTATION
CONCLUSION
SAMICATHERINE STEVEN
3
INTRODUCTION:
WHO WE ARE

4. SITUATION
EXECUTIVE
SUMMARY
ANALYSIS
RISKS &
CONTINGENCIES
IMPLEMENTATION
CONCLUSION
AGENDA
4
INTRODUCTION:
Current Situation
High-Level Overview
Analysis
Risk & Contingencies
Implementation Strategy

5. SITUATION
EXECUTIVE
SUMMARY
ANALYSIS
RISKS &
CONTINGENCIES
IMPLEMENTATION
CONCLUSION
5
Mission Statement:
Cliff’s Natural Resources strives to be a
leader in mining and natural resources.
CLIFFS NATURAL RESOURCES
CURRENT SITUATION:
SITUATION

6. SITUATION
EXECUTIVE
SUMMARY
ANALYSIS
RISKS &
CONTINGENCIES
IMPLEMENTATION
CONCLUSION
• Snapshot:
• Major producer of Iron Ore and significant producer of high and
low volatile metallurgical coal
• Largest manufacturer of iron ore pellets in the U.S. Steel Industry
• Value of Operations:
• Iron Ore Pricing
• State of Steel Industry
• Penetration of International Expansion
• Diversified Mining Initiatives (graphite investments, coal
operations)
6
CLIFFS NATURAL RESOURCES
CURRENT SITUATION:
SITUATION

7. SITUATION
EXECUTIVE
SUMMARY
ANALYSIS
RISKS &
CONTINGENCIES
IMPLEMENTATION
CONCLUSION
7
CURRENT SITUATION:
IMPORTANT & RECENT EVENTS
SITUATION
Where Do You Go From Here?
JAN 2 2015
Completes Sale of
Logan County Coal (WV)
for $174 mil + $80 – 100
mil in tax savings
Operations at Bloom
Lake shut down
completely
TODAY
AUG 7 2014
Lourenco Gonclaves
appointed Chairman,
President and CEO
AUG 25 2014
Share Repurchase Plan
(up to $200 million)
NOV 19 2014
CLF seeks to pursue exit
options for Canadian
operations
NOV 21 2012
CLF sells 20% stake in
Zenyatta Albany Project
– Graphite Mine in the
Ring of Fire
OCT 27 2014
CLF posts a $5.7 billion
loss on asset write-down
SEPT 26 2014
Australian Mining
Companies express
interest in acquiring
CLF’s Australian assets
DEC 24 2014
CLF ordered to pay CAD
$7.5 million for fisheries
damage at Bloom Lake
JAN 1 2011
CLF buys Consolidate
Thomson (Bloom Lake)
OCT 7 2014
CLF bonds cut to Junk
(BB- to BBB-) after iron
ore plunge
OCT 28 2014
Gonclaves states that
Ring of Fire won’t be
developed in his lifetime
JAN 12 2015
Executive members of
CLF exercise equity
purchase

8. SITUATION
EXECUTIVE
SUMMARY
ANALYSIS
RISKS &
CONTINGENCIES
IMPLEMENTATION
CONCLUSION
• Threats:
• Short-Term
• Iron ore pricing
• Declining need of iron ore in China
• Investor confidence is at an all time low
• Opportunities:
• Short-Term
• Diversified business
• Largest producer of iron ore pellets in NA
• Significant producer of coal in North America
8
EXTERNAL CONSIDERATIONS
CURRENT SITUATION:
SITUATION

9. SITUATION
EXECUTIVE
SUMMARY
ANALYSIS
RISKS &
CONTINGENCIES
IMPLEMENTATION
CONCLUSION
• Threats:
• Long-Term
• Interest rate risk: maturing debt was ballooning
• Unprofitable assets
• Core business is US operations which is the majority of profits
• Global demand
• Opportunities:
• Long-Term
• Continued growth in the US Economy
9
EXTERNAL CONSIDERATIONS
CURRENT SITUATION:
SITUATION

10. SITUATION
EXECUTIVE
SUMMARY
ANALYSIS
RISKS &
CONTINGENCIES
IMPLEMENTATION
CONCLUSION
UNITED STATES
• 5 mines in Michigan
and Minnesota
• 55.4 million tonne
capacity
• Primary sales to
integrated steel
companies
• 85% of business to
5 major customers
UNITED
STATES
10
SITUATION
CURRENT SITUATION:
BUSINESS SEGMENTS

11. SITUATION
EXECUTIVE
SUMMARY
ANALYSIS
RISKS &
CONTINGENCIES
IMPLEMENTATION
CONCLUSION
UNITED
STATES
CANADA
CANADA
• 2 mines in Eastern
Canada – one in
production
• 58.8 million tonne
capacity
• Currently operating at
13.5% capacity
• Sales to Asia, Europe
and rest of North
America
11
SITUATION
CURRENT SITUATION:
BUSINESS SEGMENTS

12. SITUATION
EXECUTIVE
SUMMARY
ANALYSIS
RISKS &
CONTINGENCIES
IMPLEMENTATION
CONCLUSION
ASIA PACIFIC
• 3 mining areas in
Koolyanobbing, Mount
Jackson, and
Windarling
• Increasing production
over three years –
now at 11.1 million
metric tonnes
• Under contract with
mainly Chinese and
Japanese steel
companies
UNITED
STATES
CANADA
AUSTRALI
A
12
SITUATION
CURRENT SITUATION:
BUSINESS SEGMENTS

13. SITUATION
EXECUTIVE
SUMMARY
ANALYSIS
RISKS &
CONTINGENCIES
IMPLEMENTATION
CONCLUSION
13
• Eastern Canadian operations are costing money
• Coal operations costing money
• US and Asia-Pacific Iron Ore are only profitable segments
• Company spread thing over many areas
• No advantages over profits
CLF is no longer focused on the Value Proposition,
which has affected long-term profitability
TODAY
EXECUTIVE SUMMARY:
EXECUTIVE
SUMMARY
SITUATION

14. SITUATION
EXECUTIVE
SUMMARY
ANALYSIS
RISKS &
CONTINGENCIES
IMPLEMENTATION
CONCLUSION
14
• Stop bleeding at the Bloom Lake operations
• Refocus on US Iron Ore segment
• Maintain Asia-Pacific at current operations
• Improve debt rating to industry average
• Increase investor confidence in management
SOLUTION
EXECUTIVE SUMMARY:
EXECUTIVE
SUMMARY

15. SITUATION
EXECUTIVE
SUMMARY
ANALYSIS
RISKS &
CONTINGENCIES
IMPLEMENTATION
CONCLUSION
15
VALUATION
ANALYSIS:
ANALYSIS
Base Case Projections
USD Millions FP2014 2015 2016 2017 2018 2019
Revenue 4,179 3,527 3,616 3,802 3,999 4,208
Cost of Sales 3,767 2,838 2,981 3,132 3,291 3,460
Gross Profit 412 689 635 670 708 748
Gross Margin % 10% 20% 18% 18% 18% 18%
EBITDA 467 716 668 703 740 780
Depreciation 485 239 249 261 273 285
EBIT (18) 477 418 442 468 495
Interest 201 186 166 144 121 98
Tax Benefit / (Expense) 77 (102) (88) (105) (121) (139)
Net Income (152) 189 164 194 225 258
Assumptions
Eastern Canada Iron Ore FP2014 2015 2016 2017 2018 2019
Gross Profit (115) - - - - -
US Iron Ore FP2014 2015 2016 2017 2018 2019
Volume / 1,000 tons 22,000 22,000 22,715 23,453 24,215 25,002
Cost / 1,000 tons 70 70 72 75 77 80
Revenue / 1,000 Tons 100 100 100 103 107 110
Depreciation / 1,000 Tons 5 5 5 5 6 6
Gross Profit / 1,000 Tons 25 25 23 23 24 25
Gross Profit 550 550 513 546 582 621
AP Iron Ore FP2014 2015 2016 2017 2018 2019
Volume / 1,000 tons 11,000 11,000 11,000 11,000 11,000 11,000
Cost / 1,000 tons 55 56 57 58 60 61
Revenue / 1,000 Tons 81 81 81 83 84 86
Depreciation / 1,000 Tons 13 8 8 8 8 9
Gross Profit / 1,000 Tons 13 17 16 16 16 17
Gross Profit 145 188 174 177 181 185
NA Coal FP2014 2015 2016 2017 2018 2019
Volume / 1,000 tons 7000 5100 5202 5306 5412 5520
Cost / 1,000 tons 85 87 88 90 92 94
Revenue / 1,000 Tons 75 85 87 88 90 92
Depreciation / 1,000 Tons 14 8 8 8 8 9
Gross Profit / 1,000 Tons (24) (10) (10) (10) (10) (10)
Gross Profit (168) (49) (51) (54) (56) (58)

16. SITUATION
EXECUTIVE
SUMMARY
ANALYSIS
RISKS &
CONTINGENCIES
IMPLEMENTATION
CONCLUSION
16
VALUATION
ANALYSIS:
ANALYSIS
Risk-free Rate 1.73%
Market Risk Premium 6%
Beta 2.15
Cost of Equity 14.63%
Cost of Debt 6.5%
Tax Rate 35%
After-tax Cost of Debt 4.25%
Market Value of Debt 3,044
Book Value of Equity 31
Weight of Debt 98.99%
Weight of Equity 1.01%
WACC 4.4%
Cash Flows to Firm 2014 2015 2016 2017 2018 2019 TV
Net Income (152) 189 164 194 225 258
Depreciation 485 239 249 261 273 285
Interest Expense 201 186 166 144 121 98
FCF 8,228 549 11 41 72 105 4,517
Discount Factor 2014 2015 2016 2017 2018 2019 TV
Time Period 0 1 2 3 4 5 5
WACC Reciprocal 1.00 0.96 0.92 0.88 0.84 0.81 0.81
PV of FCF 8,228 526 10 36 61 85 3,645
Terminal Value 3,645
Enterprse Value 4,363
Net Debt 2,627
Equity Value 1,736
Shares Outstanding 153,085
Price / Share $11.34
TV Growth 2%

17. SITUATION
EXECUTIVE
SUMMARY
ANALYSIS
RISKS &
CONTINGENCIES
IMPLEMENTATION
CONCLUSION
17
VALUATION ON STRATEGY
ANALYSIS:
New WACC 3.7%
New Cost of Debt 5.5%
Tax 35%
After-Tax 3.6%
Cash Flows to Firm 2014 2015 2016 2017 2018 2019 TV
Net Income (152) 189 164 194 225 258
Depreciation 485 239 249 261 273 285
Interest Expense 209 106 106 106 106 106
Change in NWC (534) (500) (475) (510) (545) (560)
Change in Capex 8,228 0 0 0 0 0
FCF 8,236 34 45 51 59 89 5,203
1 2 3 4 5 5
PV 33 42 46 51 74 4,329
Terminal Value 4,329
Enterprise Value 4,574
Net Debt 1,627
Equity Value 2,947
Shares 153,085
Price / Share $19.25
ANALYSIS

18. SITUATION
EXECUTIVE
SUMMARY
ANALYSIS
RISKS &
CONTINGENCIES
IMPLEMENTATION
CONCLUSION
$-
$20.00
$40.00
$60.00
$80.00
$100.00
$120.00
$140.00
$160.00
$180.00
$200.00
Dec2009
Feb2010
Apr2010
Jun2010
Aug2010
Oct2010
Dec2010
Feb2011
Apr2011
Jun2011
Aug2011
Oct2011
Dec2011
Feb2012
Apr2012
Jun2012
Aug2012
Oct2012
Dec2012
Feb2013
Apr2013
Jun2013
Aug2013
Oct2013
Dec2013
Feb2014
Apr2014
Jun2014
Aug2014
Oct2014
Dec2014
18
IRON ORE PRICING
ANALYSIS:
ANALYSIS Feb 2011
$187.18
Oct 2012
$113.95
Dec 2014
$68.80

19. SITUATION
EXECUTIVE
SUMMARY
ANALYSIS
RISKS &
CONTINGENCIES
IMPLEMENTATION
CONCLUSION
19
IRON ORE PRICING
ANALYSIS:
ANALYSIS
-40.00%
-30.00%
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
Jan 2011 Jan 2012 Jan 2013 Jan 2014
IRON ORE
%

20. SITUATION
EXECUTIVE
SUMMARY
ANALYSIS
RISKS &
CONTINGENCIES
IMPLEMENTATION
CONCLUSION
20
DRIVERS OF SHARE VALUE
ANALYSIS:
ANALYSIS
Increased Production to Capacity (Tonnage Sales)
Rev. per
Tonne 21,300 22,500 24,000 25,500 27,000 28,500 30,000 31,500 33,000
$
50.00
-$
201.91
-$
203.54
-$
208.43
-$
213.32
-$
218.21
-$
223.10
-$
227.99
-$
232.88
-$
237.77
$
55.00
-$
180.56
-$
181.70
-$
185.13
-$
188.57
-$
192.00
-$
195.43
-$
198.87
-$
202.30
-$
205.73
$
60.00
-$
159.20
-$
159.86
-$
161.84
-$
163.81
-$
165.79
-$
167.77
-$
169.75
-$
171.72
-$
173.70
$
70.00
-$
116.49
-$
116.18
-$
115.24
-$
114.31
-$
113.37
-$
112.44
-$
111.50
-$
110.57
-$
109.63
$
80.00
-$
73.78
-$
72.50
-$
68.65
-$
64.80
-$
60.95
-$
57.11
-$
53.26
-$
49.41
-$
45.57
$
94.00
-$
13.98
-$
11.34
-$
3.42
$
4.51
$
12.43
$
20.35
$
28.28
$
36.20
$
44.13
$ 100.00
$
11.64
$
17.93
$
27.80
$
37.68
$
47.55
$
57.43
$
67.30
$
77.18
$
87.05
$ 113.00
$
67.17
$
71.65
$
85.11
$
98.57
$
112.03
$
125.48
$
138.94
$
152.40
$
165.85

21. SITUATION
EXECUTIVE
SUMMARY
ANALYSIS
RISKS &
CONTINGENCIES
IMPLEMENTATION
CONCLUSION
21
DRIVERS OF SHARE VALUE
ANALYSIS:
ANALYSIS
Costs per
Metric Ton Increased Production to Capacity (Tonnage Sales)
21,300 22,500 24,000 25,500 27,000 28,500 30,000 31,500 33,000
$ 78.00 -$ 25.86 -$ 23.49 -$ 16.38 -$ 9.26 -$ 2.15 $ 4.96 $ 12.08 $ 19.19 $ 26.30
$ 74.00 -$ 7.11 -$ 4.31 $ 4.08 $ 12.47 $ 20.87 $ 29.26 $ 37.65 $ 46.04 $ 54.44
$ 72.00 $ 2.27 $ 5.28 $ 14.31 $ 23.34 $ 32.37 $ 41.41 $ 50.44 $ 59.47 $ 68.50
$ 70.00 $ 11.64 $ 14.87 $ 24.54 $ 34.21 $ 43.88 $ 53.55 $ 63.22 $ 72.89 $ 82.57
$ 68.00 $ 21.02 $ 24.46 $ 34.77 $ 45.08 $ 55.39 $ 65.70 $ 76.01 $ 86.32 $ 96.63
$ 66.00 $ 30.40 $ 34.05 $ 45.00 $ 55.95 $ 66.90 $ 77.85 $ 88.80 $ 99.75 $ 110.70
$ 64.00 $ 39.78 $ 43.64 $ 55.23 $ 66.82 $ 78.41 $ 90.00 $ 101.58 $ 113.17 $ 124.76

22. SITUATION
EXECUTIVE
SUMMARY
ANALYSIS
RISKS &
CONTINGENCIES
IMPLEMENTATION
CONCLUSION
22
PROFIT DRIVERS
ANALYSIS:
47%
17%
22%
14%
USA
CANADA
ASIA PACIFIC
Iron Ore
Coal
1) LOCATION SPECIFIC
• US operations drive 61% of
total sales for the business
through Iron Ore and Coal
2) ASSET SPECIFIC
• 86% of business is in Iron
Ore
• 14% of business is from
Coal
3) CUSTOMER SPECIFIC
• US operations driven by 5
major players (85% of
revenue)
ANALYSIS

23. SITUATION
EXECUTIVE
SUMMARY
ANALYSIS
RISKS &
CONTINGENCIES
IMPLEMENTATION
CONCLUSION
23
PROFIT DRIVERS
ANALYSIS:
4) IRON ORE PRICE
• The price of iron ore has a substantial impact on the revenue and profit of CLF
US Iron Ore Pellet
Pricing & Share Value
$ 50.00 -$ 201.91
$ 55.00 -$ 180.56
$ 60.00 -$ 159.20
$ 70.00 -$ 116.49
$ 80.00 -$ 73.78
$ 94.00 -$ 13.98
$ 100.00 $ 11.64
$ 113.00 $ 67.17
ANALYSIS

24. SITUATION
EXECUTIVE
SUMMARY
ANALYSIS
RISKS &
CONTINGENCIES
IMPLEMENTATION
CONCLUSION
24
ANALYSIS:
CANADIAN OPERATIONS: BLOOM LAKE
ANALYSIS
• Purchased in Jan 2011
• Iron ore price was high (Peak: $187.18
[Feb 2011])
• Speculation fueled expansion
• Declining ore prices diminished the
value of the operations
• Iron ore pricing combined with
oversupply caused unprofitable
operations
• Required over $1-billion in
investment

25. SITUATION
EXECUTIVE
SUMMARY
ANALYSIS
RISKS &
CONTINGENCIES
IMPLEMENTATION
CONCLUSION
25
• What went wrong:
• High production costs
• Decline in iron ore pricing
• Value of assets diminished with iron ore price decline
• Oversupply in iron
• Increase in international capacity
• Increased production from competitors to take advantage of China’s
buying and drive up profit margins
• No investors for Phase II
• Operations required $1.2 billion in investment for potential return
CANADIAN OPERATIONS: BLOOM LAKE
ANALYSIS:
ANALYSIS

26. SITUATION
EXECUTIVE
SUMMARY
ANALYSIS
RISKS &
CONTINGENCIES
IMPLEMENTATION
CONCLUSION
26
CANADIAN OPERATIONS: BLOOM LAKE
ANALYSIS:
ANALYSIS
• Where were at:
• Bloom Lake was shut down
• $6-billion in assets written down
• What this means:
• Prediction of potential bankruptcy in light of this
• Share’s have hit all time low
• Investor confidence in waning

27. SITUATION
EXECUTIVE
SUMMARY
ANALYSIS
RISKS &
CONTINGENCIES
IMPLEMENTATION
CONCLUSION
27
• Concerns:
• Lack of research and development
• Analysis on ROI vs. projections
• Operations already ceased
• Bloom Lake has possible potential for someone else:
• Divest assets to refocus on profitable segments
• Use capital to buy back debt
CANADIAN OPERATIONS: BLOOM LAKE
ANALYSIS:
ANALYSIS

28. SITUATION
EXECUTIVE
SUMMARY
ANALYSIS
RISKS &
CONTINGENCIES
IMPLEMENTATION
CONCLUSION
28
• Demerger of BHP Billiton
• Cutting costs to inflate margins
• Chinese are buying volume at record-low
prices
ANALYSIS:
TRENDS IN MINING
ANALYSIS

29. SITUATION
EXECUTIVE
SUMMARY
ANALYSIS
RISKS &
CONTINGENCIES
IMPLEMENTATION
CONCLUSION
29
• Iron ore is available in excess
• Combined that with excess steelmaking capacity and low
margins
• Mitigation:
• Refocus on US core business
• Expand capacity to compete with competitors profitability
OUTPUT FROM COMPETITORS
RISKS & CONTINGENCIES:
EY Global Steel 2014
“Excess capacity is the biggest threat to the sector.”
RISKS &
CONTINGENCIES

30. SITUATION
EXECUTIVE
SUMMARY
ANALYSIS
RISKS &
CONTINGENCIES
IMPLEMENTATION
CONCLUSION
30
• 86% of business is in iron ore pellet manufacturing
• CLF is largest North American manufacturer of iron ore
pellets
• Declining prices shown to drive profits down
• Competitors have cut costs while increasing production to
inflate profits
IRON ORE PRICES
RISKS & CONTINGENCIES:
RISKS &
CONTINGENCIES

31. SITUATION
EXECUTIVE
SUMMARY
ANALYSIS
RISKS &
CONTINGENCIES
IMPLEMENTATION
CONCLUSION
31
IRON ORE PRICES
RISKS & CONTINGENCIES:
• Mitigation:
• Restructure costs and find new efficiencies
• Increase productivity to at or near capacity
• Lower per unit production, increasing margins and profitability
• Chinese iron ore market continues to purchase excess
production as prices are low
• No opportunity cost of pursuing higher productionRISKS &
CONTINGENCIES

32. SITUATION
EXECUTIVE
SUMMARY
ANALYSIS
RISKS &
CONTINGENCIES
IMPLEMENTATION
CONCLUSION
32
• Higher interest rates in the future if credit rating not
improved
• Current credit rating is below industry norms and results in
an impact on interest expense
• Doubling the dividend could result in cash leak that doesn’t
fix the overleverage issue
FALLING CREDIT RATING
RISKS & CONTINGENCIES:
RISKS &
CONTINGENCIES COMPANY S&P Rating Moody's Rating
BHP BILLITON LIMITED A+ A1
RIO TINTO PLC A- A3
VALE SA-PREF A- Baa2
FORTESCUE METALS GROUP LTD BB+ Ba1
CLIFFS NATURAL RESOURCES INC BB- Ba3
ALPHA NATURAL RESOURCES INC B B3
SUNCOKE ENERGY INC B Ba3

33. SITUATION
EXECUTIVE
SUMMARY
ANALYSIS
RISKS &
CONTINGENCIES
IMPLEMENTATION
CONCLUSION
33
FALLING CREDIT RATING
RISKS & CONTINGENCIES:
RISKS &
CONTINGENCIES
Long-term Debt Maturity Interest Rate Carrying Value Fair Value
Senior Notes - 700 Million 2021 4.89% 699.5 539.6
Senior Notes - 1.3 Billion (500M- 800M) 2020/2040 4.83% - 6.34% 1289.8 974.7
Senior Notes - 400 Million 2020 5.98% 398.6 341.8
Senior Notes - 500 Million 2018 4.14% 497.1 433
Revolving Loan 2017 1.87% 0 0
Equipment Loan Facilities 2020 Various 124.6 124.6
Fair Value Adjustment to Interest Rate Hedge 2.9 2.9
Total Long-term Debt 3,012.5 2,416.6
• Mitigation:
• Paying off debt to increase rating agency confidence

34. SITUATION
EXECUTIVE
SUMMARY
ANALYSIS
RISKS &
CONTINGENCIES
IMPLEMENTATION
CONCLUSION
34
STRATEGY
IMPLEMENTATION:
IMPLEMENTATION
Timeline of Implementation (2015)
Feb Mar Apr May Jun Jul
Sell Canadian Assets
Increase Production
Improve Credit Rating
Reassess Asian Pacific Operations

35. SITUATION
EXECUTIVE
SUMMARY
ANALYSIS
RISKS &
CONTINGENCIES
IMPLEMENTATION
CONCLUSION
35
CONCLUSION
• Long-term strategy focused on increasing shareholder
value
CONCLUSION