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Cleveland-Cliffs Inc. (CLF) Q4 2011 Earnings Report, Transcript and Summary

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Cleveland-Cliffs Inc. (CLF)

Q4 2011 Earnings Call· Thu, Feb 16, 2012

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Cleveland-Cliffs Inc. Q4 2011 Earnings Call Key Takeaways

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Cleveland-Cliffs Inc. Q4 2011 Earnings Call Transcript

Operator

Operator

Good day, ladies and gentlemen, and welcome to Cliffs Natural Resources Fourth Quarter 2011 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. Now I'll turn the conference over to Steve Baisden, Vice President of Investor Relations and Communications. Please begin.

Steven R. Baisden

Analyst · Longbow Research

Thank you. I'd like to welcome everyone to this morning's call. Before we get started, let me remind 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 results to differ materially are set forth in reports on Form 10-K and 10-Q and news releases filed with the SEC, which are available on our 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. Joining me today are Cliffs' Chairman, President and Chief Executive Officer, Joseph Carrabba; and Executive Vice President, Finance and Administration, and Chief Financial Officer, Laurie Brlas. At this time, I'll turn the call over to Joe for his initial remarks.

Joseph A. Carrabba

Analyst · CRT Capital Group

Thanks, Steve, and thanks to everyone for joining us this morning. With the full year results recorded in last night's press release, Cliffs continues to achieve record growth by nearly every measuring stick. Looking back on 2011, I'm extremely pleased with the record financial performance our management team accomplished, particularly in light of the strategic transactions and operational expansions and challenges we faced in the year. In addition to completing the $5 billion acquisition of Consolidated Thompson, we also remained on track to complete our 11 million ton per year expansion at the Koolyanobbing complex in Australia on time and within budget. We restored Oak Grove's overland conveyor system and prep plant after severe damage caused by a tornado. We restarted the Pinnacle Mine after shutdown earlier this year and achieved significant lower cash cost per ton. We also achieved the 8 million ton run rate at Bloom Lake Mine and completed approximately 20% of the mine's Phase 2 construction. I would also point out that excluding Bloom Lake Mine's contribution, Cliffs still have achieved a record-breaking financial performance for the year. Our strategy of placing more products into the seaborne market, along with successfully increasing our legacy assets with [ph] more exposure, is directly impacting our bottom line results. We believe the world's emergent economies will continue to urbanize and, as a direct result, will continue their need to produce record amounts of steel. Specifically, in China, fundamentals of urbanization, household formation and labor force growth remain strong. We believe monetary policy is likely to ease and already strong growth by western standards will continue. In China, we anticipate crude steel production to reach 730 million tons in 2012. This 7% increase from 2011, coupled with a steadily improving outlook for the U.S. economy, will continue to support demand…

Laurie Brlas

Analyst · JPMorgan

Thank you, Joe. Following on Joe's comments, our record-breaking performance for 2011 can be attributed to our long-term focus on diversifying our market participation and enhancing our organic expansion initiative. We expect this consistent strategy to continue yielding impressive financial performance, as well as significant cash flow generation moving forward. Looking at the P&L, in the fourth quarter, revenues improved 17% to a record $1.7 billion, helping to accelerate full year revenues to a record $6.8 billion and topping last year's all-time high of $4.6 billion by more than 45%. Additionally, diluted EPS for the full year 2011 of $11.48 per share is significantly higher than our 2010 diluted EPS of $7.49. This bottom line performance reflected a combination of higher iron ore pricing and meaningful contributions from the Bloom Lake Mine during the year. Continuing with fourth quarter consolidated results, sales margins during the quarter expanded modestly to $496 million from 2010's $483 million. The volume increase was partially offset by higher electricity cost in North America and planned increases in shipping. Operating income declined to $370 million compared to just under $400 million in 2010's final quarter. The decline was primarily driven by a $28 million impairment charge related to the 2010 purchase of INR Energy's coal cooperation. Income tax expense increased from $11 million in 2010's final quarter to more than the $123 million in 2011's comparable quarter. During the fourth quarter, our effective tax rate increased to 35% compared with the full year rate of 19%. This was the result of a remeasurement of our deferred tax liability at Bloom Lake and the recording of a nonrecurring adjustment related to the Québec mining duty. Conversely, 2010's fourth quarter income tax expense was artificially low as we recorded a tax planning benefit related to Amapa. Primarily due…

Steven R. Baisden

Analyst · Longbow Research

Ron, can you please cue the participants on how to ask a question?

Operator

Operator

[Operator Instructions] We have a question from Kuni Chen of CRT Capital Group.

Kuni M. Chen - CRT Capital Group LLC, Research Division

Analyst · CRT Capital Group

I guess, just on Wabush. Can you talk about how you expect that to run in the first quarter or the first half year and to what extent you are still struggling through some of the operational issues? Your cost guidance for the year in Eastern Canada doesn't seem to bake in any unusual items related to Wabush. So I just wanted to get your sense on how to reconcile your comments that there are still some issues going on there but it doesn't seem to be reflected in your formal guidance.

Joseph A. Carrabba

Analyst · CRT Capital Group

Well, I think it is, Kuni, reflected in. This isn't -- it wasn't a catastrophic failure. This has just been some deterioration of maintenance, particularly around the dryer right now. I'd say the guys have done a good job debottlenecking the other maintenance problems as they worked towards the dryer. We do have all 6 mills running now, which has been a while since we've seen that. But we did have some structure that slumped, if you will, into the concrete. They've had to raise that temporarily and have to do the structural repairs around that dryer to get it going. It will not be a quick fix and I think it would -- particularly with the weather in Wabush, when it comes to the repairs slowing down, it will be a slow slog through the first half to get Wabush back up and going. But I do think it's baked into the numbers.

Kuni M. Chen - CRT Capital Group LLC, Research Division

Analyst · CRT Capital Group

Okay. And then just as a quick follow-up, can you give us some color on what you've been seeing out of Australia over the last couple of weeks. Things appear somewhat slow right now due to high iron ore stockpiles in China. So I just want to see what you guys are seeing on the ground and if it kind of jibes with a slower market right now if things starting to pick back up.

Joseph A. Carrabba

Analyst · CRT Capital Group

Well, I was just in Perth last week, reviewing the operations and actually went through the shipping schedule while I was down there with that. We've got a very healthy shipping schedule in the first quarter. I mean, the guys have to work a little harder to place the tonnage. There's no question about that. The market has slowed somewhat with the credit tightening that we all experienced through the fourth quarter and into this quarter as well. Stockpiles, as we watch very closely, not only in the ports but I think just as important, we look at our customers' stockpiles, we don't see those growing. They're pretty low given the credit tightness that they've had to experience. And we do see a normal seasonal fluctuation, if you will, at the ports, with the build always going into the Chinese New Year and then the steel industry picking up after the New Year. I do have to say it's a bit sluggish, picking up after the New Year, but we still anticipate our customers to come on a little stronger on the latter half of the year, if you will, as we watch the credit loosen up.

Operator

Operator

The next question is from Michael Gambardella of JPMorgan. Michael F. Gambardella - JP Morgan Chase & Co, Research Division: I have a question on the chromite project. I think you've put in about $300 million, $400 million to purchase the property and then some more additional funds, $75 million this year, you're saying. But when you -- I thought when you initially purchased the properties, the estimated capital cost to develop the property was about $1 billion or less than $1 billion. And most recently, I think you were around $3 billion now, maybe even higher with the roads. Can you comment on that? And the change and the scope of the project, inflation on the cost, what's changed so dramatically?

Joseph A. Carrabba

Analyst · JPMorgan

Mike, I think your -- well, number one is you are correct. Initially, we did go out with $1 billion price tag for this project and we are in about the $3.3 billion range. I think what's really happened is, one, the sharpening of the estimate as we go through prefeasibility. And we are not through prefeasibility. So we expect to cross that line in May, June. We're going to stay in prefeas as long as we need to and get the appropriate work done to try and get this thing framed up. So we'll have an even better number on that. But as you know, when you come out with these numbers initially, they've got a wide plus or minus 30% or 40% onto your side. So one is the sharpening of the estimate. I think the second thing, certainly, is the transportation on the road. It has gotten more expensive in this segment than we expected. And everything else is falling in line with that.

Laurie Brlas

Analyst · JPMorgan

The original estimate didn't include any mode of transportation in the original billing that we talked about, Mike.

Joseph A. Carrabba

Analyst · JPMorgan

Yes, it did not. And I will say this, Mike, just to go on there for a little bit of the fare problem while we're engaged right now with the government in Ontario. We've got very strong support to work through the project, both from the environmental panel review that we're going through right now, as well as the structure on the transportation. And those conversations are going on right now, but they're very positive. Michael F. Gambardella - JP Morgan Chase & Co, Research Division: Right. But I mean, your initial take on -- your internal take on the returns on this project on $1 billion cost versus $3 billion plus cost must have changed dramatically. I mean, is this still a viable project?

Laurie Brlas

Analyst · JPMorgan

Yes, sure, Mike. They definitely have changed, but at this point, it is absolutely still a viable project with a return that exceeds our cost of capital. And at every phase along the way, we will continue to evaluate that.

Joseph A. Carrabba

Analyst · JPMorgan

I would point out, too, that the original project scope was just built around about 600,000 tons of ferrochrome. We've also added about 1 billion tons of chrome concentrate to the design of the volume that we'll do. So the economics around the project have changed somewhat, too. Michael F. Gambardella - JP Morgan Chase & Co, Research Division: Okay. Will you be releasing any more details on that?

Laurie Brlas

Analyst · JPMorgan

Probably not until summer when we finish prefeasibility. We really -- because the numbers are still so imprecise and moving, we don't want to go into that kind of detail at this point in time. I would guess sometime in the summer, we would be ready to do that. But rest assured, we do continue to evaluate the returns and it is still above our cost of capital based on everything we understand at this point.

Joseph A. Carrabba

Analyst · JPMorgan

And we're still very excited about it, Mike, to add to this business unit, and we look forward to releasing more information to everyone. Once we get through the prefeasibility, we can pin the numbers down.

Operator

Operator

Our next question is from Timna Tanners of Bank of America.

Timna Tanners - BofA Merrill Lynch, Research Division

Analyst · Bank of America

My question is along the same lines. I wanted to ask to the extent that you're also increasing the amount that your spending on exploration, should we also conclude that, that organic growth is really where you're steering your efforts? And also on cash use, we noticed that you bought back more shares in the quarter. Can you talk a little bit about general cash use allocation?

Joseph A. Carrabba

Analyst · Bank of America

Let me take the exploration question first and then Laurie will do the cash and the capital structure. On the exploration, we're definitely spending more. We are -- we have spent a lot of time and effort and money, as you know, to grow the company through M&A. Now that we've done that, it's not that we will be completely finished with M&A if the right opportunity comes up, but we are turning more into a project execution phase of this business, as well as the defined areas that we have now in the Labrador Trough that comes with Consolidated Thompson, comes out in Australia as we continue to look to try and expand our Australian assets and in the Ring of Fire, where we've only concentrated so far only on the ferrochrome, which is the right thing to do. But we have a lot of claims on a lot of land out there with additional potential of other minerals on that. Yes, we've paid the price of the M&A and now, we're executing the organic piece of the exploration.

Laurie Brlas

Analyst · Bank of America

And then turning to your question on cash use, and we did complete the stock buyback as I'm sure you remember, our Board authorized a stock repurchase in August. And we really looked at that as somewhat of an offset to the equity offering we had committed to keep the equity offering as low as possible. And it exceeded our expectations in terms of execution and also the exercise of the green shoots that we obtained more cash through that than we originally expected. So we embarked on the stock buyback to somewhat mitigate that and minimize the dilution to our shareholders. And we completed that early in the fourth quarter. And now, as we look at our cash use with all the cash we're going to generate throughout the balance of the quarter, our objectives haven't changed. We will still continue to look at growth. But as Joe said, we think it could probably be more likely focused on organic growth in the near term. And then we'll continue to look at the dividend. As I said, we doubled the dividend in the last year, and I think our Board will continue to look at that as a means to return cash to our shareholders.

Timna Tanners - BofA Merrill Lynch, Research Division

Analyst · Bank of America

Okay, that's really helpful. I'd like to ask one more. I just wanted to understand the assumptions in your guidance. So the -- we understand the HRC price makes sense. It's not too far from where it is today and the forecast for iron ore makes sense. But the one that kind of surprised us is the blast furnace utilization number because that's actually well below where the current operating rates are. Is there any logic or explanation that you can help us with for why -- how to think about that?

Joseph A. Carrabba

Analyst · Bank of America

I think it's just an annualized rate. I mean, as we look at this and you look at blast furnace schedules of repairs that go in, which we work close with our customers with, we just see that as an annualized rate going in. We hope we're wrong and you're right and the blast furnace utilization stays higher, that's only good. But I think there are some blast furnace outages planned for later this year.

Operator

Operator

Our next question is from Mitesh Thakkar of Friedman, Billings. Mitesh Thakkar - FBR Capital Markets & Co., Research Division: My follow-up question -- my first question is just on the chromite project, following up from Mike. What are some of the key milestones? I know one is prefeasibility study, but how should we think about timeline and the scheduling over the next year or 2?

Joseph A. Carrabba

Analyst · Friedman, Billings

Well, I think we are working forward in the environmental review. That is always the longest and most critical path. When it comes to any of these projects, Mitesh, that is on target right now to meet our goals of a late 2015, early 2016 start-up of that. Again, as I said, the road and the transportation route, we've settled on the north-south route versus the east-west route and we're in conversations with the government on how that, what that looks like from a structural -- a funding standpoint from there. And we are still into furnace selection sites as well, which works around the electrical usage. That's the highest cost of the furnaces over there. They're very power intensive. And we're in conversations with the government as well. I think those are the 3 highlights you can look for to watch the progress of this project over the next year or 2 [ph] Mitesh Thakkar - FBR Capital Markets & Co., Research Division: Okay, great. And just a follow-up on the Eastern Canadian Bloom Lake operations, it looks like if you annualize the Bloom Lake sales this quarter, it ran at about 4.8 million tons rate. And you mentioned that you had just started production for some shipping schedules and those kinds of things. Can you not run all in and sell the rest of the pellets on the spot market -- sorry, concentrate on the spot market instead of taking back production?

Joseph A. Carrabba

Analyst · Friedman, Billings

I'm not sure I understand the question.

Laurie Brlas

Analyst · Friedman, Billings

Well, we can certainly -- the issue is finding new customers and that takes our commercial team a little bit of time. As we've talked about, we are looking to increase the number of customers that we have that take the Bloom Lake concentrate as opposed to being focused on just 1 or 2. It really is consistent with our overall diversification strategy. And we all tend to forget that we've only owned this property for 7 months, so it takes some time to work through that, and we did ship some cargoes to some new customers. So as we grow those relationships with them in the future, I think it's the original customers that Consolidated Thompson had are not as interested in product. We will have a larger array of customers to choose from. But we just have to go through that trial, both process and work through it with them. Mitesh Thakkar - FBR Capital Markets & Co., Research Division: Great. So it is just finding suitable customers for it, right?

Laurie Brlas

Analyst · Friedman, Billings

Yes.

Operator

Operator

Our next question is from Sohail Tharani of Goldman Sachs.

Sohail Tharani - Goldman Sachs Group Inc., Research Division

Analyst · Goldman Sachs

The charges of cost related to chromite project, $75 million, is that something should we consider that will be expensed over the next several years every year? Or is this just a one-time?

Laurie Brlas

Analyst · Goldman Sachs

That's the amount that we will expense in 2012. And I would think that there will be a dissimilar and perhaps higher number in 2013. Again, we haven't concluded that process. And by the summer, when we finish the prefeasibility, we'll have a lot more detail. But there will be spending, both expense and we'll into capital in another couple of years when we start building the mines. But there will be expense to operate the mine site and so forth every year.

Sohail Tharani - Goldman Sachs Group Inc., Research Division

Analyst · Goldman Sachs

Okay, great. And do you have the number for the Sonoma cost for the year, cash cost? You gave $80 for the fourth quarter, I know.

Joseph A. Carrabba

Analyst · Goldman Sachs

Sohail, I'll give it to you after the call.

Sohail Tharani - Goldman Sachs Group Inc., Research Division

Analyst · Goldman Sachs

Okay. I just was wondering why the cost is going up so much from fourth quarter to the yearly guidance of $110, considering that your volume is actually going to be up in that mine. Is there something happening over there?

Laurie Brlas

Analyst · Goldman Sachs

There's more stripping. It's a consistency throughout Australia with these smaller mines. The strip ratio is going up.

Operator

Operator

Our next question is from Tony Robson of BMO Capital Markets.

Anthony Robson - BMO Capital Markets Canada

Analyst · BMO Capital Markets

Two questions, please. First one, maybe two, Laurie, $1 billion of total spend this year is reasonably -- a reasonable sum of number. Of the $700 million in the project CapEx, can you give us a bit more of breakdown of that, please? Where is it going to?

Laurie Brlas

Analyst · BMO Capital Markets

Yes, most of it is going to be for Eastern Canada to complete that part of the mine. And then there's a bit still, the 11 million tons, in Australia. That is ramping up. And then we have some for Lower War Eagle. Our met coal mine that's coming on in West Virginia. Those are probably the 3 largest items in there.

Joseph A. Carrabba

Analyst · BMO Capital Markets

Yes. The majority, Tony, would be the ramp-up in Eastern Canada from 8 million to 16 million.

Anthony Robson - BMO Capital Markets Canada

Analyst · BMO Capital Markets

Okay, great. Actually, that leads me to my second question. Given that terms of the ramp-up schedule for Stage 2 -- last year, it was about 20%, 25% complete. Given that Stage 1 took a reasonable amount of time and admittedly a lot of that was not under your ownership, how should we be thinking about how long it will take Stage 2 to get to full capacity, please, going forward?

Joseph A. Carrabba

Analyst · BMO Capital Markets

I think that's a great question. There's been a lot of changes that we've made to Phase 2 that was based on the learnings in Phase 1. So I think we've done a lot of correction going into this, and I would expect the ramp-up to be a much shorter timeframe from the learnings we've had and the operator experience that we now have with that ore body. I think, also, Tony, in the fourth quarter, we did slow down production in the mine to match the sales the we had. We're also really taking advantage to experiment, if you will, with the different blends and blending schedules that we have out of that mine with the ore types that will make the ramp-up just that much smoother when we get into Phase 2. So I would expect it to come down considerably.

Anthony Robson - BMO Capital Markets Canada

Analyst · BMO Capital Markets

Can I pin you -- Joe, can I pin you down to a total time on that? Or do you prefer to keep it open at this stage?

Joseph A. Carrabba

Analyst · BMO Capital Markets

I -- ask me next quarter and I'll have the answer, Tony. I just don't have it today and I don't want to speculate on it without talking to the operators.

Operator

Operator

Our next question is from David MacGregor of Longbow Research.

David S. MacGregor - Longbow Research LLC

Analyst · Longbow Research

Just a couple of questions. First of all, where is the pellet premium today? You said it was under pressure? Is that just weakness in Europe or are there other factors to think about there?

Joseph A. Carrabba

Analyst · Longbow Research

It's a moving target. Nothing is published when it comes in with it. A lot of it is the -- with change that we've had recently with the pricing and there's change from the lagged pricing on a quarterly basis to the spot prices, to the almost landed prices. It's just all over the map right now with that. So it would be hard to give you a generic number. A lot of it is negotiation on a customer by customer basis.

Laurie Brlas

Analyst · Longbow Research

But I would say Europe has a lot to do with it because in China, they don't generally use pellets. So the U.S. and Europe are the primary markets for pellets. So you've got a pretty significant percentage of that market under a bit of pressure.

Steven R. Baisden

Analyst · Longbow Research

Yes. In the past, David, we've seen it in the 40s and as Joe said -- I mean, it's a point of negotiation now.

David S. MacGregor - Longbow Research LLC

Analyst · Longbow Research

Yes, if you can't give us sort of a level, can you at least give us a sense of how much it's changed? You said it's coming out. I'm just trying to get a sense of the delta.

Joseph A. Carrabba

Analyst · Longbow Research

No, we really can't at this point in time with the sensitivity around customer negotiation.

David S. MacGregor - Longbow Research LLC

Analyst · Longbow Research

Secondly, just on the coal business, can you just talk a little about the development work you've done there? And I know during the production curtailments due to the outages you were continuing to develop -- in developed panels, specifically, I guess. To what extent should we expect lower cash cost as a result of that? How much sort of cost pull forward, in other words, has occurred there?

Laurie Brlas

Analyst · Longbow Research

I don't think I would think of that as a cost pull forward. I would think of that as stabilizing our cost. It's what we need to do to achieve the long-term consistent cash cost targets that we've had. You have to be ahead in your development in order to maintain consistent production so that's how I would think about that.

Joseph A. Carrabba

Analyst · Longbow Research

I think that's right, David. This is all a combination, particularly with Pinnacle, if you will, of the new longwall getting up and getting ramped up. This is a big complex piece of equipment. It's running very well now. We're in a more stable part of the mine at this point in time. When we did have that downtime last year, that significant downtime with the CO2 problems that we had, we spent a lot of time putting new beltways in and a lot of maintenance. As you know, we've got new management down there as well. And that's allowed the -- we were allowed to go ahead and develop while the longwall was down. So they've gotten significantly in great shape from there. Same thing in Oak Grove, while we were decoupled, if you will, we could really concentrate on the mining. And again, I think the guys had a great year in mining down in Oak Grove with the 1.9 million tons that they did and they got their development back in balance as well.

David S. MacGregor - Longbow Research LLC

Analyst · Longbow Research

Last question, if I could, just a clarification. Laurie, I think you said $5 per ton impact at Oak Grove as a consequence of -- from selling off the stockpile to selling other production. Can you just elaborate on that number a little bit? You mentioned that as sort of the change to the annual average. But how do we think about the ongoing cost production at Oak Grove once that stockpile is done on a run-rate basis?

Laurie Brlas

Analyst · Longbow Research

Certainly, it will come down and the way -- what I wanted to make sure that you could think about is our cost in 2012 will be $5 higher because of the pull forward of the product that was produced under a higher cost scenario. So we'll be artificially impacted. So our ongoing cost of production in 2012 will be about $5 less than what we ultimately report. So if nothing else changes going into 2013, you would just see a $5 drop on that.

David S. MacGregor - Longbow Research LLC

Analyst · Longbow Research

So you've got the new shear head, you've got the new shaft going in there, you got a new prep plant, plus you're going to have more scale, I would have thought that would have contributed to more than $5.

Laurie Brlas

Analyst · Longbow Research

And it very well may. We'll work that out through the year. But the higher cost products that we've got stockpiled now versus what we're running at in the early part of the year, that's the number we'd see.

Operator

Operator

Our next question is from Brian Yu of Citi.

Brian Yu - Citigroup Inc, Research Division

Analyst · Citi

My first question is on Bloom Lake. I just want to make sure I understand the cost structure there. Joe, I think you said that Bloom Lake cash cost was about $60 and then Laurie mentioned that the reengineering, the tailings would add $4 or $5 per ton. Is it fair to assume that, that implies cash cost on a go-forward basis of about $55? What would that look like once the few [ph] comes online without trying to make assumptions about the Canadian dollar or where it stands today?

Laurie Brlas

Analyst · Citi

Yes. I don't think I would imply that you take Joe's $60 and that includes the $55. We've got -- that's an increase to that $60.

Joseph A. Carrabba

Analyst · Citi

Yes. Brian, we're at $60 for the year. That's where we think we'll achieve. I think it's probably a little too early to speculate where that number goes once we get to Phase 2.

Laurie Brlas

Analyst · Citi

When we get to Phase 2, yes. We're not ready to...

Joseph A. Carrabba

Analyst · Citi

But we think we can achieve $60 for the year. We achieved $67 in the quarter -- in the fourth quarter if you eliminate the lower volume impact from adjusting the production to the actual shipping schedule. So we weren't building up inventories.

Brian Yu - Citigroup Inc, Research Division

Analyst · Citi

Would that $60 include the cost that Laurie mentioned about reengineering the tailings?

Laurie Brlas

Analyst · Citi

Yes, it does -- yes.

Joseph A. Carrabba

Analyst · Citi

Yes, they've got it.

Brian Yu - Citigroup Inc, Research Division

Analyst · Citi

Okay. And then the second one I have is just on Amapa. It looks like it's doing a little bit better now. Can you give some update on what's happening there and then maybe what sort of strategic plans, if that's changed in any way?

Joseph A. Carrabba

Analyst · Citi

Yes, it's stable. I think Anglo [ph] is doing a good job operating at the current levels they have. They certainly have a great focus, particularly on safety when it comes to that. And that's really the underpinning of the whole organization. It's positive, the money it makes. Again, I think, as I've reiterated many times, that it's a stagnant asset for us. We don't have the management control or the input that we'd like to get with it. And again, we're working through that with Anglo [ph] as we did last year, as well as we speak. But it's stable and we're looking at the asset right now.

Operator

Operator

Our next question is from Wes Sconce of Morgan Stanley.

Wes Sconce - Morgan Stanley, Research Division

Analyst · Morgan Stanley

This one is for Joe. When you look at valuations today for met coal assets, would you say your bias is to get bigger in coal? Are you still waiting to see how 2012 shapes out as your existing operations get back at full speed?

Joseph A. Carrabba

Analyst · Morgan Stanley

Well, I think, West, first, we've got some proving to do, as we said earlier today in our conversations. We're comfortable with the large projects we've talked about through the -- last year, we had a big setback in Oak Grove with the tornado in April. But if things go, we're going to come out pretty well with that with a pretty modernized prep plant, which we think we'll get a little more busy [ph] as it comes out with. So as the year goes on, if our improvement and stabilization, we get it embedded and all that, then, yes, of course, as we've said, we've always looked at the business, the platform for growth for additional met coal. We still think met coal is one of the better minerals to be in. But we've got a couple of quarters of work to do first before we would think about anything like that.

Wes Sconce - Morgan Stanley, Research Division

Analyst · Morgan Stanley

And just a follow-up on U.S. Iron Ore, could you remind us again what the sensitivity is for your U.S. pellet prices or changes in IODEX and HRC?

Steven R. Baisden

Analyst · Morgan Stanley

Yes. So for the 2 seaborne businesses in Eastern Canada and Australia, we really have a lot of one-to-one correlation for the $10 change. And the spot price average for the year would probably equate to about a $10 change in our revenue per ton. In the North American iron ore business, the sensitivity is more about $4 for every $10 change.

Wes Sconce - Morgan Stanley, Research Division

Analyst · Morgan Stanley

And that's for your pellets?

Joseph A. Carrabba

Analyst · Morgan Stanley

That's right. For the U.S. Iron Ore business. That's right.

Operator

Operator

So our final question is from Garrett Nelson of BB&T Capital Markets. Garrett S. Nelson - BB&T Capital Markets, Research Division: At Wabush, the equipment and operational issues have been a drag on cash costs and margins for the Eastern Canadian segment in the last few quarters, which is -- unfortunately, it's getting some pretty good results at Bloom Lake. Is Wabush a mine you might just consider idling until the issues are fixed?

Joseph A. Carrabba

Analyst · BB&T Capital Markets

No, we wouldn't. We still -- with the purchase price we made with the partners a couple of years ago, this is still one of our better investments of all time, if you will. As some mines go through, Wabush is a pretty old property as it will. It was managed previously, where there wasn't a lot of capital that went in. And we knew that going into it, and we just got to work through the issues. But there's -- we've got to take care of our customers. There is demand for the pellets and it is seaborne. And we'll continue to work through it for the next few quarters. Garrett S. Nelson - BB&T Capital Markets, Research Division: Okay. And then just switching over to coal. What capacity rate is in the Oak Grove prep plant currently running at? And when do you expect it to hit full capacity if it's not already there?

Steven R. Baisden

Analyst · BB&T Capital Markets

Yes, we're currently only running 1 of the wash circuits at the preparation plant. We think by the beginning of the second quarter, we'll -- there are 2 circuits there. We'll run those circuits and we'll also move into operation, applying coal recovery circuit. So we've got a lot of capacity left to ramp up to in the prep plant at Oak Grove. Garrett S. Nelson - BB&T Capital Markets, Research Division: And then if you could just repeat the 2012 coal commitments?

Joseph A. Carrabba

Analyst · BB&T Capital Markets

60% of our coal was committed and that is the high vol and low vol, all the met coals. So it's 60% commitment.

Steven R. Baisden

Analyst · BB&T Capital Markets

And that was at $165 short ton in the mine. So if you look at it on a BHP equivalent basis, you'd be looking at about $225. Garrett S. Nelson - BB&T Capital Markets, Research Division: Right. So that excludes the 1 million-or-so tons of thermal coal?

Steven R. Baisden

Analyst · BB&T Capital Markets

That's right.

Laurie Brlas

Analyst · BB&T Capital Markets

Yes.

Joseph A. Carrabba

Analyst · BB&T Capital Markets

Yes. That's right.

Steven R. Baisden

Analyst · BB&T Capital Markets

Thanks, everyone, for joining us on today's call. Certainly, if you have follow-up questions, we'll be -- the Investor Relations team will be available for the rest of the day. You can certainly reach out to us. Again, we appreciate your interest and look forward to sharing our results in the future.

Joseph A. Carrabba

Analyst · BB&T Capital Markets

Thank you.

Laurie Brlas

Analyst · BB&T Capital Markets

Thanks.

Operator

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Have a wonderful day.