Mining for Profits: CLF CEO

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Source: CNBC
Added: 07-29-2011
Tags: Mining

elsewhere shares of cliffs natural resources trading lower today, right now down $4.00 after the mining company posted second quarter profit that missed estimates. earnings in at $2.92 a share, below expectations. revenue rose by 52%. that was slightly above estimates. going forward as the u.s. economy faces a possible credit downgrade, how would businesses like cliffs be affected? joining me, joe carrabba, chairman, president and ceo of cliffs natural resources. thanks for having me on. for you it's about costs. your costs are going up a lot right now? our costs are going up primarily in australia, a lot of complicated stories going into that. it's more increased stripping as we improve the mine and move it from 9 million to 11 million tons. in north america the economy is a little slower and getting much better prices on our input. it's a mixed bag, much slower on our cost of inflation in north america. you've completed the acquisition of consolidated thompson in part to give you greater exposure in china. some of the people we've been talking to say there are obviously questions about the future growth rate of the chinese economy. jim chenos, the great hedge fund manager was saying they could see a hard landing over there and one of the haushdest hit sectors could be the iron orr industry. are you ready for that? we're taking a look at all the economies with the foreign indicators we use. right now we've seen the chinese steel industry is on pace for another record-setting year of 700 million tons. we've put most of our iron ore into the products that go into building roads and bridges. we think that's a pretty stable place where iron ore and steel will continue to grow as economies of china need the infrastructure to put the cars on, the high-speed rail and all the transportation corridors to support their growing economies. we showed the graphics that said 57% of your sales come from the united states. what is your expectation for the economy here especially in light of what's going on in washington? we've still given a strong outlook, maintained our guidance in the second half of the year. as we go forward, blast furnace utilization is in the mid 70s which is a key indicator for us. it's not up or down, but we think it's still consistent and flat going forward in the second half. and what would a possible downgrade of the u.s. credit rating mean to your company specifically? do your borrowing costs go up? we've put a lot of thought into that. like every other company, we're probably keeping a little more cash and liquidity on the balance sheet than we normally would. most of our debt is fixed. we think we're in a pretty good position if that were to feel. we have had economists on who feel we'll go into recession if there's a default. worst case scenario. what would happen to your business then? we'd use the same contingency plans in '08 when we had an abrupt halt to the economy then. we performed extremely well with that. we do have business plans in place to pull back on our capital and our hiring going forward. i think we're prepared for the downside as well. mr. carrabba, good to see you. thank you for your time. thank you.

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