pmm take over, page-47

this is from the BRM thread RE: Cleveland Cliffs

thought it has some relevance to GWR given PMM's recent acquisition in GWR


http://money.cnn.com/news/newsfeeds/articles/newstex/IBD-0001-24448894.htm

Lower-Grade Iron Ore, Top-Rate Opportunity

Apr. 14, 2008 (Investor's Business Daily delivered by Newstex) --

What does a mining company do when all the top-grade ore has already been dug up?

That's the situation in the United States. Cleveland-Cliffs (CLF) saw it as an opportunity. It became the biggest U.S. iron ore miner by going after second-tier iron ore.

From a global perspective, Cleveland-Cliffs' annual sales of $2.29 billion are small, dwarfed by mining giants such as BHP Billiton (BHP), whose sales reached $47.5 billion last year.

But 160-year-old Cleveland-Cliffs is the biggest U.S. miner of iron ore, accounting for 40% of domestic production.

That position has helped it cash in on insatiable global demand as emerging markets such as China and India modernize their infrastructures and expand their consumer classes.

Cleveland-Cliffs' sales have grown at double-digit rates for 10 straight quarters, and shares have more than doubled in the last year.

Joe Carrabba, the company's CEO, recently spoke to IBD about his company's strategy and growth prospects.

IBD: What are iron ore pellets and who do you sell them to?

Carrabba: In the U.S. we don't have any of the highly enriched ores left. They were depleted in the 1950s and '60s.

We use a lower grade ore. So we have to crush it finely and separate all the non-iron material out of it.

After we do that, this stuff is as fine as face powder almost. We can't ship it that way. So we make a pellet out of it. They are about the size of a marble. They are pretty consistent in size.

We ship it in boats from Minnesota or upper Michigan where we have two mines. Our product goes to all the iron ore producers around the Great Lakes.

Our customers include ArcelorMittal (MT), Essar Global, U.S. Steel (X) -- anybody left in the steel business in the U.S.

IBD: We hear a lot about commodity prices being under constant pressure. Is that true in metal ores?

Carrabba: No. We're in the third year of what some call a supercycle or megatrend. This is an unprecedented time in mining of metals.

IBD: Why is that?

Carrabba: China is everything, even though we don't ship directly to China. It takes ores away from the rest of the world, and that leaves a void for the rest of the world.

IBD: Your customer list is 80% in North America, but you have operations worldwide, in places such as Brazil and Australia. How does that work out for you?

Carrabba: That has been a deliberate strategy. We made a decision three years ago to branch out. We first bought a publicly traded company in Australia called Portman.

IBD: What's the general outlook for the metal ores industry this year?

Carrabba: As countries like China and India emerge and continue to grow, they will expand infrastructure, getting autos and white goods (home appliances) for their homes.

That will continue for the foreseeable future. We think we're in a long and bullish cycle.

IBD: What major trends will shape the metal ores industry this year?

Carrabba: The supply side continues to lag. Exploration is not turning up big enough deposits.

No. 2 is, here in the U.S., bulk containers need to be shipped by ocean or the Great Lakes. The iron ore deposits closest to the coast were exhausted first. Now we're inland 400 or 500 kilometers (248 or 310 miles).

We're talking about tremendous infrastructure. You have to build a port or railroad to get it out. It takes a lot of money. You need a premier deposit that is very big, and that takes a lot of labor and time.

IBD: How much do you spend to find new deposits?

Carrabba: We will spend about $25 million on exploration this year. It's going up, and it's a lot more than we have spent in the past. But that's a very small exploration budget compared to some of the bigger companies.

In fact, for our size this is a small number. We have done most of our growth by acquisition.

IBD: Is there consolidation in the industry?

Carrabba: Very much so. The big mining houses consolidated at an unbelievable pace in the last decade.

IBD: Will that continue?

Carrabba: Yeah, if there's anything left to consolidate.