Edgar Filing: CLIFFS NATURAL RESOURCES INC.

Form 10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2010

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 1-8944

LOGO

CLIFFS NATURAL RESOURCES INC.

(Exact Name of Registrant as Specified in Its Charter)


Ohio		34-1464672
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

200 Public Square, Cleveland, Ohio		44114-2315
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s Telephone Number, Including Area Code: (216) 694-5700

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Name of Each Exchange on Which Registered

Common Shares, par value $0.125 per share

New York Stock Exchange and Professional Segment of

NYSE Euronext Paris

Securities registered pursuant to Section 12(g) of the Act:

NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES x NO ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ¨ NO x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ¨ NO x

As of June 30, 2010, the aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant, based on the closing price of $47.16 per share as reported on the New York Stock Exchange — Composite Index, was $6,354,612,868 (excluded from this figure is the voting stock beneficially owned by the registrant’s officers and directors).

The number of shares outstanding of the registrant’s Common Shares, par value $0.125 per share, was 135,462,509 as of February 14, 2011.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s proxy statement for its annual meeting of shareholders scheduled to be held on May 17, 2011 are incorporated by reference into Part III.

TABLE OF CONTENTS


		Page No.
Definitions			2

Part I
Item 1.	Business		4
Item 1A.	Risk Factors		23
Item 1B.	Unresolved Staff Comments		32
Item 2.	Properties		32
Item 3.	Legal Proceedings		41
Item 4.	(Removed and Reserved)		45

Part II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		46
Item 6.	Selected Financial Data		48
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		50
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		86
Item 8.	Financial Statements and Supplementary Data		87
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		165
Item 9A.	Controls and Procedures		165
Item 9B.	Other Information		166

Part III
Item 10.	Directors, Executive Officers and Corporate Governance		169
Item 11.	Executive Compensation		169
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		169
Item 13.	Certain Relationships and Related Transactions, and Director Independence		171
Item 14.	Principal Accountant Fees and Services		171

Part IV
Item 15.	Exhibits, Financial Statement Schedules		172
Signatures			173

Definitions

The following abbreviations or acronyms are used in the text. References in this report to the “Company,” “we,” “us,” “our” and “Cliffs” are to Cliffs Natural Resources Inc. and subsidiaries, collectively. References to “A$” or “AUD” refer to Australian currency, “C$” to Canadian currency and “$” to United States currency.


Abbreviation or acronym		Term
Algoma		Essar Steel Algoma Inc.
Amapá		Anglo Ferrous Amapá Mineração Ltda. and Anglo Ferrous Logística Amapá Ltda.
Anglo		Anglo American plc
APBO		Accumulated Postretirement Benefit Obligation
ArcelorMittal USA		ArcelorMittal USA Inc.
ASC		Accounting Standards Codification
AusQuest		AusQuest Limited
BART		Best Available Retrofit Technology
BHP		BHP Billiton
CAC		Cliffs Australia Coal Pty Ltd.
CAWO		Cliffs Australian Washplant Operations Pty Ltd
CERCLA		Comprehensive Environmental Response, Compensation and Liability Act
C.I.F.		Cost, Insurance and Freight
CLCC		Cliffs Logan County Coal
Clean Water Act		Federal Water Pollution Control Act
Cliffs Erie		Cliffs Erie LLC
CO₂e		Carbon dioxide equivalent
Cockatoo Island		Cockatoo Island Joint Venture
Compensation Committee		The Compensation and Organization Committee
Consent Order		Administrative Order by Consent
Consolidated Thompson		Consolidated Thompson Iron Mines Ltd.
CPRS		Carbon Cap and Trade Pollution Reduction Scheme
DEP		Department of Environment Protection
Directors’ Plan		Nonemployee Directors’ Compensation Plan, as amended and restated 12/31/2008
Dodd-Frank Act		Dodd-Frank Wall Street Reform and Consumer Protection Act
Dofasco		ArcelorMittal Dofasco Inc.
DSA		Draft stipulation agreement
EBIT		Earnings before interest and taxes
EBITDA		Earnings before interest, taxes, depreciation and amortization
Empire		Empire Iron Mining Partnership
EPA		United States Environmental Protection Agency
EPS		Earnings per share
Exchange Act		Securities Exchange Act of 1934
FASB		Financial Accounting Standards Board
FMSH Act		Federal Mine Safety and Health Act 1977
F.O.B.		Free on board
Freewest		Freewest Resources Canada Inc.
GAAP		Accounting principles generally accepted in the United States
GHG		Greenhouse gas
Golden West		Golden West Resources Ltd.
GRI		Global Reporting Initiative
Hibbing		Hibbing Taconite Company
ICE Plan		Amended and Restated Cliffs 2007 Incentive Equity Plan
INR		INR Energy, LLC
IRS		Internal Revenue Service
Ispat		Ispat Inland Steel Company
JORC		Joint Ore Reserves Code
LIBOR		London Interbank Offered Rate
LIFO		Last-in, first-out
LTVSMC		LTV Steel Mining Company


Abbreviation or acronym		Term
MMBtu		Million British Thermal Units
MMX		MMX Mineração e Metálicos S.A.
MP		Minnesota Power, Inc.
MPCA		Minnesota Pollution Control Agency
MPSC		Michigan Public Service Commission
MRRT		Minerals Resource Rent Tax
MSHA		Mine Safety and Health Administration
NBCWA		National Bituminous Coal Wage Agreement
NDEP		Nevada Department of Environmental Protection
NO₂		Nitrogen dioxide
Northshore		Northshore Mining Company
NPDES		National Pollutant Discharge Elimination System
NRD		Natural Resource Damages
NYSE		New York Stock Exchange
Oak Grove		Oak Grove Resources, LLC
OCI		Other comprehensive income
OPEB		Other postretirement benefits
PBO		Projected benefit obligation
Pinnacle		Pinnacle Mining Company, LLC
PinnOak		PinnOak Resources, LLC
PolyMet		PolyMet Mining Inc.
Portman		Portman Limited (now known as Cliffs Asia Pacific Iron Ore Holdings Pty Ltd)
PPACA		Patient Protection and Affordable Care Act
PRP		Potentially responsible party
PSD		Prevention of Significant Deterioration
Qcoal		Qcoal Pty Ltd
Quest		Quest Rare Minerals Ltd.
Reconciliation Act		Health Care and Education Reconciliation Act
renewaFUEL		renewaFUEL, LLC
Ring of Fire properties		Black Thor, Black Label and Big Daddy chromite deposits
RTWG		Rio Tinto Working Group
SAR		Stock Appreciation Rights
SEC		United States Securities and Exchange Commission
Severstal		Severstal North America, Inc.
Silver Bay Power		Silver Bay Power Company
SMCRA		Surface Mining Control and Reclamation Act
SMM		Sonoma Mine Management
SO₂		Sulfur dioxide
Sonoma		Sonoma Coal Project
Sonoma Sales		Sonoma Sales Pty Ltd
Spider		Spider Resources Inc.
TCR		The Climate Registry
Tilden		Tilden Mining Company L.C.
TMDL		Total Maximum Daily Load
TSR		Total Shareholder Return
UMWA		United Mineworkers of America
United Taconite		United Taconite LLC
U.S.		United States of America
U.S. Steel		United States Steel Corporation
USW		United Steelworkers
Vale		Companhia Vale do Rio Doce
VEBA		Voluntary Employee Benefit Association trusts
VIE		Variable interest entity
VNQDC Plan		2005 Voluntary NonQualified Deferred Compensation Plan
Wabush		Wabush Mines Joint Venture
Weirton		ArcelorMittal Weirton Inc.
WEPCO		Wisconsin Electric Power Company
Wheeling		Wheeling-Pittsburgh Steel Corporation

PART I

Item 1. Business.

Introduction

Cliffs Natural Resources Inc. traces its corporate history back to 1847. Today, we are an international mining and natural resources company. A member of the S&P 500 Index, we are the largest producer of iron ore pellets in North America, a major supplier of direct-shipping lump and fines iron ore out of Australia, and a significant producer of metallurgical coal. With core values of environmental and capital stewardship, our colleagues across the globe endeavor to provide all stakeholders operating and financial transparency as embodied in the GRI framework. Our company’s operations are organized according to product category and geographic location: North American Iron Ore; North American Coal; Asia Pacific Iron Ore; Asia Pacific Coal; Latin American Iron Ore; Alternative Energies; Ferroalloys; and our Global Exploration Group.

In North America, we operate six iron ore mines in Michigan, Minnesota and Eastern Canada, five metallurgical coal mines located in West Virginia and Alabama and one thermal coal mine located in West Virginia. Our Asia Pacific operations are comprised of two iron ore mining complexes in Western Australia, serving the Asian iron ore markets with direct-shipping fines and lump ore, and a 45 percent economic interest in a coking and thermal coal mine located in Queensland, Australia. In Latin America, we have a 30 percent interest in Amapá, a Brazilian iron ore project, and in Ontario, Canada, we recently acquired chromite properties. Our operations also include our 95 percent controlling interest in renewaFUEL located in Michigan. In addition, our Global Exploration Group was established in 2009 and is focused on early involvement in exploration activities to identify new world-class projects for future development or projects that add significant value to existing operations.

Industry Overview

The strengthening recovery and improving outlook of the economic environment during 2010 was characterized by increased steel production, higher demand and rising prices. In 2010, global crude steel production, a significant driver of our business, was up approximately 15 percent from 2009 with even greater production increases in some areas, including North America. China produced approximately 627 million metric tons of crude steel in 2010, representing approximately 44 percent of global production. Steel production in China increased 10.4 percent, 13.5 percent and 16 percent in 2010, 2009 and 2008, respectively.

The rapid growth in steel production in China over recent years has only been partially met by a corresponding increase in domestic Chinese iron ore production. Chinese iron ore deposits, although substantial, are of a lower grade (less than half of the equivalent iron ore content) than the current iron ore supplied from Brazil and Australia.

The world price of iron ore is heavily influenced by international demand. Worldwide stimulus efforts initiated in 2009 improved demand during 2010, and rising spot market prices for iron ore reflected this trend. The rapid growth in Chinese demand, particularly in more recent years, created a market imbalance, which continues to indicate demand is outpacing supply. In Asia Pacific, the demand for steelmaking raw materials remained strong throughout 2010, primarily led by demand from China. As a result of increasing spot prices for iron ore, there has been a shift in the industry toward shorter-term pricing arrangements linked to the spot market. With the improved economic environment and corresponding strengthening of steel demand throughout 2010, seaborne iron ore prices for most iron ore products increased in excess of 95 percent.

The world market for metallurgical coal in 2010 was influenced less by international demand and more by the geographies where it is consumed. Throughout 2010, reported spot prices in Asia Pacific were strong, and at times trading above the range of announced quarterly settlement prices of $200 to $225 per metric ton. In the North American and European markets, demand in 2010 improved over 2009 levels largely due to the improved economic environment and global increases in steel production.

During 2010, capacity utilization among steelmaking facilities in North America demonstrated continued improvement, reaching an average rate of approximately 70 percent at year-end up from an average rate of approximately 52 percent for 2009. The industry continued to show signs of stabilization, reflecting increasing

steel production and the restarting of blast furnaces in North America and Europe. As a result, we experienced marked improvements in customer demand and market expectations. We increased production at most of our facilities and called employees back to work in order to ensure that we were positioned to meet increases in demand, while continuing to monitor the markets closely.

Growth Strategy and Recent Developments

Over recent years, we have been executing a strategy designed to achieve scale in the mining industry and focused on serving the world’s largest and fastest growing steel markets. Throughout 2010, we continued to increase our operating scale and presence as an international mining and natural resources company by expanding both geographically and through the minerals we mine and market. The long-term outlook remains healthy and we are now focusing on our growth projects with sustained investment in our core businesses. Our growth in North America, as well as acquisitions in minerals outside of iron ore and coal, illustrates the execution of this strategy during 2010.

We also expect to achieve growth through early involvement in exploration activities by partnering with junior mining companies, which provide us low-cost entry points for potentially significant reserve additions. We established a global exploration group in 2009, led by professional geologists who have the knowledge and experience to identify new world-class projects for future development or projects that add significant value to existing operations.

Specifically, we continued our strategic growth as an international mining and natural resources company through the following transactions in 2010:

Freewest. On January 27, 2010, we acquired all of the remaining outstanding shares of Freewest for C$1.00 per share, including its interest in the Ring of Fire properties in Northern Ontario Canada which comprise three premier chromite deposits. The acquisition of Freewest is consistent with our strategy to broaden our geographic and mineral diversification and allows us to apply our expertise in open-pit mining and mineral processing to a chromite ore resource base that could form the foundation of North America’s only ferrochrome production operation. The planned mine is expected to produce 1 million to 2 million metric tons of high-grade chromite ore annually, which would be further processed into 400 thousand to 800 thousand metric tons of ferrochrome.

Wabush. On February 1, 2010, we acquired entities from our former partners that held their respective interests in Wabush for $103 million, thereby increasing our ownership interest to 100 percent. With Wabush’s 5.5 million tons of production capacity, acquisition of the remaining interest has increased our North American Iron Ore equity production capacity by approximately 4.0 million tons and has added more than 50 million tons of additional reserves. Furthermore, acquisition of the remaining interest has provided us additional access to the seaborne iron ore markets serving steelmakers in Europe and Asia.

Spider. We commenced a formal cash offer to acquire all of the outstanding common shares of Spider, a Canadian-based mineral exploration company, for C$0.19 per share during the second quarter of 2010. On July 6, 2010, all of the conditions to acquire the remaining common shares of Spider had been satisfied or waived and we increased our ownership percentage to 52 percent, representing a majority of the common shares outstanding on a fully-diluted basis. Subsequently, we extended the cash offer to permit additional shares to be tendered and taken up, thereby increasing our ownership percentage in Spider to 85 percent as of July 26, 2010. Effective October 6, 2010, we completed the acquisition of all of the remaining shares of Spider through an amalgamation. Consequently, we own 100 percent of Spider as of December 31, 2010 and have obtained majority ownership of the “Big Daddy” chromite deposit located in Northern Ontario. The “Big Daddy” chromite deposit is one of the three premier chromite deposits that we originally acquired interest in through the Freewest acquisition as discussed above.

CLCC. On July 30, 2010, we acquired all of the coal operations of privately-owned INR for $775.9 million, and since that date, the operations acquired from INR have been conducted through our wholly-owned subsidiary known as CLCC. CLCC is a producer of high-volatile metallurgical and thermal coal located in southern West Virginia. CLCC’s operations include two underground continuous mining method metallurgical coal mines and one open surface thermal coal mine, a coal preparation and processing facility as well as a large,

long-life reserve base with an estimated 59 million tons of metallurgical coal and 62 million tons of thermal coal. This reserve base increases our total global reserve base to over 166 million tons of metallurgical coal and over 67 million tons of thermal coal. This acquisition represents an opportunity for us to add complementary high-quality coal products and provides certain advantages, including among other things, long-life mine assets, operational flexibility, and new equipment.

We plan to continue our strategic growth as an international mining and natural resources company in 2011. Specifically:

Consolidated Thompson. On January 11, 2011, we entered into a definitive arrangement agreement with Consolidated Thompson to acquire all of its common shares in an all-cash transaction including net debt, valued at approximately C$4.9 billion, or C$17.25 per share. The proposed acquisition reflects our strategy to build scale by owning expandable and exportable steelmaking raw material assets serving international markets. Completion of the acquisition is subject to customary closing conditions, including approval by Consolidated Thompson shareholders and government and regulatory approvals.

Business Segments

Our company’s primary operations are organized and managed according to product category and geographic location: North American Iron Ore; North American Coal; Asia Pacific Iron Ore; Asia Pacific Coal; Latin American Iron Ore; Alternative Energies; Ferroalloys; and Global Exploration Group. The Asia Pacific Coal, Latin American Iron Ore, Alternative Energies, Ferroalloys and Global Exploration Group operating segments do not meet reportable segment disclosure requirements and therefore are not separately reported.

The North American Iron Ore and North American Coal business segments are headquartered in Cleveland, Ohio. Our Asia Pacific headquarters is located in Perth, Australia, and our Latin American headquarters is located in Rio de Janeiro, Brazil. In addition, the Alternative Energies, Ferroalloys and Global Exploration Group operating segments are currently managed at our Cleveland, Ohio location.

We evaluate segment performance based on sales margin, defined as revenues less cost of goods sold identifiable to each segment. This measure of operating performance is an effective measurement as we focus on reducing production costs throughout the Company. Financial information about our segments is included in Item 7 and NOTE 2 — SEGMENT REPORTING included in Item 8 of this Annual Report on Form 10-K.

North American Iron Ore

We are the largest producer of iron ore pellets in North America and primarily sell our production to integrated steel companies in the United States and Canada. We manage and operate six North American iron ore mines located in Michigan, Minnesota and Eastern Canada that currently have an annual rated capacity of 38.4 million tons of iron ore pellet production, representing 45.3 percent of total North American pellet production capacity.¹ Based on our equity ownership in the North American mines we currently operate, our share of the annual rated pellet production capacity is currently 29.9 million tons, representing 35.3 percent of total North American annual pellet capacity.²

¹	North American pellet capacity as reported includes plants in the U.S. and Canada but excludes Mexico.

²	On February 1, 2010, we acquired U.S. Steel Canada’s 44.6 percent interest and ArcelorMittal Dofasco’s 28.6 percent interest in Wabush, thereby increasing our ownership interest in Wabush from 26.8 percent as of December 31, 2009 to 100 percent as of December 31, 2010.

The following chart summarizes the estimated annual production capacity and percentage of total North American pellet production capacity for each of the North American iron ore pellet producers as of December 31, 2010:

North American Iron Ore Pellet

Annual Rated Capacity Tonnage


	Current Estimated Capacity (Gross Tons in Millions)		Percent of Total North American Capacity
All Cliffs’ managed mines		38.4		45.3	%
Other U.S. mines
U.S. Steel’s Minnesota ore operations
Minnesota Taconite		16.0		18.9
Keewatin Taconite		5.2		6.2

Total U.S. Steel		21.2		25.1
ArcelorMittal USA Minorca mine		2.8		3.3

Total other U.S. mines		24.0		28.4
Other Canadian mines
Iron Ore Company of Canada		13.0		15.3
ArcelorMittal Mines Canada		9.3		11.0

Total other Canadian mines		22.3		26.3

Total North American mines		84.7		100.0	%

We sell our share of North American iron ore production to integrated steel producers, generally pursuant to term supply agreements with various price adjustment provisions.

For the year ended December 31, 2010, we produced a total of 32 million tons of iron ore pellets, including 25.4 million tons for our account and 6.6 million tons on behalf of steel company owners of the mines.

We produce various grades of iron ore pellets, including standard, fluxed and high manganese, for use in our customers’ blast furnaces as part of the steelmaking process. The variation in grades results from the specific chemical and metallurgical properties of the ores at each mine and whether or not fluxstone is added in the process. Although the grade or grades of pellets currently delivered to each customer are based on that customer’s preferences, which depend in part on the characteristics of the customer’s blast furnace operation, in many cases our iron ore pellets can be used interchangeably. Industry demand for the various grades of iron ore pellets depends on each customer’s preferences and changes from time to time. In the event that a given mine is operating at full capacity, the terms of most of our pellet supply agreements allow some flexibility to provide our customers iron ore pellets from different mines.

Standard pellets require less processing, are generally the least costly pellets to produce and are called “standard” because no ground fluxstone, such as limestone or dolomite, is added to the iron ore concentrate before turning the concentrates into pellets. In the case of fluxed pellets, fluxstone is added to the concentrate, which produces pellets that can perform at higher productivity levels in the customer’s specific blast furnace and will minimize the amount of fluxstone the customer may be required to add to the blast furnace. “High manganese” pellets are the pellets produced at our Canadian Wabush operation in Eastern Canada, where there is more natural manganese in the crude ore than is found at our other operations. The manganese contained in the iron ore mined at Wabush cannot be entirely removed during the concentrating process. Wabush produces manganese pellets, both in standard and fluxed grades.

It is not possible to produce pellets with identical physical and chemical properties from each of our mining and processing operations. The grade or grades of pellets purchased by and delivered to each customer are based on that customer’s preferences and availability.

Each of our North American Iron Ore mines is located near the Great Lakes or, in the case of Wabush, near the St. Lawrence Seaway, which is connected to the Great Lakes. The majority of our iron ore pellets are transported via railroads to loading ports for shipment via vessel to steelmakers in the U.S., Canada or into the international seaborne market.

Our North American Iron Ore sales are influenced by seasonal factors in the first quarter of the year as shipments and sales are restricted by weather conditions on the Great Lakes. During the first quarter, we continue to produce our products, but we cannot ship those products via lake vessel until the conditions on the Great Lakes are navigable, which causes our first quarter inventory levels to rise. Our limited practice of shipping product to ports on the lower Great Lakes or to customers’ facilities prior to the transfer of title has somewhat mitigated the seasonal effect on first quarter inventories and sales, as shipment from this point to the customers’ operations is not limited by weather-related shipping constraints. At December 31, 2010 and 2009, we had approximately 0.8 million and 1.2 million tons of pellets, respectively, in inventory at lower lakes or customers’ facilities.

North American Iron Ore Customers

Our North American Iron Ore revenues are primarily derived from sales of iron ore pellets to the North American integrated steel industry, consisting of seven major customers. Generally, we have multi-year supply agreements with our customers. Sales volume under these agreements is largely dependent on customer requirements, and in many cases, we are the sole supplier of iron ore pellets to the customer. Historically, each agreement has contained a base price that is adjusted annually using one or more adjustment factors. Factors that could result in a price adjustment include international pellet prices, measures of general industrial inflation and steel prices. Additionally, certain of our supply agreements have a provision that limits the amount of price increase or decrease in any given year. In 2010, the world’s largest iron ore producers moved away from the annual international benchmark pricing mechanism referenced in certain of our customer supply agreements, resulting in a shift in the industry toward shorter-term pricing arrangements linked to the spot market. These changes caused us to assess the impact a change to the historical annual pricing mechanism would have on certain of our larger existing North American Iron Ore customer supply agreements. We reached final pricing settlements with some of our North American Iron Ore customers through the fourth quarter of 2010 for the 2010 contract year.

During 2010, 2009 and 2008, we sold 26.2 million, 16.4 million, and 22.7 million tons of iron ore pellets, respectively, from our share of the production from our North American Iron Ore mines. The segment’s five largest customers together accounted for a total of 81 percent, 86 percent, and 84 percent of North American Iron Ore product revenues for the years 2010, 2009 and 2008, respectively. Refer to Concentration of Customers within Item 1 — Business, for additional information regarding our major customers.

North American Coal

We own and operate five metallurgical coal mines located in West Virginia and Alabama and one thermal coal mine located in West Virginia that currently have a rated capacity of 9.4 million tons of production annually. In 2010, we sold a total of 3.3 million tons, compared with 1.9 million tons in 2009 and 3.2 million tons in 2008. Each of our North American coal mines are positioned near rail or barge lines providing access to international shipping ports, which allows for export of our coal production.

North American Coal Customers

North American Coal’s metallurgical coal production is sold to global integrated steel and coke producers in Europe, Latin America and North America and its thermal coal production is sold to energy companies and distributors in North America and Europe. Approximately 72 percent of our 2010 production and 76 percent of our 2009 production was committed under one-year contracts. At December 31, 2010, approximately 68 percent of our projected 2011 production has been committed under one-year contracts. North American negotiations are still ongoing, and international negotiations have recently begun. The remaining tonnage is pending price negotiations primarily with our international customers, which is typically dependent on settlements of Australian pricing for metallurgical coal. International customer contracts are typically negotiated on a fiscal year basis extending from April 1 through March 31, whereas customer contracts in North America are typically negotiated on a calendar year basis extending from January 1 through December 31.

International and North American sales represented 55 percent and 45 percent, respectively, of our North American Coal sales in 2010. This compares with 65 percent and 35 percent, respectively, in 2009 and 56 percent and 44 percent, respectively, in 2008. The segment’s five largest customers together accounted for a total of 62 percent, 75 percent and 76 percent of North American Coal product revenues for the years 2010, 2009 and 2008, respectively. Refer to Concentration of Customers within Item 1 — Business, for additional information regarding our major customers.

Asia Pacific Iron Ore

Our Asia Pacific Iron Ore operations are located in Western Australia and include our 100 percent owned Koolyanobbing complex and our 50 percent equity interest in Cockatoo Island. We serve the Asian iron ore markets with direct-shipping fines and lump ore. Production in 2010 was 9.3 million metric tons, compared with 8.3 million metric tons in 2009 and 7.7 million metric tons in 2008.

These two operations supply a total of three direct-shipping export products to Asia via the global seaborne trade market. Koolyanobbing produces a standard lump and fines product. Cockatoo Island produces a single premium fines product. The lump products are directly fed to blast furnaces, while the fines products are used as sinter feed. The variation in the three export product grades reflects the inherent chemical and physical characteristics of the ore bodies mined as well as the supply requirements of the customers.

Koolyanobbing is a collective term for the operating deposits at Koolyanobbing, Mount Jackson and Windarling. There are approximately 60 miles separating the three mining areas. Banded iron formations host the mineralization, which is predominately hematite and goethite. Each deposit is characterized with different chemical and physical attributes, and in order to achieve customer product quality, ore in varying quantities from each deposit must be blended together. In December 2010, we received regulatory approvals to further develop the Mount Jackson J1 deposit, which is an extension of the existing Mount Jackson Iron Ore deposits in Western Australia. In September 2010, our Board of Directors approved a capital project at our Koolyanobbing Operation that is expected to increase production output at Koolyanobbing to approximately 11 million metric tons annually. The Mount Jackson J1 deposit project is expected to contribute to our ability to increase production output. These improvements are expected to be fully implemented by the second half of 2012.

Crushing and blending is undertaken at Koolyanobbing, where the crushing and screening plant is located. Once the blended ore has been crushed and screened into a direct lump and fines shipping product, it is transported by rail approximately 360 miles south to the Port of Esperance for shipment to our customers in Asia.

Cockatoo Island is located off the Kimberley coast of Western Australia, approximately 1,200 miles north of Perth and is only accessible by sea and air. Cockatoo Island produces a single high-grade iron ore product known as Cockatoo Island Premium Fines. The deposit is almost pure hematite and contains very few contaminants enabling the shipping grade to be above 66 percent iron. Ore is mined below the sea level on the southern edge of the island. This is facilitated by a sea wall, which enables mining to a depth of 130 feet below sea level. Ore is crushed and screened on-site to the final product sizing. Vessels berth at the island and the fines product is loaded directly to the ship. Cockatoo Island Premium Fines are highly sought in the global marketplace due to their extremely high iron grade and low valueless mineral content. Production at Cockatoo Island ended during 2008 due to construction on Phase 3 of the seawall, and in April 2009, an unanticipated subsidence of the seawall occurred. As a result, production from the mine was delayed and was not expected to resume until the first half of 2011 once the seawall is completed. Production at Cockatoo Island resumed earlier than expected during the third quarter of 2010.

Asia Pacific Iron Ore Customers

Asia Pacific Iron Ore’s production is under contract with steel companies in China and Japan through 2012. Historically, a limited spot market existed for seaborne iron ore as most production has been sold under supply contracts with annual benchmark prices driven from negotiations between the major suppliers and Chinese, Japanese and other Asian steel mills. As discussed above, in 2010, the world’s largest iron ore producers moved away from the annual international benchmark pricing mechanism referenced in our customer supply

agreements, resulting in a shift in the industry toward shorter-term pricing arrangements linked to the spot market. These changes caused us to assess and renegotiate the terms of our supply agreements with our customers.

Asia Pacific Iron Ore has five-year term supply agreements with steel producers in China and Japan that account for approximately 82 percent and 18 percent, respectively, of sales. The contracts were renegotiated for the period 2008 through 2012. Sales volume under the agreements is partially dependent on customer requirements. As a result of the move away from the annual international benchmark pricing mechanism in 2010, we renegotiated the terms of our supply agreements with our Chinese and Japanese Asia Pacific Iron Ore customers moving to shorter-term pricing mechanisms of various durations based on the average daily spot prices, with certain pricing mechanisms that have a duration of up to a quarter. This change was effective in the first quarter of 2010 for our Chinese customers and the second quarter of 2010 for our Japanese customers.

During 2010, 2009 and 2008, we sold 9.3 million, 8.5 million and 7.8 million metric tons of iron ore, respectively, from our Western Australia mines. No customer comprised more than 10 percent of our consolidated sales in 2010, 2009 or 2008. Asia Pacific Iron Ore’s five largest customers accounted for approximately 36 percent of the segment’s sales in 2010, 39 percent in 2009 and 44 percent in 2008.

Investments

In addition to our reportable business segments, we are partner to a number of projects, including Amapá in Brazil and Sonoma in Australia, which comprise our Latin American Iron Ore and Asia Pacific Coal operating segments, respectively.

Amapá

We are a 30 percent minority interest owner in Amapá, which consists of an iron ore deposit, a 120-mile railway connecting the mine location to an existing port facility and 71 hectares of real estate on the banks of the Amazon River, reserved for a loading terminal. Amapá initiated production in late December 2007. The remaining 70 percent of Amapá is owned by Anglo.

As the operator of the property, Anglo declared commercial production achievement during 2010 with annual production totaling 4.0 million metric tons, compared with 2.7 million metric tons and 1.2 million metric tons in 2009 and 2008, respectively. Anglo has indicated that it expects Amapá will produce and sell 4.5 million metric tons of iron ore fines products in 2011 and 5.1 million metric tons annually once fully operational, which is expected to occur in 2012, based on current capital expenditure levels. The majority of Amapá’s production is committed under a long-term supply agreement with an operator of an iron oxide pelletizing plant in the Kingdom of Bahrain.

Sonoma

We own a 45 percent economic interest in Sonoma, located in Queensland, Australia. Production and sales totaled approximately 3.5 million metric tons, respectively, in 2010. This compares with production and sales of approximately 2.8 million and 3.1 million metric tons and 2.4 million and 2.1 million metric tons in 2009 and 2008, respectively. The project is expected to produce approximately 3.6 million metric tons of coal annually in 2011 and beyond. Production is expected to include a mix of approximately two-thirds thermal and one-third metallurgical grade coal. In 2009, Sonoma experienced intrusions in the coal seams which affected raw coal quality, recoverability in the washing process, and ultimately the quantity of metallurgical coal in the production mix. As a result, the geological model for Sonoma has been enhanced to reflect the presence of the intrusions and to refine the mining sequence in order to optimize the mix of metallurgical and thermal coal despite being lower than initially planned levels. Sonoma has economically recoverable reserves of 20 million metric tons. Of the 3.5 million metric tons produced in 2010, approximately 3.0 million metric tons were committed under supply agreements. As of December 31, 2010, approximately 2.0 million metric tons, of the 3.6 metric tons expected to be produced in 2011, are committed under supply agreements.

Research and Development

We have been a leader in iron ore mining technology for more than 160 years. We operated some of the first mines on Michigan’s Marquette Iron Range and pioneered early open-pit and underground mining methods.

From the first application of electrical power in Michigan’s underground mines to the use of today’s sophisticated computers and global positioning satellite systems, we have been a leader in the application of new technology to the centuries-old business of mineral extraction. Today, our engineering and technical staffs are engaged in full-time technical support of our operations and improvement of existing products.

We are expanding our leadership position in the industry by focusing on high product quality, technical excellence, superior relationships with our customers and partners and improved operational efficiency through cost saving initiatives. We operate a fully-equipped research and development facility in Ishpeming, Michigan, which supports each of our global operations. Our research and development group is staffed with experienced engineers and scientists and is organized to support the geological interpretation, process mineralogy, mine engineering, mineral processing, pyrometallurgy, advanced process control and analytical service disciplines. Our research and development group is also utilized by iron ore pellet customers for laboratory testing and simulation of blast furnace conditions.

Exploration

Our exploration program is integral to our growth strategy. We have several projects and potential opportunities to diversify our products, expand our production volumes and develop large-scale ore bodies through early involvement in exploration activities. We achieve this by partnering with junior mining companies, which provide us low-cost entry points for potentially significant reserve additions. In 2009, we established a global exploration group, led by professional geologists who have the knowledge and experience to identify new world-class projects for future development or projects that add significant value to existing operations. We spent approximately $30 million on exploration activities in 2010, and we expect cash expenditures between $50 million and $55 million on exploration activities in 2011, which we anticipate will provide us with opportunities for significant future potential reserve additions globally.

Concentration of Customers

We have three customers that individually account for more than 10 percent of our consolidated product revenue in 2010. Total revenue from these customers represents approximately $1.8 billion, $1.0 billion, and $1.6 billion of our total consolidated product revenue in 2010, 2009 and 2008, respectively, and is attributable to our North American Iron Ore and North American Coal business segments. In 2009 and 2008, we had two and three customers, respectively, that individually accounted for more than 10 percent of our consolidated product revenue. The following represents sales revenue from each of these customers as a percentage of our total consolidated product revenue as well as the portion of product sales for North American Iron Ore and North American Coal that is attributable to each of these customers in 2010, 2009 and 2008, respectively:


	Percentage of Total Product Revenue (1)									Percentage of North American Iron Ore Product Revenue (1)									Percentage of North American Coal Product Revenue (1)
Customer (2)	2010			2009			2008			2010			2009			2008			2010			2009			2008
ArcelorMittal		19	%		28	%		27	%		28	%		42	%		39	%		28	%		28	%		23	%
Algoma		11			10			11			18			17			17			2			—			—
Severstal		11			8			12			17			13			18			—			4			5

Total		41	%		46	%		50	%		63	%		72	%		74	%		30	%		32	%		28	%

(1)	Excluding freight and venture partners’ cost reimbursements.

(2)	Includes subsidiaries of each customer.

ArcelorMittal USA

On March 19, 2007, we executed an umbrella agreement with ArcelorMittal USA, a subsidiary of ArcelorMittal, that covered significant price and volume matters under three separate pre-existing iron ore pellet supply agreements for ArcelorMittal USA’s Cleveland and Indiana Harbor West, Indiana Harbor East and Weirton facilities.

Under the umbrella agreement, ArcelorMittal USA was obligated to purchase specified minimum tonnages of iron ore pellets on an aggregate basis from 2006 through 2010. The umbrella agreement set the minimum annual tonnage for ArcelorMittal USA through 2010, with pricing based on the facility to which the pellets were delivered. The terms of the umbrella agreement contained buy-down provisions, which permitted ArcelorMittal USA to reduce its tonnage purchase obligation each year at a specified price per ton, as well as deferral provisions, which permitted ArcelorMittal USA to defer a portion of its annual tonnage purchase obligation. In addition, ArcelorMittal was permitted to nominate tonnage for export out of the U.S. to any facility owned by ArcelorMittal, but pricing needs to be agreed to by the parties. This ability to nominate tonnage for export ceased upon the expiration of the umbrella agreement at the end of 2010, and most of our contracts have reverted back to a requirements basis. For additional information regarding the arbitrations related to pellet nominations, refer to Part 1 — Item 3, Legal Proceedings.

The umbrella agreement expired at the end of 2010 and our pellet supply agreements with ArcelorMittal USA that were in place prior to executing the umbrella agreement will again become the basis for supplying pellets to ArcelorMittal USA, which is based on customer requirements, except for the Indiana Harbor East facility, which is based on customer excess requirements.


Facility	Agreement Expiration
Facility	Agreement Expiration
Cleveland Works and Indiana Harbor West facilities		2016
Indiana Harbor East facility		2015
Weirton facility		2018

ArcelorMittal USA is a 62.3 percent equity participant in Hibbing and a 21 percent equity partner in Empire with limited rights and obligations. ArcelorMittal USA was a 28.6 percent participant in Wabush through its subsidiary ArcelorMittal Dofasco. As previously noted, on February 1, 2010, we acquired the remaining interest in Wabush, including ArcelorMittal Dofasco’s 28.6 percent interest.

In 2010, 2009 and 2008, our North American Iron Ore pellet sales to ArcelorMittal USA were 9.9 million, 7.7 million, and 9.9 million tons, respectively.

Our North American Coal supply agreements with ArcelorMittal are negotiated on an annual basis for the period April 1 through March 31 and are based on a tonnage commitment for the 12-month fiscal period. Contracts have historically been priced on an annual basis, with pricing generally in line with Australian pricing for metallurgical coal. In 2010, 2009 and 2008, our North American Coal sales to ArcelorMittal were 0.8 million, 0.6 million and 0.8 million tons, respectively.

Algoma

Algoma is a Canadian steelmaker and a subsidiary of Essar Steel Holdings Limited. We have a 15-year term supply agreement under which we are Algoma’s sole supplier of iron ore pellets through 2016. Our annual obligation is limited to 4.0 million tons with our option to supply additional pellets. Historically, pricing under the agreement with Algoma has been based on a formula that includes international pellet prices. During 2010, international pellet prices for blast furnace pellets were redefined through arbitration to use an increase in excess of 95 percent over 2009 prices for seaborne blast furnace pellets. The agreement provides that, in 2011 and 2014, either party may request a price re-opener if prices under the agreement with Algoma differ from a specified benchmark price for the year the price re-opener is requested. We sold 3.4 million, 2.9 million and 4.1 million tons to Algoma in 2010, 2009 and 2008, respectively. For additional information regarding the arbitration, refer to Part 1 — Item 3, Legal Proceedings.

Severstal

Under the agreement with Severstal, we must supply all of the customer’s blast furnace pellet requirements for its Dearborn, Michigan facility through 2022, subject to specified minimum and maximum requirements in certain years. The terms of the agreement also require supplemental payments to be paid by the customer during the period 2009 through 2013. Pursuant to an amended term sheet entered into on June 19, 2009, the customer exercised the option to defer a portion of the 2009 monthly supplemental payment up to $22.3 million in exchange for interest payments until the deferred amount is repaid in 2013.

On July 7, 2008, Severstal acquired WCI Steel Inc., located in Warren, Ohio, and as a result, assumed the supply agreement we had previously entered into with the former WCI to supply 100 percent of WCI’s annual requirements up to a maximum of 2.0 million tons of iron ore pellets through 2014.

On August 5, 2008, Severstal also acquired Esmark Incorporated (“Esmark”), and as a result, assumed the supply agreement we had previously entered into with Esmark’s subsidiary, Wheeling-Pittsburgh Steel Corporation. Under the terms of that agreement, we supply certain iron ore pellets through 2011, equal to 25 percent of Wheeling’s total annual iron ore pellet tonnage requirements for consumption in Wheeling’s iron and steel making facilities.

We sold 5.3 million, 2.3 million and 4.6 million tons to Severstal in 2010, 2009 and 2008, respectively.

Competition

Throughout the world, we compete with major and junior mining companies, as well as metals companies, both of which produce steelmaking raw materials, including iron ore and metallurgical coal.

North America

In our North American Iron Ore business segment, we sell our product primarily to steel producers with operations in North America. We compete directly with steel companies that own interests in iron ore mines, including ArcelorMittal Mines Canada and U.S. Steel.

In the coal industry, our North American Coal business segment competes with many metallurgical coal producers of various sizes, including Alpha Natural Resources, Inc., Patriot Coal Corporation, CONSOL Energy Inc., Arch Coal, Inc., Massey Energy Company, Walter Energy, Inc., Peabody Energy Corp. and other producers located in North America and globally.

The North American coal industry remains highly fragmented and competitive, with CONSOL, Massey, Peabody, Alpha and Alliance Resource Partners representing the five largest producers. A number of factors beyond our control affect the markets in which we sell our coal. Continued demand for our coal and the prices obtained by us depend primarily on the coal consumption patterns of the steel industry in the United States and elsewhere around the world as well as the availability, location, cost of transportation and price of competing coal. Coal consumption patterns are affected primarily by demand, environmental and other governmental regulations, and technological developments. The most important factors on which we compete are delivered price, coal quality characteristics such as heat value, sulfur, ash and moisture content, and reliability of supply. Metallurgical coal, which is primarily used to make coke, a key component in the steelmaking process, generally sells at a premium over steam coal due to its higher quality and value in the steelmaking process.

Asia Pacific

In our Asia Pacific Iron Ore business segment, we export iron ore products to China and Japan in the world seaborne trade. In the Asia Pacific marketplace, Cliffs competes with major iron ore exporters from Australia, Brazil and India. These include Anglo American, Vale, Rio Tinto, BHP and Fortescue Metals Group Ltd., among others.

The Sonoma Coal Project, in which Cliffs owns a 45 percent economic interest, competes with many other global metallurgical and thermal coal producers, including Anglo American, Rio Tinto, BHP, Macarthur Coal, Teck Cominco and Xstrata.

Competition in steelmaking raw materials is predicated upon the usual competitive factors of price, availability of supply, product performance, service and transportation cost to the consumer of the raw materials.

As the global steel industry continues to consolidate, a major focus of the consolidation is on the continued life of the integrated steel industry’s raw steelmaking operations, including blast furnaces and basic oxygen furnaces that produce raw steel. In addition, other competitive forces have become a large factor in the iron ore business. In particular, electric arc furnaces built by mini-mills, which are steel recyclers, generally produce steel by using scrap steel and reduced-iron products rather than iron ore pellets.

Environment

Environmental issues and their management continued to be an important focus at each of our operations throughout 2010. In the construction of our facilities and in their operation, substantial costs have been incurred and will continue to be incurred to avoid undue effect on the environment. Our capital expenditures relating to environmental matters totaled $21.0 million, $7.0 million, and $7.3 million in 2010, 2009 and 2008, respectively. It is estimated that approximately $30 million will be spent in 2011 for capital environmental control facilities. Estimated expenditures in 2011 are comprised of $11.4 million of estimated expenditures at our Wabush operations, $6.0 million of which will address total suspended solids in water effluents. In addition, $7.3 million is anticipated to be spent at our Michigan operations, with $2.0 million to be invested in wet scrubber replacements at the Empire plant and $1.5 finalizing the improvements to tailings lines at Tilden, made in response to historic releases. We also estimate approximately $4 million in environmental capital expenses at United Taconite in 2011, with $1.8 million invested in one of the line scrubbers and corrosion resistance.

Regulatory Developments

Various governmental bodies are continually promulgating new laws and regulations affecting our company, our customers, and our suppliers in many areas, including waste discharge and disposal, hazardous classification of materials and products, air and water discharges, and many other environmental, health, and safety matters. Although we believe that our environmental policies and practices are sound and do not expect that the application of any current laws or regulations would reasonably be expected to result in a material adverse effect on our business or financial condition, we cannot predict the collective adverse impact of the expanding body of laws and regulations.

Specifically, there are several notable proposed or potential rulemakings or activities that could potentially have a material adverse impact on our facilities in the future depending on their ultimate outcome: Climate Change and Greenhouse Gas Regulation, Regional Haze, NO₂ and SO₂ National Ambient Air Quality Standards, Increased Administrative and Legislative Initiatives related to Coal Mining Activities, Proposed Hardrock Mining Financial Assurance Rules, the Minnesota Mercury Total Maximum Daily Load Implementation, and Selenium Discharge Regulation.

Climate Change and Greenhouse Gas Regulation. With the complexities and uncertainties associated with the U.S. and global navigation of the climate change issue as a whole, one of our significant risks for the future is forthcoming in the shape of mandatory carbon legislation. Policymakers are in the design process of carbon regulation at the state, regional, national, and international levels. The current regulatory patchwork of carbon compliance schemes present a challenge for multi-facility entities to identify their near term risks. Amplifying the uncertainty, the dynamic forward outlook for carbon regulation presents a challenge to large industrial companies to assess the long- term net impacts of carbon compliance costs on their operations. Our exposure on this issue includes both the direct financial risks associated with the regulation of green house gas emissions, as well as potential physical risks associated with climate change. We are continuing to review the physical risks related to climate change utilizing a formal risk management process.

Internationally, mechanisms to reduce emissions are being implemented in various countries, with differing designs and stringency, according to resources, economic structure, and politics. We expect that momentum to extend carbon regulation following the expiration in 2012 of the first commitment period under the Kyoto Protocol will continue. Australia, Canada and Brazil are all signatories to the Kyoto Protocol. As such, our facilities in each of these countries will be impacted by the Kyoto Protocol, but in varying degrees according to the mechanisms each country establishes for compliance and each country’s commitment to reducing emissions. Australia and Canada are considered Annex 1 countries, meaning that they are obligated to reduce their emissions under the Protocol. In contrast, Brazil is not an Annex 1 country and is, therefore, not currently obligated to reduce its GHG emissions.

In 2009, the Australian government issued guidance outlining the components and rationale for a proposed CPRS. Under the proposed scheme, our iron ore operations in Asia Pacific would not be required to purchase allowances due to the energy consumption levels being below the scheme threshold. The impact on our operations in Asia Pacific would only occur indirectly via costs that would be passed on by fuel suppliers. However, under the emissions scheme as was proposed, we anticipated that such costs would not have a material effect on our financial position or results of operations. In the fourth quarter of 2009, the Australian government introduced CPRS legislation to federal Parliament, but the proposed legislation was defeated. In April 2010, the Australian government announced plans to delay the introduction of the CPRS until at least 2013. The Australian government recently indicated that it would revisit its decision on how to price carbon emissions i.e., a carbon tax or cap and trade scheme and would aim to reach a decision on the pricing mechanism in 2011. It has not been clarified whether the 2013 date for implementation remains in place.

Due to the current landscape of regulation in Australia, Canada and Brazil, and the relatively low emission levels in these countries, we face mild regulatory risk in the short term in Australia and Canada and a weak regulatory risk over the longer term in Brazil.

By contrast, in the U.S., federal carbon regulation potentially presents a significantly greater impact to our operations. To date, the U.S. has not implemented regulated carbon constraints. In the absence of comprehensive federal carbon regulation, numerous state and regional regulatory initiatives are under development or are becoming effective, thereby creating a disjointed approach to carbon control.

Furthermore, on September 22, 2009, the EPA issued a final GHG Reporting Rule requiring the mandatory reporting of annual GHG emissions from our U.S. iron and coal mining facilities. Sources covered by the rule are required to begin collecting emission data by no later than January 1, 2010, with the first annual emission report due to EPA on March 31, 2011.

As a founding member of TCR, we have reported our emissions to TCR and published GHG emission information within our 2008 through 2009 Sustainability Reports, following the reporting protocols established by the Global Reporting Initiative. In 2009, our overall emission source portfolio consisted of direct emissions of approximately 3.3 million tons of CO₂e and indirect emissions of approximately 2.2 million tons of CO₂e. This compares with direct emissions of approximately 4.3 million tons of CO₂e and indirect emissions of approximately 3.6 million tons of CO₂e in 2008. Our 2010 emissions are currently being finalized.

As an energy-intensive business, our GHG emissions inventory captures a broad range of emissions sources, such as iron ore furnaces and kilns, coal thermal driers, diesel mining equipment and a wholly-owned power generation plant, among others. As such, our most significant regulatory risks are: (1) the costs associated with on-site emissions levels; and (2) the costs passed through to us from power generators and distillate fuel suppliers.

We believe our exposure can be substantially reduced by numerous factors including currently contemplated regulatory flexibility mechanisms, such as allowance allocations, fixed process emissions exemptions, offsets, and international provisions; emissions reduction opportunities, including energy efficiency, biofuels, fuel flexibility, and methane reduction; and business opportunities associated with new products and technology, such as our investment in renewaFUEL.

We have proactively worked to develop a comprehensive, enterprise-wide GHG management strategy aimed at considering all significant aspects associated with GHG initiatives to effectively plan for and manage climate change issues, including the risks and opportunities as they relate to the environment, stakeholders, including shareholders and the public, legislative and regulatory developments, operations, products and markets.

On June 3, 2010, the EPA issued the final Tailoring Rule to phase in the regulation of GHGs for major stationary sources beginning in 2011. As a part of the Clean Air Act, the Tailoring Rule is geared to accommodate the perceptible differences between traditional pollutants and GHG emissions. The rule includes the requirement under the PSD program that major sources of GHG emissions contemplating new construction or major modifications to existing sources install the best available control technology. Accordingly, this new rule brings a degree of uncertainty for permitting projects that require increased energy use. The impact this rule will have on our operations will depend on our need for future PSD permitting. As we are an energy and GHG intensive industry, any changes to our operations would now require detailed GHG PSD permitting review.

Regional Haze. In June 2005, the EPA finalized amendments to its regional haze rules. The rules require states to establish goals and emission reduction strategies for improving visibility in all Class I national parks and wilderness areas. Among the states with Class I areas are Michigan, Minnesota, Alabama, and West Virginia where we currently own and manage mining operations. The first phase of the regional haze rule (2008-2018) requires analysis and installation of BART on eligible emission sources and incorporation of BART and associated emission limits into state implementation plans.

As of 2010, Regional Haze will likely have a significant impact only at our Silver Bay Power facility in Minnesota. The Minnesota Pollution Control Board recently approved the MPCA’s BART state implementation plan. Specifically for us, this current plan is estimated to require between $8 million and $10 million in pollution control expenditure. The EPA must now review and formally approve the state implementation plan. If approved, these requirements will become effective five years after approval.

NO₂ and SO₂ National Ambient Air Quality Standards. During the first half of 2010, the EPA promulgated rules that require states to use a combination of air quality monitoring and computer modeling to determine areas of each state that are in attainment with new NO₂ and SO₂ standards (attainment areas) and those areas that are not in attainment with such standards (nonattainment areas). The EPA intends to issue guidance to the regulated community on conducting refined air quality dispersion modeling and implementing the new NO₂ and SO₂ standards. The NO₂standard has been challenged by various large industry groups, and we expect that the SO₂ standard will also be challenged by these same groups. Accordingly, at this time, we are unable to predict the final impact of these standards.

Increased Administrative and Legislative Initiatives Related to Coal Mining Activities. Although the focus of significantly increased government activity related to coal mining in the U.S. is generally targeted at eliminating or minimizing the adverse environmental impacts of mountaintop coal mining practices, these initiatives have the potential to impact all types of coal operations. Specifically, the coordinated efforts by various federal agencies to minimize adverse environmental consequences of mountaintop mining have effectively stopped issuance of new permits required by most mining projects in Appalachia. Due to the developing nature of these initiatives and their potential to disrupt even routine necessary mining and water permit practices in the coal industry, we are unable to predict whether these initiatives could have a material effect on our coal operations in the future.

CERCLA — Proposed Hardrock Mining Financial Assurance Rules. On July 13, 2009, the EPA provided notice that the hardrock mining industry will be its top priority for developing financial responsibility requirements for facilities that use hazardous substances. The purpose of these new requirements is to ensure that operators remain financially responsible for cleanup under CERCLA. The EPA expects to propose the new rules by the spring of 2011. The EPA’s July 13, 2009, announcement only provides notice to the hardrock mining industry that financial responsibility requirements are forthcoming; it does not give guidance on what those rules are expected to entail. We expect to comment extensively during the rule making process on the necessity and extent of these rules relative to iron ore operations. As such, we are unable to determine at this time whether these requirements will have a material impact on our operations.

Mercury TMDL and Minnesota Taconite Mercury Reduction Strategy. Mercury TMDL regulations are contained in the U.S. Federal Clean Water Act. As a part of Minnesota’s Mercury TMDL Implementation Plan, in cooperation with the MPCA, the taconite industry developed a Taconite Mercury Reduction Strategy and signed a voluntary agreement to effectuate its terms. The strategy includes a 75 percent reduction of mercury air emissions from pellet plants by 2025 as a target. It recognizes that mercury emission control technology currently does not exist and will be pursued through a research effort. Any developed technology must be economically feasible, must not impact pellet quality, and must not cause excessive corrosion in pellet furnaces, associated duct work and existing wet scrubbers on the furnaces.

According to the voluntary agreement, the mines must proceed with medium-term and long-term testing of possible technologies beginning in 2010. Initial testing will be completed on one straight-grate and one grate-kiln furnace among the mines. Developed mercury emission control technology must then be installed on all taconite furnaces by 2025. For us, the requirements in the voluntary agreement will apply to our United Taconite and

Hibbing facilities. At this point in time, we are unable to predict the potential impacts of the Taconite Mercury Reduction Strategy, as it is just in its research phase with no proven technology yet identified.

Selenium Discharge Regulation. In West Virginia, new selenium discharge limits became effective April 5, 2010. State legislation was passed that gives the West Virginia DEP the authority to extend the deadline for facilities to comply with new selenium discharge limits to July 1, 2012, based on application and approval of the extension. Pinnacle applied for this extension and was denied. Pinnacle has appealed the ruling and is scheduled for a hearing before the Environmental Quality Board during the first quarter of 2011. There is currently a stay on the enforcement of the new limits until the hearing. This requirement will affect Pinnacle’s Smith Branch outfall, which has shown trace amounts of selenium that has been at times slightly in excess of the future limit. Pinnacle has implemented a solution that manages the discharge concentration by using a closed loop process that discharges under controlled conditions of flow and selenium concentration.

On June 24, 2010, a lawsuit was filed by the West Virginia DEP against the Pinnacle Mine, and many other West Virginia coal mining operations, alleging non-compliance with various NPDES discharge limits. We filed an answer denying all allegations on July 22, 2010. We believe the facility is in compliance with the applicable limits and we are currently seeking a meeting with the DEP to clarify and resolve the suit. At this time, we do not believe this suit will have a material impact on the mine’s operations.

Other Developments

Clean Water Act Section 404. In the U.S., Section 404 of the Clean Water Act requires permits from the U.S. Army Corps of Engineers to construct mines and associated projects, such as freshwater impoundments and refuse disposal fills, in areas that affect jurisdictional waters. Any coal mining activity requiring both a Section 404 permit and a SMCRA permit in the Appalachian region currently undergoes an enhanced review from the Army Corps of Engineers, the Environmental Protection Agency and the Office of Surface Mining. With the acquisition of the CLCC properties during the third quarter of 2010, we obtained a development surface coal mine project, the Toney Fork No. 3, which is subject to the enhanced review process adopted by federal agencies in 2009 for Section 404 permitting. There are currently two proposed valley fills in the Toney Fork No. 3 plan; therefore, an extensive review process can be expected. We expect on-going negotiations with the EPA will conclude with the issuance of the required Section 404 permit well before construction of the mine is scheduled. The other development surface mine project acquired through the acquisition of CLCC, Toney Fork West, does not require Section 404 permitting. The renewal date for the existing Toney Fork No. 2 permit is May 28, 2015.

For additional information on our environmental matters, refer to Item 3. Legal Proceedings and NOTE 10 — ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS in Item 8.

Energy

Electricity

WEPCO is the sole supplier of electric power to our Empire and Tilden mines. WEPCO currently provides 300 megawatts of electricity to Empire and Tilden at rates that are regulated by the MPSC. The Empire and Tilden mines are subject to changes in WEPCO’s rates, such as base interim rate changes that WEPCO may self-implement and final rate changes that are approved by the MPSC in response to applications filed by WEPCO. These procedures have resulted in several rate increases since 2008, when Empire and Tilden’s special contracts for electric service with WEPCO expired. Additionally, Empire and Tilden are subject to frequent changes in WEPCO’s power supply adjustment factor. For additional information on the Empire and Tilden rate cases with WEPCO, refer to Item 3. Legal Proceedings.

Electric power for the Hibbing and United Taconite mines is supplied by MP. On September 16, 2008, the mines finalized agreements with terms from November 1, 2008 through December 31, 2015. The agreements were approved by the Minnesota Public Utilities Commission in 2009.

Silver Bay Power Company, a wholly-owned subsidiary of ours, with a 115 megawatt power plant, provides the majority of Northshore’s energy requirements. Silver Bay Power has an interconnection agreement with MP for backup power. Silver Bay Power entered into an agreement to sell 40 megawatts of excess power capacity to

Xcel Energy under a contract that extends to 2011. In March 2008, Northshore reactivated one of its furnaces, resulting in a shortage of electrical power of approximately 10 megawatts. As a result, supplemental electric power is purchased by Northshore from MP under an agreement that is renewable yearly with one-year termination notice required. The contract expires on June 30, 2011, which coincides with the expiration of Silver Bay Power’s 40 megawatt sales agreement with Xcel Energy.

Wabush has a 20-year agreement with Newfoundland Power, which continues until December 31, 2014. This agreement allows an interchange of water rights in return for the power needs for Wabush’s mining operations. The Wabush pelletizing operations in Quebec are served by Quebec Hydro on an annual contract.

The Oak Grove mine and Concord Preparation Plant are supplied electrical power by Alabama Power under a five-year contract that continues in effect until terminated by either party providing written notice to the other in accordance with applicable rules, regulations, and rate schedules. Rates of the contract are subject to change during the term of the contract as regulated by the Alabama Public Service Commission.

Electrical power to the Pinnacle, Green Ridge No. 2 mine and the Pinnacle Preparation Plant are supplied by the Appalachian Power Company under two contracts. The electrical power to the Green Ridge No. 1 mine was also supplied by the Appalachian Power Company through its closure date in February 2010. The Indian Creek contract was revised in 2008 to include service under Appalachian Power’s lower cost Large Capacity Power Primary Schedule. On January 15, 2010, we entered into an amended agreement with Appalachian Power related to the Indian Creek contract that resulted in Pinnacle receiving reduced electrical power rates under the American Electric Power’s Large Capacity Power Transmission Code 389 tariff for a contract capacity of 15 megawatts. The initial savings under the agreement are expected to be $41,000 per month, escalating to $64,000 per month as Pinnacle adds additional operations and electrical power load. The Pinnacle Creek contract was not affected. The next renewal dates are January 15, 2013 for Indian Creek and July 4, 2011 for Pinnacle Creek. Both contracts specify the applicable rate schedule, minimum monthly charge and power capacity furnished. Rates, terms and conditions of the contracts are subject to the approval of the Public Service Commission of West Virginia.

CLCC is also supplied electrical power by Appalachian Power under two contracts. The Buffalo Creek Road contract was entered into on May 4, 2010 for a two-year period and is for a supply of 5,800 kilowatts under American Electric Power’s Large Capacity Power Code 388 tariff. The Craneco Aly contract began on February 4, 2011 for a one-year period and supplies 2,300 kilowatts of electrical power under the American Electric Power’s Large Capacity Power Code 388. Both contracts remain in effect until twelve months written notice is given by either party of its intent to terminate the contract.

Koolyanobbing and its associated satellite mines draw power from independent diesel fueled power stations and generators. Temporary diesel power generation capacity has been installed at the Koolyanobbing operations, allowing sufficient time for a detailed investigation into the viability of long-term options such as connecting into the Western Australian South West Interconnected System or provision of natural gas or dual fuel (natural gas and diesel) generating capacity. These options are not economic for the satellite mines, which will continue being powered by diesel generators.

Electrical supply on Cockatoo Island is diesel generated. The powerhouse adjacent to the processing plant powers the shiploader, fuel farm and the processing plant. The workshop and administration office is powered by a separate generator.

Process Fuel

We have contracts providing for the transport of natural gas for our North American iron ore and coal operations. At North American Iron Ore, the Empire and Tilden mines have the capability of burning natural gas, coal, or to a lesser extent, oil. The Hibbing and Northshore mines have the capability to burn natural gas and oil. The United Taconite mine has the ability to burn coal, natural gas and coke breeze. Although all of the U.S. iron ore mines have the capability of burning natural gas, the pelletizing operations for the U.S. iron ore mines utilize alternate fuels when practicable. Wabush has the capability to burn oil and coke breeze. Our North American Coal operations use natural gas and coal to fire thermal dryers at the Pinnacle Complex and Oak Grove mines as well as the recently acquired CLCC operations.

renewaFUEL

We have an approximate 95 percent controlling interest in renewaFUEL. Founded in 2005, renewaFUEL produces high-quality, dense fuel cubes made from renewable and consistently available components such as corn stalks, switch grass, grains, soybean and oat hulls, wood, and wood byproducts. This is a strategic investment that provides an opportunity to utilize a “green” solution for further reduction of emissions consistent with our objective to contain costs and enhance efficiencies in a socially responsible manner. In addition to the potential use of renewaFUEL’s biofuel cubes in our production process, the cubes will be marketable to other organizations as a potential substitute for western coal and natural gas. In 2008, renewaFUEL announced it would build a next-generation biomass fuel production facility near Marquette, Michigan. Engineering and construction was initiated during 2009 and continued throughout 2010, with production projected to begin by the first quarter of 2011. The Marquette plant is expected to have the capacity to produce 150,000 tons of high-energy, low-emission biofuel annually.

Employees

As of December 31, 2010, we had a total of 6,567 employees.


	North American Iron Ore (1)		North American Coal		Asia Pacific Iron Ore		Corporate & Support Services		Other (2)		Total
Salaried		848		352		167		408		21		1,796
Hourly		3,488		1,270		—		—		13		4,771

Total		4,336		1,622		167		408		34		6,567

(1)	Includes our employees and the employees of the North American joint ventures.

(2)	Includes the employees in our Latin American Iron Ore, Alternative Energies, and Ferroalloys operating segments.

As of December 31, 2010, 87 percent of our North American Iron Ore hourly employees and 70 percent of our North American Coal hourly employees were covered by collective bargaining agreements.

Hourly employees at our Michigan and Minnesota iron ore mining operations, excluding Northshore, are represented by the USW. The four-year labor agreement, which was ratified by the USW on October 6, 2008, covers approximately 2,300 USW-represented workers at our Empire and Tilden mines in Michigan, and our United Taconite and Hibbing mines in Minnesota.

Hourly employees at Wabush are also represented by the USW. On February 5, 2010, the USW ratified a new five-year labor agreement, effective March 1, 2009 through February 28, 2014, that provides for a 15 percent increase in labor costs over the term of the agreement, inclusive of benefits.

Hourly employees at our Lake Superior and Ishpeming railroads are represented by seven unions covering approximately 135 employees. We have currently reached labor agreements with three of these unions and we are continuing to renegotiate with the other four unions.

Hourly production and maintenance employees at our Pinnacle Complex and Oak Grove mines are represented by the UMWA. We entered into collective bargaining agreements with the UMWA in March 2007 that expire on December 31, 2011. Those collective bargaining agreements are identical in all material respects to the NBCWA of 2007 between the UMWA and the Bituminous Coal Operators’ Association. Employees at our recently acquired CLCC operations are not represented under collective bargaining agreements.

Employees at our Asia Pacific, Corporate & Support Services, Latin American Iron Ore, Renewable Energies and Ferroalloys operations are not represented under collective bargaining agreements.

Safety

Safety is one of our main priorities. Our North American Iron Ore segment had a total reportable incident rate, as defined by MSHA, of 2.16 in 2010, compared with the prior year result of 2.53. Our North American Iron Ore segment finished the year with a 14 percent improvement in the all injury frequency rate from 2009. Our North American Coal operations had a total reportable incident rate of 5.10 compared with a rate of 5.25 in 2009 and recorded a three percent improvement in injury severity rates from the prior year. This rate includes CLCC since the date of acquisition. We have developed close collaboration between our North American segments to drive further improvements in our safety results.

At our Asia Pacific Iron Ore operations, Koolyanobbing’s total reportable incident rate for 2010 was 1.75, compared with the 2009 result of 2.52. Cockatoo Island reported a total reportable incident rate of 5.56 in 2010 compared with 0.79 in 2009. Asia Pacific Iron Ore safety statistics include employees and contractors.

Available Information

Our headquarters are located at 200 Public Square, Cleveland, Ohio 44114-2315, and our telephone number is (216) 694-5700. We are subject to the reporting requirements of the Exchange Act and its rules and regulations. The Exchange Act requires us to file reports, proxy statements and other information with the SEC. Copies of these reports and other information can be read and copied at:

SEC Public Reference Room

100 F Street N.E.

Washington, D.C. 20549

Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.

The SEC maintains a website that contains reports, proxy statements and other information regarding issuers that file electronically with the SEC. These materials may be obtained electronically by accessing the SEC’s home page at www.sec.gov.

We use our website, www.cliffsnaturalresources.com, as a channel for routine distribution of important information, including news releases, investor presentations and financial information. We also make available, free of charge on our website, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically file these documents with, or furnish them to, the SEC. These documents are posted on our website at www.cliffsnaturalresources.com — under “Investors”. In addition, our website allows investors and other interested persons to sign up to automatically receive email alerts when we post news releases and financial information on our website.

We also make available, free of charge on our website, the charters of the Audit Committee, Governance and Nominating Committee (formerly known as the Board Affairs Committee), Compensation and Organization Committee and Strategy and Operations Committee as well as the Corporate Governance Guidelines and the Code of Business Conduct & Ethics adopted by our Board of Directors. These documents are posted on our website at www.cliffsnaturalresources.com — under “Investors”, select the “Corporate Governance” link.

References to our website or the SEC’s website do not constitute incorporation by reference of the information contained on such websites, and such information is not part of this Form 10-K.

Copies of the above referenced information will also be made available, free of charge, by calling (216) 694-5700 or upon written request to:

Cliffs Natural Resources Inc.

Investor Relations

200 Public Square

Cleveland, OH 44114-2315

EXECUTIVE OFFICERS OF THE REGISTRANT

Set forth below are: (1) the names and ages of all executive and certain other officers of the Company at February 17, 2011, (2) all positions with the Company presently held by each such person and (3) the positions held by, and principal areas of responsibility of, each such person during the last five years.


Name	Position(s) Held	Age
Joseph A. Carrabba	Chairman, President and Chief Executive Officer		58
Donald J. Gallagher	Executive Vice President, President — Global Commercial		58
Duncan P. Price	Executive Vice President, President — Global Operations		55
Laurie Brlas	Executive Vice President, Finance and Administration and Chief Financial Officer		53
William A. Brake, Jr.	Executive Vice President, Global Metallics		50
William R. Calfee	Executive Vice President, Commercial Projects		63
P. Kelly Tompkins	Executive Vice President, Legal, Government Affairs and Sustainability and Chief Legal Officer		54
William C. Boor	Senior Vice President, Global Ferroalloys		44
David B. Blake	Senior Vice President, Operations, North American Iron Ore		42
Terrence Mee	Senior Vice President, Global Iron Ore and Metallic Sales		40
James Michaud	Senior Vice President, Human Resources		55
Terrance M. Paradie	Senior Vice President, Corporate Controller and Chief Accounting Officer		42
Steven M. Raguz	Senior Vice President, Corporate Strategy and Treasurer		43
Clifford Smith	Senior Vice President, Global Business Development		51
Duke D. Vetor	Senior Vice President, North American Coal		52

There is no family relationship between any of our executive officers, or between any of our executive officers and any of our directors. Officers are elected to serve until successors have been elected. All of the above named officers were elected effective on the dates listed below for each such officer.

Joseph A. Carrabba has been Chairman, President and Chief Executive Officer of Cliffs since May 8, 2007. Mr. Carrabba served as Cliffs’ President and Chief Executive Officer from September 2006 through May 8, 2007 and as Cliffs’ President and Chief Operating Officer from May 2005 to September 2006. Mr. Carrabba previously served as President and Chief Operating Officer of Diavik Diamond Mines, Inc. from April 2003 to May 2005, a subsidiary of Rio Tinto plc., an international mining group. Mr. Carrabba is a Director of KeyCorp and Newmont Mining Corporation.

Donald J. Gallagher has been Executive Vice President, President — Global Commercial since January 2011. Mr. Gallagher served as President, North American Business Unit of Cliffs from November 2007 to January 2011. From December 2006 to November 2007, Mr. Gallagher served as President, North American Iron Ore. From July 2006 to December 2006, Mr. Gallagher served as President, North American Iron Ore, and Acting Chief Financial Officer and Treasurer of Cliffs. From May 2005 to July 2006, Mr. Gallagher was Executive Vice President, Chief Financial Officer and Treasurer of Cliffs. From July 2003 to May 2005, Mr. Gallagher served as Senior Vice President, Chief Financial Officer and Treasurer of Cliffs.

Duncan P. Price has been Executive Vice President, President — Global Operations of Cliffs since January 2011. Mr. Price served as Senior Vice President — Managing Director of Asia Pacific Iron Ore from March 2009 to January 2011, and Mr. Price served as Chief Executive Officer, Portman Limited from 2007 to 2009. Prior to joining Cliffs, Mr. Price served as Project Director at Sinosteel/Midwest Joint Venture, an iron joint venture formed by Sinosteel Corporation, a major supplier of raw materials to Chinese steel mills, and Midwest Corporation Limited, an Australia based iron ore mining company, to develop the Koolanooka deposit and the Weld Range in Western Australia, from 2006 to 2007 and Managing Director at Rio Tinto Group, an international mining company, from 1996 to 2006.

Laurie Brlas has been Executive Vice President, Finance and Administration and Chief Financial Officer of Cliffs since July 2010. Ms. Brlas previously served as Executive Vice President — Chief Financial Officer of Cliffs from March 2008 through July 2010 and as Cliffs’ Senior Vice President — Chief Financial Officer from October 2007 through March 2008. From December 2006 to October 2007, Ms. Brlas served as Senior Vice

President — Chief Financial Officer and Treasurer of Cliffs. From April 2000 to December 2006, Ms. Brlas was Senior Vice President — Chief Financial Officer of STERIS Corporation, a global manufacturer and supplier of infection prevention, contamination control, decontamination, microbial reduction, and surgical and critical care support products, technologies and services. In addition, Ms. Brlas is a Director of Perrigo Company.

William A. Brake, Jr. has served as Executive Vice President, Global Metallics since January 2011. Mr. Brake served as Cliffs’ Executive Vice President, Strategic Alternatives and Chief Technology Officer from July 2010 to January 2011 and as Executive Vice President, Human and Technical Resources from November 2008 to July 2010. From April 2007 until November 2008, Mr. Brake served as Executive Vice President, Cliffs Metallics and Chief Technical Officer. From March 2005 to August 2006, Mr. Brake served in several management positions with Mittal Steel USA, an international steel processing and manufacturing company, most recently as Executive Vice President – Operations and from March 2003 to March 2005, Mr. Brake was Vice President and General Manager of International Steel Group, an international steel processing and manufacturing company.

William R. Calfee has served as Executive Vice President, Commercial Projects since January 2011. Mr. Calfee served as Executive Vice President, Commercial, North American Iron Ore of Cliffs from July 2006 to January 2011. From 1996 to July 2006, Mr. Calfee served as Executive Vice President, Commercial of Cliffs.

P. Kelly Tompkins has served as Executive Vice President, Legal, Government Affairs and Sustainability and Chief Legal Officer of Cliffs since January 2011. Mr. Tompkins joined Cliffs in May of 2010 and served as Executive Vice President — Legal, Government Affairs and Sustainability until January 2011. Prior to joining Cliffs, Mr. Tompkins was Executive Vice President and Chief Financial Officer for RPM International Inc, a specialty coatings and sealants manufacturer, from June 2008 to May 2010 and served as Executive Vice President and Chief Administrative Officer from October 2006 to May 2010. Mr. Tompkins served as Senior Vice President and General Counsel for RPM International Inc, from October 2002 to October 2006.

William C. Boor has served as Senior Vice President, Global Ferroalloys since January 2011. Mr. Boor served as Senior Vice President, President — Ferroalloys from May 2010 to January 2011. Prior to that time, Mr. Boor served as Senior Vice President, Business Development of Cliffs from May 2007 to May 2010. Mr. Boor served as Executive Vice President — Strategy and Development at American Gypsum Co. (a subsidiary of Eagle Materials Inc.), a manufacturer of building materials, from February 2005 to April 2007. Mr. Boor is a Director of Cavco Industries, Inc.

David B. Blake has served as Senior Vice President, Operations, North American Iron Ore since March 2009. Mr. Blake served as Vice President, Operations North American Iron Ore from November 2007 to March 2009 and as General Manager, Michigan Operations from November 2005 to November 2007. Prior to joining Cliffs, Mr. Blake served as Production Manager for Diavik Diamond Mines, a subsidiary of Rio Tinto plc, an international mining group from October 2003 to November 2005.

Terrence Mee has served as Senior Vice President, Global Iron Ore and Metallic Sales since January 2011. From September 2007 to January 2011, Mr. Mee served as Vice President, Sales & Transportation for the North American business unit as General Manager — Sales and Traffic from August 2003 to September 2007.

James Michaud has served as Senior Vice President, Human Resources since January 2011 and was Vice President, Human Resources from September 2010 to January 2011. Prior to joining Cliffs, Mr. Michaud held the position of Vice President Human Resources — Americas with Arcelor Mittal, a steel company engaged in the production and marketing of finished and semi-finished carbon steel and stainless steel products worldwide, from March 2006 to October 2008.

Terrance M. Paradie has served as Senior Vice President, Corporate Controller and Chief Accounting Officer since January 2011. Mr. Paradie served as Vice President, Corporate Controller & Chief Accounting Officer of Cliffs from July 2009 to January 2011. Mr. Paradie served as Cliffs’ Vice President — Corporate Controller from October 2007 through July 2009. Prior to joining Cliffs, Mr. Paradie served international accounting and consulting firm KPMG LLP since 1992 in a variety of roles, most recently as an audit partner.

Steven M. Raguz has served as Senior Vice President, Corporate Strategy and Treasurer since January 2011. Mr. Raguz served as Vice President, Corporate Strategy & Treasurer from August 2010 to January 2011 and as Vice President, Corporate Planning & Treasurer from October 2007 to August 2010, and Vice President,

Financial Planning and Strategy Analysis from March 2007 to October 2007. Prior to joining Cliffs, Mr. Raguz was Senior Director, Financial Planning and Analysis of STERIS Corporation.

Clifford Smith has served as Senior Vice President, Global Business Development of Cliffs since January 2011 and has served as Vice President, Latin American Operations from September 2009 to January 2011. From October 2006 to September 2009, Mr. Smith served as General Manager — Business Development of Cliffs. Mr. Smith served as Vice President and General Manager of Cliffs’ Tilden Mine, Empire Mine, and Lake Superior and Ishpeming railroad from April 2004 to September 2006. Prior to joining Cliffs, Mr. Smith held mine management positions with Asarco, a subsidiary of Grupo Mexico, Mexico’s largest mining company, and South Peru Copper Corporation, a copper mining company.

Duke D. Vetor has served as Senior Vice President, North American Coal of Cliffs since November 2007. From July 2006 to November 2007, Mr. Vetor served as Vice President — Operations — North American Iron Ore of Cliffs. Mr. Vetor was General Manager of Safety and Operations Improvement of Cliffs from December 2005 to July 2006. From 2003 to November 2005, Mr. Vetor served as Vice President — Operations of Diavik Diamond Mines, a subsidiary of Rio Tinto plc, an international mining group.

Item 1A. Risk Factors.

Uncertainty or weaknesses in global economic conditions could adversely affect our business.

Uncertainties or weaknesses in global economic conditions could adversely affect our business and negatively impact our financial results. Although the global economic outlook improved throughout 2010 and into 2011, and the demand for steel and steel-making products improved, another economic downturn remains a possibility, and if such a downturn were to occur during 2011, we would likely see decreased demand for our products and decreased prices, resulting in lower revenue levels and decreasing margins in 2011. We are not able to predict whether the global economic conditions will continue or worsen and the impact it may have on our operations and the industry in general going forward.

Negative economic conditions may adversely impact the ability of our customers to meet their obligations to us on a timely basis or at all.

Although we have contractual commitments for sales in our North American Iron Ore business for 2011 and beyond, the uncertainty in global economic conditions may adversely impact the ability of our customers to meet their obligations. As a result of economic and pricing volatility, we are in continual discussions with our customers regarding our supply agreements. These discussions may result in the modification of our supply agreements. Any modifications to our supply agreements could adversely impact our sales, margins, profitability and cash flows. These discussions or actions by our customers could also result in contractual disputes, which could ultimately require arbitration or litigation, either of which could be time consuming and costly. Any such disputes could adversely impact our sales, margins, profitability and cash flows.

A substantial majority of our sales are made under term supply agreements to a limited number of customers, which are subject to changing international pricing conditions and which could negatively affect the stability and profitability of our operations.

In 2010, virtually all of our North American Iron Ore sales, the majority of our North American Coal sales, and virtually all of our Asia Pacific Iron Ore sales were made under term supply agreements to a limited number of customers. In 2010, five customers together accounted for approximately 81 percent of our North American iron ore and coal sales revenues (representing more than 50 percent of our consolidated revenues). For North American Coal, prices are typically agreed upon for a twelve-month period and are typically adjusted each year. Our Asia Pacific Iron Ore contracts expire in 2012. Our North American Iron Ore contracts have an average remaining duration of 5.5 years. We cannot be certain that we will be able to renew or replace existing term supply agreements at the same volume levels, prices or with similar profit margins when they expire. A loss of sales to our existing customers could have a substantial negative impact on our sales, margins and profitability.

Our North American Iron Ore term supply agreements contain a number of price adjustment provisions, or price escalators, including adjustments based on general industrial inflation rates, the price of steel and the

international price of iron ore pellets, among other factors, that allow us to adjust the prices under those agreements generally on an annual basis. During the first quarter of 2010, the world’s largest iron ore producers moved away from the annual international benchmark pricing mechanism in favor of a shorter-term, more flexible pricing system. In addition to increased volatility of pricing, the change in the international pricing system will, in most instances, require that our sales contracts be modified to take into account the new international pricing methodology. We finalized shorter-term pricing arrangements with our Asia Pacific Iron Ore customers. Negotiations with certain of our largest North American Iron Ore customers are still ongoing, and we are in the process of assessing the impact a change to the historical annual pricing mechanism will have on our existing supply agreements with such customers. Some of our customers have filed arbitration demands related to the price adjustment provisions of our supply agreements. These discussions and arbitrations may result in changes to the pricing mechanisms used with our various customers and could impact sales prices realized in current and future periods. In the event that we are unsuccessful in defending our positions, the retroactive revised pricing for 2010 sales under the supply agreements could have a material adverse impact on our consolidated results of operations. Although we anticipate that these discussions and arbitrations will result in negotiated modifications to our supply agreements, we cannot predict the ultimate outcome of these discussions and arbitrations, and it is possible that we will be unable to reach agreement on the necessary contract modifications with some of our customers, resulting in delays in establishing pricing and/or prolonged or additional litigation.

Any defects in title of leasehold interests in our properties could limit our ability to mine these properties or could result in significant unanticipated costs.

We conduct a significant part of our mining operations on properties that we lease. These leases were entered into over a period of many years by certain of our predecessors and title to our leased properties and mineral rights may not be thoroughly verified until a permit to mine the property is obtained. Our right to mine some of our proven and probable ore reserves may be materially adversely affected if there were defects in title or boundaries. In order to obtain leases or mining contracts to conduct our mining operations on property where these defects exist, we may in the future have to incur unanticipated costs, which could adversely affect our profitability.

Coal mining is complex due to geological characteristics of the region.

The geological characteristics of coal reserves, such as depth of overburden and coal seam thickness, make them complex and costly to mine. As mines become depleted, replacement reserves may not be available when required or, if available, may not be capable of being mined at costs comparable to those characteristic of the depleting mines, and in turn, decisions to defer mine development activities may adversely impact our ability to substantially increase future coal production. These factors could materially adversely affect our mining operations and cost structures, which could adversely affect our sales, profitability and cash flows.

Capacity expansions within the mining industry could lead to lower global iron ore and coal prices or impact our production.

The increased demand for iron ore and coal, particularly from China, has resulted in the major iron ore and metallurgical coal suppliers announcing plans to increase their capacity. In the current economic environment, any increase in our competitors’ capacity could result in excess supply of iron ore and coal, resulting in increased downward pressure on prices. A decrease in pricing would adversely impact our sales, margins and profitability.

If steelmakers use methods other than blast furnace production to produce steel, or if their blast furnaces shut down or otherwise reduce production, the demand for our iron ore and coal products may decrease.

Demand for our iron ore and coal products is determined by the operating rates for the blast furnaces of steel companies. However, not all finished steel is produced by blast furnaces; finished steel also may be produced by other methods that do not require iron ore products. For example, steel mini-mills, which are steel recyclers, generally produce steel primarily by using scrap steel and other iron products, not iron ore pellets, in their electric

furnaces. Production of steel by steel mini-mills was approximately 70 percent of North American total finished steel production in 2010. North American steel producers also can produce steel using imported iron ore or semi-finished steel products, which eliminates the need for domestic iron ore. Environmental restrictions on the use of blast furnaces also may reduce our customers’ use of their blast furnaces. Maintenance of blast furnaces can require substantial capital expenditures. Our customers may choose not to maintain their blast furnaces, and some of our customers may not have the resources necessary to adequately maintain their blast furnaces. If our customers use methods to produce steel that do not use iron ore and coal products, demand for our iron ore and coal products will decrease, which would adversely affect our sales, margins and profitability.

The availability of capital for exploration, acquisitions and mine development may be limited.

We expect to grow our business and presence as an international mining company by continuing to expand both geographically and through the minerals that we mine and market. To execute on this strategy we will need to have access to the capital markets to finance exploration, acquisitions and development of mining properties. During the recent global economic crisis access to capital to finance new projects and acquisitions was extremely limited. We cannot predict the general availability or accessibility of capital to finance such projects in the future. If we are unable to continue to access the capital markets, our ability to execute on our growth strategy will be negatively impacted.

Our ability to collect payments from our customers depends on their creditworthiness.

Our ability to receive payment for products sold and delivered to our customers depends on the creditworthiness of our customers. With respect to our North American Coal business unit, payment is typically received as the products are shipped. However, in our Asia Pacific and North American Iron Ore business units, generally, we deliver iron ore products to our customers’ facilities in advance of payment for those products. A majority of the products shipped by our Asia Pacific Iron Ore business unit are secured by bank letters of credit. Although title and risk of loss with respect to North American Iron Ore products does not pass to the customer until payment for the pellets is received, there is typically a period of time in which pellets, for which we have reserved title, are within our customers’ control. Consolidations in some of the industries in which our customers operate have created larger customers. These factors have caused some customers to be less profitable and increased our exposure to credit risk. Current credit markets remain highly volatile, and some of our customers are highly leveraged. A significant adverse change in the financial and/or credit position of a customer could require us to assume greater credit risk relating to that customer and could limit our ability to collect receivables. Failure to receive payment from our customers for products that we have delivered could adversely affect our results of operations, financial condition and liquidity.

We rely on estimates of our recoverable reserves, which is complex due to geological characteristics of the properties and the number of assumptions made.

We regularly evaluate our North American iron ore and coal reserves based on revenues and costs and update them as required in accordance with SEC Industry Guide 7. In addition, Asia Pacific Iron Ore and Sonoma have published reserves which follow JORC in Australia and changes have been made to the Asia Pacific Iron Ore and Sonoma reserve values to make them comply with SEC requirements. There are numerous uncertainties inherent in estimating quantities of reserves of our mines, including many factors beyond our control.

Estimates of reserves and future net cash flows necessarily depend upon a number of variable factors and assumptions, such as production capacity, effects of regulations by governmental agencies, future prices for iron ore and coal, future industry conditions and operating costs, severance and excise taxes, development costs and costs of extraction and reclamation, all of which may in fact vary considerably from actual results. For these reasons, estimates of the economically recoverable quantities of mineralized deposits attributable to any particular group of properties, classifications of such reserves based on risk of recovery and estimates of future net cash flows prepared by different engineers or by the same engineers at different times may vary substantially as the criteria change. Estimated ore and coal reserves could be affected by future industry conditions, geological conditions and ongoing mine planning. Actual production, revenues and expenditures with respect to our reserves will likely vary from estimates, and if such variances are material, our sales and profitability could be adversely affected.

We rely on our joint venture partners in our mines to meet their payment obligations and we are subject to risks involving the acts or omissions of our joint venture partners when we are not the manager of the joint venture.

We co-own and manage three of our six North American iron ore mines with various joint venture partners that are integrated steel producers or their subsidiaries, including ArcelorMittal USA and U.S. Steel Canada Inc. We also own minority interests in mines located in Brazil and Australia that we do not manage. We rely on our joint venture partners to make their required capital contributions and to pay for their share of the iron ore pellets that each joint venture produces. Our North American joint venture partners are also our customers. If one or more of our joint venture partners fail to perform their obligations, the remaining joint venturers, including ourselves, may be required to assume additional material obligations, including significant pension and postretirement health and life insurance benefit obligations. The premature closure of a mine due to the failure of a joint venture partner to perform its obligations could result in significant fixed mine-closure costs, including severance, employment legacy costs and other employment costs, reclamation and other environmental costs, and the costs of terminating long-term obligations, including energy contracts and equipment leases.

We cannot control the actions of our joint venture partners, especially when we have a minority interest in a joint venture and are not designated as the manager of the joint venture. Further, in spite of performing customary due diligence prior to entering into a joint venture, we cannot guarantee full disclosure of prior acts or omissions of the sellers or those with whom we enter into joint ventures. Such risks could have a material adverse effect on the business, results of operations or financial condition of our joint venture interests.

Our expenditures for postretirement benefit and pension obligations could be materially higher than we have predicted if our underlying assumptions prove to be incorrect, there are mine closures or our joint venture partners fail to perform their obligations that relate to employee pension plans.

We provide defined benefit pension plans and OPEB to eligible union and non-union employees in North America, including our share of expense and funding obligations with respect to unconsolidated ventures. Our pension expense and our required contributions to our pension plans are directly affected by the value of plan assets, the projected and actual rate of return on plan assets and the actuarial assumptions we use to measure our defined benefit pension plan obligations, including the rate at which future obligations are discounted.

We cannot predict whether changing market or economic conditions, regulatory changes or other factors will increase our pension expenses or our funding obligations, diverting funds we would otherwise apply to other uses.

We have calculated our unfunded pension and OPEB obligations based on a number of assumptions. If our assumptions do not materialize as expected, cash expenditures and costs that we incur could be materially higher. Moreover, we cannot be certain that regulatory changes will not increase our obligations to provide these or additional benefits. These obligations also may increase substantially in the event of adverse medical cost trends or unexpected rates of early retirement, particularly for bargaining unit retirees for whom there is currently no retiree healthcare cost cap. Early retirement rates likely would increase substantially in the event of a mine closure.

Our sales and competitive position depend on the ability to transport our products to our customers at competitive rates and in a timely manner.

In our North American operations, disruption of the lake and ocean going freighter and rail transportation services because of weather-related problems, including ice and winter weather conditions on the Great Lakes or St. Lawrence Seaway, strikes, lock-outs or other events, could impair our ability to supply iron ore pellets to our customers at competitive rates or in a timely manner and, thus, could adversely affect our sales and profitability. Similarly, our North American coal operations depend on international freighter and rail transportation services, as well as the availability of dock capacity, and any disruptions to those services or the lack of dock capacity could impair our ability to supply coal to our customers at competitive rates or in a timely manner and, thus, could adversely affect our sales and profitability. Further, less dredging, particularly at Great Lakes ports could negatively impact our ability to move our products. Less dredging results in lower water levels, which restricts the tonnage that freighters can haul over the Great Lakes, resulting in higher freight rates.

Our Asia Pacific iron ore and coal operations are also dependent upon rail and port capacity. Disruptions in rail service or availability of dock capacity could similarly impair our ability to supply iron ore and coal to our customers, thereby adversely affecting our sales and profitability. In addition, our Asia Pacific iron ore operations are also in direct competition with the major world seaborne exporters of iron ore and our customers face higher transportation costs than most other Australian producers to ship our products to the Asian markets because of the location of our major shipping port on the south coast of Australia. Further, increases in transportation costs, decreased availability of ocean vessels or changes in such costs relative to transportation costs incurred by our competitors, could make our products less competitive, restrict our access to certain markets and have an adverse effect on our sales, margins and profitability.

Our operating expenses could increase significantly if the price of electrical power, fuel or other energy sources increases.

Operating expenses at all of our mining locations are sensitive to changes in electricity prices and fuel prices, including diesel fuel and natural gas prices. In our North American Iron Ore locations, for example, these items make up approximately 17 percent of our North American Iron Ore operating costs. Prices for electricity, natural gas and fuel oils can fluctuate widely with availability and demand levels from other users. During periods of peak usage, supplies of energy may be curtailed and we may not be able to purchase them at historical rates. While we have some long-term contracts with electrical suppliers, we are exposed to fluctuations in energy costs that can affect our production costs. As an example, our Empire and Tilden mines are subject to changes in WEPCO’s rates, such as base interim rate changes that WEPCO may self-implement and final rate changes that are approved by the MPSC in response to application filed by WEPCO. These procedures have resulted in several rate increases since 2008, when Empire and Tilden’s special contracts for electric service with WEPCO expired. We enter into forward fixed-price supply contracts for natural gas and diesel fuel for use in our operations. Those contracts are of limited duration and do not cover all of our fuel needs, and price increases in fuel costs could cause our profitability to decrease significantly.

Natural disasters, weather conditions, disruption of energy, unanticipated geological conditions, equipment failures, and other unexpected events may lead our customers, our suppliers, or our facilities to curtail production or shut down operations.

Operating levels within the mining industry are subject to unexpected conditions and events that are beyond the industry’s control. Those events could cause industry members or their suppliers to curtail production or shut down a portion or all of their operations, which could reduce the demand for our iron ore and coal products, and could adversely affect our sales, margins, and profitability.

Interruptions in production capabilities will inevitably increase our production costs and reduce our profitability. We do not have meaningful excess capacity for current production needs, and we are not able to quickly increase production at one mine to offset an interruption in production at another mine.

A portion of our production costs are fixed regardless of current operating levels. As noted, our operating levels are subject to conditions beyond our control that can delay deliveries or increase the cost of mining at particular mines for varying lengths of time. These conditions include weather conditions (for example, extreme winter weather, floods and availability of process water due to drought) and natural disasters, pit wall failures, unanticipated geological conditions, including variations in the amount of rock and soil overlying the deposits of iron ore and coal, variations in rock and other natural materials and variations in geologic conditions and ore processing changes. For example, recent floods, drought conditions and cyclones have disrupted certain mining operations in Australia, particularly in the Queensland region, where our Sonoma coal joint venture operation has been negatively impacted.

The manufacturing processes that take place in our mining operations, as well as in our processing facilities, depend on critical pieces of equipment. This equipment may, on occasion, be out of service because of unanticipated failures. In addition, many of our mines and processing facilities have been in operation for several decades, and the equipment is aged. In the future, we may experience additional material plant shutdowns or periods of reduced production because of equipment failures. Further, remediation of any interruption in

production capability may require us to make large capital expenditures that could have a negative effect on our profitability and cash flows. Our business interruption insurance would not cover all of the lost revenues associated with equipment failures. Longer-term business disruptions could result in a loss of customers, which could adversely affect our future sales levels, and therefore our profitability.

Regarding the impact of unexpected events happening to our suppliers, many of our mines are dependent on one source for electric power and for natural gas. A significant interruption in service from our energy suppliers due to terrorism, weather conditions, natural disasters, or any other cause can result in substantial losses that may not be fully recoverable, either from our business interruption insurance or responsible third parties.

We are subject to extensive governmental regulation, which imposes, and will continue to impose, significant costs and liabilities on us, and future regulation could increase those costs and liabilities or limit our ability to produce iron ore and coal products.

We are subject to various federal, provincial, state and local laws and regulations in each jurisdiction in which we have operations on matters such as employee health and safety, air quality, water pollution, plant and wildlife protection, reclamation and restoration of mining properties, the discharge of materials into the environment, and the effects that mining has on groundwater quality and availability. Numerous governmental permits and approvals are required for our operations. We cannot be certain that we have been or will be at all times in complete compliance with such laws, regulations and permits. If we violate or fail to comply with these laws, regulations or permits, we could be fined or otherwise sanctioned by regulators.

Prior to commencement of mining, we must submit to and obtain approval from the appropriate regulatory authority of plans showing where and how mining and reclamation operations are to occur. These plans must include information such as the location of mining areas, stockpiles, surface waters, haul roads, tailings basins and drainage from mining operations. All requirements imposed by any such authority may be costly and time-consuming and may delay commencement or continuation of exploration or production operations. Specifically, there are several notable proposed or potential rulemakings or activities to which we would be subject or that would further regulate and/or tax our customers, namely the North American integrated steel producer customers, that may also require us or our customers to reduce or otherwise change operations significantly or incur additional costs depending on their ultimate outcome. These proposed rules and regulations include: climate change and greenhouse gas regulation, regional haze, NO₂ and SO₂ national ambient air quality standards, as well as increased administrative and legislative initiatives related to coal mining activities, proposed hardrock mining financial assurance rules, the Minnesota mercury total maximum daily load implementation and selenium discharge regulation. Such new legislation, regulations or orders, if enacted, could have a material adverse effect on our business, results of operations, financial condition or profitability.

Further, we are subject to a variety of potential liability exposures arising at certain sites where we do not currently conduct operations. These sites include sites where we formerly conducted iron ore mining or processing or other operations, inactive sites that we currently own, predecessor sites, acquired sites, leased land sites and third-party waste disposal sites. We may be named as a responsible party at other sites in the future and we cannot be certain that the costs associated with these additional sites will not be material.

We also could be held liable for any and all consequences arising out of human exposure to hazardous substances used, released or disposed of by us or other environmental damage, including damage to natural resources. In particular, we and certain of our subsidiaries are involved in various claims relating to the exposure of asbestos and silica to seamen who sailed on the Great Lakes vessels formerly owned and operated by certain of our subsidiaries. The full impact of these claims, as well as whether insurance coverage will be sufficient and whether other defendants named in these claims will be able to fund any costs arising out of these claims, continues to be unknown.

Our North American coal operations are subject to increasing levels of regulatory oversight, making it more difficult to obtain and maintain necessary operating permits.

The current political and regulatory environment in the U.S. is negatively disposed toward coal mining, with particular focus on certain categories of mining such as mountaintop removal techniques. Therefore, our coal

mining operations in North America are subject to increasing levels of scrutiny. U.S. regulatory efforts targeted at eliminating or minimizing the adverse environmental impacts of mountaintop coal mining practices have impacted all types of coal operations. These regulatory initiatives could cause material impacts, delays or disruptions to our coal operations due to our inability to obtain new or renewed permits or modifications to existing permits.

Underground mining is subject to increased safety regulation and may require us to incur additional compliance cost.

Recent mine disasters have led to the enactment and consideration of significant new federal and state laws and regulations relating to safety in underground coal mines. These laws and regulations include requirements for constructing and maintaining caches for the storage of additional self-contained self rescuers throughout underground mines; installing rescue chambers in underground mines; constant tracking of and communication with personnel in the mines; installing cable lifelines from the mine portal to all sections of the mine to assist in emergency escape; submission and approval of emergency response plans; and new and additional safety training. Additionally, new requirements for the prompt reporting of accidents and increased fines and penalties for violations of these and existing regulations have been implemented. These new laws and regulations may cause us to incur substantial additional costs, which may adversely impact our results of operations, financial condition or profitability.

Our profitability could be negatively affected if we fail to maintain satisfactory labor relations.

The USW represents all hourly employees at our North American Iron Ore locations except for Northshore. The UMWA represents hourly employees at our North American Coal locations. On October 6, 2008, we entered into a four-year labor agreement with the USW that covers approximately 2,300 USW-represented workers at our Empire and Tilden mines in Michigan, and our United Taconite and Hibbing mines in Minnesota that expires in October 2012. We entered into a new five-year labor agreement with the USW for Wabush in February 2010 that is effective from March 1, 2009 to February 28, 2014. The agreement provides for a 15 percent increase in labor costs over the term of the agreement, inclusive of benefits. The current UMWA agreement runs through 2011 at our coal locations. Hourly employees at the railroads we own that transport products among our facilities are represented by multiple unions with labor agreements that expire at various dates. If the collective bargaining agreements relating to the employees at our mines or railroads are not successfully renegotiated prior to their expiration, we could face work stoppages or labor strikes.

We may encounter labor shortages for critical operational positions, which could adversely affect our ability to produce our products.

Prior to the global economic crisis, the global mining industry was facing a critical shortage of essential skilled employees. Competition for the available workers limited our ability to attract and retain employees.

We are predicting a long term shortage of skilled workers for the mining industry. At our mining locations, many of our mining operational employees are approaching retirement age. As these experienced employees retire, we may have difficulty replacing them at competitive wages. As a result, wages are increasing to address the turnover.

Our profitability could be adversely affected by the failure of outside contractors to perform.

Asia Pacific Iron Ore and Sonoma use contractors to handle many of the operational phases of their mining and processing operations and therefore are subject to the performance of outside companies on key production areas.

We may be unable to successfully identify, acquire and integrate strategic acquisition candidates.

Our ability to grow successfully through acquisitions depends upon our ability to identify, negotiate, complete and integrate suitable acquisitions and to obtain necessary financing. It is possible that we will be unable to successfully complete potential acquisitions, including the pending acquisition of Consolidated Thompson. In addition, the costs of acquiring other businesses could increase if competition for acquisition candidates increases. Additionally, the success of an acquisition is subject to other risks and uncertainties,

including our ability to realize operating efficiencies expected from an acquisition, the size or quality of the resource, delays in realizing the benefits of an acquisition, difficulties in retaining key employees, customers or suppliers of the acquired businesses, difficulties in maintaining uniform controls, procedures, standards and policies throughout acquired companies, the risks associated with the assumption of contingent or undisclosed liabilities of acquisition targets, the impact of changes to our allocation of purchase price, and the ability to generate future cash flows or the availability of financing. We cannot provide assurance that we will be able to successfully identify strategic candidates or acquire any such businesses and if we do identify and acquire any such business, we cannot provide assurance that we would be able to successfully integrate such acquired business in a timely manner or at all.

We must continually replace reserves depleted by production. Our exploration activities may not result in additional discoveries.

Our ability to replenish our ore reserves is important to our long-term viability. Depleted ore reserves must be replaced by further delineation of existing ore bodies or by locating new deposits in order to maintain production levels over the long term. Resource exploration and development are highly speculative in nature. Our exploration projects involve many risks, require substantial expenditures and may not result in the discovery of sufficient additional mineral deposits that can be mined profitably. Once a site with mineralization is discovered, it may take several years from the initial phases of drilling until production is possible, during which time the economic feasibility of production may change. Substantial expenditures are required to establish recoverable proven and probable reserves and to construct mining and processing facilities. As a result, there is no assurance that current or future exploration programs will be successful. There is a risk that depletion of reserves will not be offset by discoveries or acquisitions.

The proposed Minerals Resource Rent Tax by the Australian Federal Government could adversely affect our results of operations in Australia.

In July 2010, the Australian federal government announced its intention to introduce a new MRRT applicable to the mining of iron ore and coal. The MRRT is proposed to apply from July 1, 2012 to existing and future projects at an effective tax rate of 22.5 percent. In December 2010, the Australian government’s taskforce that was charged with recommending design principles for the new taxes delivered its recommendations on the MRRT to the Australian government. The recommendations paper provided detail about key features of the MRRT and includes industry and public input that assisted in final development of the framework. The government’s exposure draft legislation is expected to be released to the public for comment by June 2011, with proposed introduction of legislation into Parliament during the latter half of 2011. The Australian government anticipates that passage of legislation will occur in early 2012. If implemented as proposed, the MRRT may have a significant negative impact on our financial statements. The impacts of the MRRT will be recorded in the financial period during which the legislation is enacted.

Changes in laws or regulations or the manner of their interpretation or enforcement could adversely impact our financial performance and restrict our ability to operate our business or execute our strategies.

New laws or regulations, or changes in existing laws or regulations or the manner of their interpretation or enforcement, could increase our cost of doing business and restrict our ability to operate our business or execute our strategies. This includes, among other things, the possible taxation under U.S. law of certain income from foreign operations, compliance costs and enforcement under the Dodd-Frank Act, and costs associated with complying with the PPACA and the Reconciliation Act and the regulations promulgated thereunder. The impact of the U.S. health care reform will be phased in between 2011 and 2014 and will likely have a significant adverse impact on our costs of providing employee health benefits beginning in 2011. In addition, as a result of the health care reform legislation that has been passed, our results of operations have been negatively impacted by a non-cash income tax charge of approximately $16.1 million in the first quarter of 2010 to reflect the reduced deductibility of the postretirement prescription drug coverage. As with any significant government action, the provisions of the health care reform legislation are still being assessed and may have additional financial accounting and reporting ramifications. The impact of any such changes, which we continue to evaluate on our business operations and financial statements, remains uncertain.

The proposed U.S. Government Fiscal Year 2011 budget includes proposed legislation that would, if enacted into law, make significant changes to U.S. tax laws, including the elimination or postponement of certain

key U.S. federal income tax incentives currently available to companies engaged in the mining of hard mineral fossil fuels, such as coal. These changes include, but are not limited to the repeal of the percentage depletion allowance for hard mineral fossil fuels and the elimination of the deduction for certain domestic production activities. These changes are proposed to be effective for taxable years beginning, or in the case of costs described in, costs paid or incurred, after December 31, 2010. It is unclear whether these or similar changes will be enacted and, if enacted, how soon any such changes could become effective. In addition, legislation was introduced in January 2011 that would repeal percentage depletion for certain hardrock mines, which would include iron ore. The passage of any legislation as a result of these proposals or any other similar changes in U.S. federal income tax laws could eliminate certain tax deductions that are currently available with respect to mining companies, and any such change would adversely affect our taxable income and thus would generate additional tax liabilities.

Mine closures entail substantial costs, and if we close one or more of our mines sooner than anticipated, our results of operations and financial condition may be significantly and adversely affected.

If we close any of our mines, our revenues would be reduced unless we were able to increase production at our other mines, which may not be possible. The closure of a mining operation involves significant fixed closure costs, including accelerated employment legacy costs, severance-related obligations, reclamation and other environmental costs, and the costs of terminating long-term obligations, including energy contracts and equipment leases. We base our assumptions regarding the life of our mines on detailed studies we perform from time to time, but those studies and assumptions are subject to uncertainties and estimates that may not be accurate. We recognize the costs of reclaiming open pits and shafts, stockpiles, tailings ponds, roads and other mining support areas based on the estimated mining life of our property. If we were to significantly reduce the estimated life of any of our mines, the mine-closure costs would be applied to a shorter period of production, which would increase production costs per ton produced and could significantly and adversely affect our results of operations and financial condition.

A North American mine permanent closure could significantly increase and accelerate employment legacy costs, including our expense and funding costs for pension and other postretirement benefit obligations. A number of employees would be eligible for immediate retirement under special eligibility rules that apply upon a mine closure. All employees eligible for immediate retirement under the pension plans at the time of the permanent mine closure also would be eligible for postretirement health and life insurance benefits, thereby accelerating our obligation to provide these benefits. Certain mine closures would precipitate a pension closure liability significantly greater than an ongoing operation liability. Finally, a permanent mine closure could trigger severance-related obligations, which can equal up to eight weeks of pay per employee, depending on length of service. However, no employee entitled to an immediate pension upon closure of a mine is entitled to severance. As a result, the closure of one or more of our mines could adversely affect our financial condition and results of operations.

We are subject to risks involving operations and sales in multiple countries.

We have a strategy to broaden our scope as a supplier of iron ore and other raw materials to the global integrated steel industry. As we expand beyond our traditional North American base business, we will be subject to additional risks beyond those risks relating to our North American operations, such as fluctuations in currency exchange rates; potentially adverse tax consequences due to overlapping or differing tax structures; burdens to comply with multiple and potentially conflicting foreign laws and regulations, including export requirements, tariffs and other barriers, environmental health and safety requirements and unexpected changes in any of these laws and regulations; the imposition of duties, tariffs, import and export controls and other trade barriers impacting the seaborne iron ore and coal markets; difficulties in staffing and managing multi-national operations; political and economic instability and disruptions, including terrorist attacks; disadvantages of competing against companies from countries that are not subject to U.S. laws and regulations, including the Foreign Corrupt Practices Act; and uncertainties in the enforcement of legal rights and remedies in multiple jurisdictions. If we are unable to manage successfully the risks associated with expanding our global business, these risks could have a material adverse effect on our business, results of operations or financial condition.

We are subject to a variety of market risks.

Market risks include those caused by changes in the value of equity investments, changes in commodity prices, interest rates and foreign currency exchange rates. We have established policies and procedures to manage such risks, however certain risks are beyond our control.

Item 1B. Unresolved Staff Comments.

We have no unresolved comments from the SEC.

Item 2. Properties.

The following map shows the locations of our operations:

LOGO

General Information about the Mines

Mining Rights and Leases. Mining is conducted on multiple mineral leases having varying expiration dates. Mining leases are routinely renegotiated and renewed as they approach their respective expiration dates.

Geological Composition. All iron ore mining operations are open-pit mines that are in production. Additional pit development is underway at each mine as required by long-range mine plans. At our North American Iron Ore mines, drilling programs are conducted periodically for the purpose of refining guidance related to ongoing operations.

The Biwabik, Negaunee, and Wabush Iron Formations are classified as Lake Superior type iron-formations that formed under similar sedimentary conditions in shallow marine basins approximately two billion years ago. Magnetite and hematite are the predominant iron oxide ore minerals present, with lesser amounts of goethite and limonite. Chert is the predominant waste mineral present, with lesser amounts of silicate and carbonate minerals. The ore minerals liberate from the waste minerals upon fine grinding.

North American Coal mine operations consist of both underground and surface mines that are in production. Drilling programs are conducted periodically for the purpose of refining guidance related to ongoing operations. Coal seams mined at all of our North American Coal operations are Pennsylvanian Age. The seams include the Pocahontas No. 3 and No. 4 seams at the Pinnacle Complex and the Blue Creek Seam at Oak Grove that produce high quality, low ash metallurgical products, while multiple seams are mined at CLCC’s underground and surface mines producing both metallurgical and thermal products.

At Koolyanobbing, an ongoing exploration program targeting extensions to the iron ore resource base including regional exploration targets in the Yilgarn Mineral Field was active in 2010. The mineralization at the Koolyanobbing operations is predominantly hematite and goethite replacements in greenstone-hosted banded iron-formations. Individual deposits tend to be small with complex ore-waste contact relationships. The Koolyanobbing operations reserves are derived from 15 separate mineral deposits distributed over a 70-mile operating radius.

At Cockatoo Island, production recommenced in 2010 following the completion of the Stage 3 seawall embankment. The mineralization at Cockatoo Island is predominantly soft, hematite-rich sandstone that produces premium high grade, low impurity direct shipping fines.

Mineralized material at the Amapá mine is predominantly hematite occurring in weathered and leached greenstone-hosted banded iron-formation of the Archean Vila Nova Group. Variable degrees of leaching generate soft hematite mineralization suitable for either sinter feed production via crushing and gravity separation or pelletizing feed production via grinding and flotation.

In Australia, the Sonoma mine operation is an open-pit mine located in the northern section of Queensland’s Bowen Basin. A mix of high quality metallurgical coal and thermal coal is recovered from the B and C seams of the Permian Mooranbah Coal Measures.

Geologic models are developed for all mines to define the major ore and waste rock types. Computerized block models for iron ore and stratigraphic models for coal are constructed that include all relevant geologic and metallurgical data. These are used to generate grade and tonnage estimates, followed by detailed mine design and life of mine operating schedules.

Mine Facilities and Equipment. Each of the North American Iron Ore mines has crushing, concentrating, and pelletizing facilities. There are crushing and screening facilities at Koolyanobbing and Cockatoo Island. Amapá has crushing and concentrating facilities. North American Coal mines have preparation, processing, and load-out facilities, with the Pinnacle and Green Ridge mines sharing facilities and the Dingess-Chilton, Powellton, and Toney Fork mines, acquired in the acquisition of CLCC, sharing facilities. The facilities at each site are in satisfactory condition, although they require routine capital and maintenance expenditures on an ongoing basis. Certain mine equipment generally is powered by electricity, diesel fuel or gasoline. Our share of the total cost of the property, plant and equipment, net of applicable accumulated amortization and depreciation as of December 31, 2010, for each of the mines is set forth in the chart below.


	(In Millions)
Mine Location	Historical Cost of Mine Plant and Equipment, Net of Applicable Accumulated Amortization and Depreciation (Cliffs’ Share)
Empire	$	48.9
Tilden		190.3
Hibbing		44.1
Northshore		137.6
United Taconite		72.4
Wabush		145.8
Pinnacle		132.7
Oak Grove		77.1
CLCC		114.6
Sonoma		97.6
Cockatoo Island		0.1
Koolyanobbing		242.5
Amapá		183.6

North American Iron Ore

We directly or indirectly own and operate interests in the following six North American iron ore mines from which we produced 25.4 million, 17.1 million and 22.9 million long tons of iron ore pellets in 2010, 2009 and 2008, respectively, for our account and 6.6 million, 2.5 million and 12.3 million long tons, respectively, on behalf of the steel company partners of the mines:

Empire mine

The Empire mine is located on the Marquette Iron Range in Michigan’s Upper Peninsula approximately 15 miles west-southwest of Marquette, Michigan. The mine has been in operation since 1963. Over the past five years, the Empire mine has produced between 2.6 million and 4.9 million tons of iron ore pellets annually.

We own 79.0 percent of Empire, and a subsidiary of ArcelorMittal USA has retained the remaining 21 percent ownership in Empire with limited rights and obligations, which it has a unilateral right to put to us at any time subsequent to the end of 2007. This right has not been exercised. We own directly approximately one-half of the remaining ore reserves at the Empire mine and lease them to Empire. A subsidiary of ours leases the balance of the Empire reserves from other owners of such reserves and subleases them to Empire.

Tilden mine

The Tilden mine is located on the Marquette Iron Range in Michigan’s Upper Peninsula approximately five miles south of Ishpeming, Michigan. The Tilden mine has been in operation since 1974. Over the past five years, the Tilden mine has produced between 5.6 million and 9.0 million tons of iron ore pellets annually.

We own 85 percent of Tilden, with the remaining minority interest owned by U.S. Steel Canada. Each member takes its share of production pro rata; however, provisions in the operating agreement allow additional or reduced production to be delivered under certain circumstances. We own all of the ore reserves at the Tilden mine and lease them to Tilden.

The Empire and Tilden mines are located adjacent to each other. The logistical benefits include a consolidated transportation system, more efficient employee and equipment operating schedules, reduction in redundant facilities and workforce and best practices sharing. Two railroads, one of which is wholly-owned by us, link the Empire and Tilden mines with Lake Michigan at the loading port of Escanaba, Michigan and with the Lake Superior loading port of Marquette, Michigan.

In the third quarter of 2010, an expansion project was approved at our Empire and Tilden mines for capital investments on equipment. The expansion project is expected to allow the Empire mine to produce at three million tons annually through 2014 and increase Tilden mine production by an additional two million tons annually.

Hibbing mine

The Hibbing mine is located in the center of Minnesota’s Mesabi Iron Range and is approximately ten miles north of Hibbing, Minnesota and five miles west of Chisholm, Minnesota. From the Mesabi Range, Hibbing pellets are transported by rail to a shiploading port at Superior, Wisconsin. The Hibbing mine has been in operation since 1976. Over the past five years, the Hibbing mine has produced between 1.7 million and 8.3 million tons of iron ore pellets annually. Hibbing resumed production during the second quarter of 2010, after being shut down as a result of market conditions in May of 2009.

We own 23.0 percent of Hibbing, ArcelorMittal USA has a 62.3 percent interest, and U.S. Steel Canada has a 14.7 percent interest. Each partner takes its share of production pro rata; however, provisions in the joint venture agreement allow additional or reduced production to be delivered under certain circumstances.

Northshore mine

The Northshore mine is located in northeastern Minnesota, approximately two miles south of Babbitt, Minnesota on the northeastern end of the Mesabi Iron Range. Northshore’s processing facilities are located in

Silver Bay, Minnesota, near Lake Superior. Crude ore is shipped by a wholly-owned railroad from the mine to the processing and dock facilities at Silver Bay. The Northshore mine has been in continuous operation since 1990. Over the past five years, the Northshore mine has produced between 3.2 million and 5.5 million tons of iron ore pellets annually.

The Northshore mine began production under our management and ownership on October 1, 1994. We own 100 percent of the mine.

United Taconite mine

The United Taconite mine is located on Minnesota’s Mesabi Iron Range in and around the city of Eveleth, Minnesota. The United Taconite concentrator and pelletizing facilities are located ten miles south of the mine, near the town of Forbes, Minnesota. United Taconite pellets are shipped by railroad to the port of Duluth, Minnesota. The mine has been operating since 1965. Over the past five years, the United Taconite mine has produced between 3.8 million and 5.3 million tons of iron ore pellets annually.

As a result of acquiring the remaining 30 percent interest in the United Taconite mine during 2008, we now own 100 percent of the mine.

Wabush mine

The Wabush mine and concentrator are located in Wabush, Labrador, Newfoundland, and the pellet plant and dock facility is located in Pointe Noire, Quebec, Canada. At the Wabush mine, concentrates are shipped by rail from the Scully mine at Wabush to Pointe Noire where they are pelletized for shipment via vessel within Canada, to the United States and other international destinations. The Wabush mine has been in operation since 1965. Over the past five years, the Wabush mine has produced between 2.7 million and 4.6 million tons of iron ore pellets annually. On February 1, 2010, we acquired U.S. Steel Canada’s 44.6 percent interest and ArcelorMittal Dofasco’s 28.6 percent interest in Wabush, thereby increasing our ownership interest in Wabush from 26.8 percent as of December 31, 2009 to 100 percent as of December 31, 2010.

North American Coal

We directly own and operate the following three North American coal mining complexes from which we produced a total of 3.2 million, 1.7 million and 3.5 million short tons of coal in North America in 2010, 2009 and 2008, respectively, representing our volume since the acquisition of PinnOak on July 31, 2007 and CLCC on July 30, 2010:

Pinnacle Complex

The Pinnacle Complex includes the Pinnacle and Green Ridge mines and is located approximately 30 miles southwest of Beckley, West Virginia. The Pinnacle mine has been in operation since 1969. Over the past five years, the Pinnacle mine has produced between 0.7 million and 2.5 million tons of coal annually. The Green Ridge mines have been in operation since 2004 and have produced between 0.1 million and 0.5 million tons of coal annually. In February 2010, the Green Ridge No. 1 mine was closed permanently due to exhaustion of the economic reserves at the mine. In addition, the Green Ridge No. 2 mine was idled throughout 2010, with production recommencing in January 2011.

Oak Grove mine

The Oak Grove mine is located approximately 25 miles southwest of Birmingham, Alabama. The mine has been in operation since 1972. Over the past five years, the Oak Grove mine has produced between 0.9 million and 1.4 million tons of coal annually.

CLCC

CLCC comprises a metallurgical and thermal coal mining complex with a state-of-the-art coal preparation and processing facility located within the Boone, Logan, and Wyoming counties in southern West Virginia. The operations include two underground metallurgical coal mines, the Powellton and Chilton-Dingess mines, and one open surface thermal coal mine, the Toney Fork No. 2 mine. The Powellton and Chilton-Dingess mines have been in operation since 2008. Over the past three years, the Powellton mine has produced between 0.1 million and 0.6 million tons of coal annually and the Chilton-Dingess mine production has ranged from no production to 0.5 million tons of coal annually due to the ramp up to full production. The Toney Fork No. 2 mine has been in operation since 2005. Over the three-year period that INR owned and operated the mine, Toney Fork No. 2 produced between 1.2 million and 1.5 million tons of coal annually.

Our coal production at each of the North American Coal mines is shipped within the U.S. by rail or barge. Coal for international customers is shipped through the port of Convent, Louisiana, Mobile, Alabama or Newport News, Virginia.

Asia Pacific Iron Ore

In Australia, we own and operate interests in the following two Asia Pacific iron ore mines from which we produced 9.3 million metric tons, 8.3 million metric tons and 7.7 million metric tons in 2010, 2009 and 2008, respectively:

Koolyanobbing

The Koolyanobbing operations are located 250 miles east of Perth and approximately 30 miles northeast of the town of Southern Cross. Koolyanobbing produces lump and fines iron ore. An expansion program was completed in 2006 to increase capacity from six to eight million metric tons per annum. The expansion was primarily driven by the development of iron ore resources at Mount Jackson and Windarling, located 50 miles and 60 miles north of the existing Koolyanobbing operations, respectively. In December 2010, we received regulatory approvals to further develop the Mount Jackson J1 deposit. In September 2010, our Board of Directors approved a capital project at our Koolyanobbing Operation that is expected to increase production output at Koolyanobbing to approximately 11 million metric tons annually. The expansion project requires a capital investment of $254 million, of which $22.4 million has been spent as of December 31, 2010. The Mount Jackson J1 deposit project is expected to contribute to our ability to increase production output. These improvements are expected to be fully implemented by the second half of 2012. Over the past five years, the Koolyanobbing operation has produced between 6.9 million and 8.9 million metric tons annually.

All of the ore mined at the Koolyanobbing operations is transported by rail to the Port of Esperance, approximately 360 miles to the south for shipment to Asian customers. In 2009, Asia Pacific Iron Ore completed an upgrade of the rail line used for its operations. The upgrade was performed to mitigate the risk of derailment and reduce service disruptions by providing a more robust infrastructure. The improvements included the replacement of 75 miles of rail and associated parts. We spent a total of approximately $45 million in 2009 and 2008 related to maintenance and improvements to the rail structure. An additional $11.0 million was spent during 2010 on the second phase of the improvements, which included the upgrade of an additional 15 miles of rail. As discussed above, a capital project at our Koolyanobbing operation has been approved and is expected to further enhance the existing rail infrastructure.

Cockatoo Island

The Cockatoo Island operation is located four miles to the west of Yampi Peninsula, in the Buccaneer Archipelago, and 90 miles north of Derby in the West Kimberley region of Western Australia. The island has been mined for iron ore since 1951, with a break in operations between 1985 and 1993. During the past five years, Cockatoo Island has ranged from no production to 1.4 million metric tons annually.

We own a 50 percent interest in this joint venture to mine remnant iron ore deposits. Mining from this phase of the operation commenced in late 2000. Production at Cockatoo Island ended during 2008 due to construction on Phase 3 of the seawall, which is expected to extend production for approximately two additional years. In April 2009, an unanticipated subsidence of the seawall occurred and as a result, production from the mine was delayed. Production at Cockatoo Island resumed earlier than expected, resulting in the production of 0.7 million

metric tons in the second half of 2010. Ore is hauled by haul truck to the stockpiles, crushed and screened and then transferred by conveyor to the shiploader where the ore is loaded onto ships for export to customers in Asia.

Mine Capacity and Mineral Reserves

We have a corporate policy relating to internal control and procedures with respect to auditing and estimating mineral reserves. The procedures include the calculation of mineral reserves at each mine by professional mining engineers and geologists. Management compiles and reviews the calculations, and once finalized, such information is used to prepare the disclosures for our annual and quarterly reports. The disclosures are reviewed and approved by management, including our Chief Financial Officer and Chief Executive Officer. Additionally, the long-range mine planning and mineral reserve estimates are reviewed annually by our Audit Committee. Furthermore, all changes to mineral reserve estimates, other than those due to production, are adequately documented and submitted to our Chief Executive Officer for review and approval. Finally, we perform periodic reviews of long-range mine plans and mineral reserve estimates at mine staff meetings and senior management meetings.

Reserves are defined by SEC Industry Standard Guide 7 as that part of a mineral deposit that could be economically and legally extracted and produced at the time of the reserve determination. All reserves are classified as proven or probable and are supported by life-of-mine plans.

Iron Ore Reserves

Ore reserve estimates for our iron ore mines as of December 31, 2010 were estimated from fully-designed open pits developed using three-dimensional modeling techniques. These fully designed pits incorporate design slopes, practical mining shapes and access ramps to assure the accuracy of our reserve estimates. The iron ore prices utilized for reserve estimation are derived from three-year trailing averages of regional benchmark pricing. For North American Iron Ore operations, prices are based on iron ore pellets delivered to the Lower Great Lakes, and for operations in Asia Pacific, iron ore prices represent the three-year trailing average of international benchmark pricing for the products generated by our Asia Pacific Iron Ore business unit (sinter fines, lump ore). We evaluate and analyze iron ore reserve estimates every three years in accordance with our mineral reserve policy or earlier if conditions merit. For the fiscal year ended December 31, 2010, iron ore prices vary based on the date of the last reserve analysis. The table below identifies the reserve analysis date and the respective three-year trailing price for each of our iron ore mines as of December 31, 2010.


Mine	Date of Base Economic Ore Reserve Analysis			Commodity Pricing (1)
North America
Empire		2009	(2)		$89.19
Hibbing Taconite		2008			$90.42
Northshore		2009	(2)		$90.42
Tilden		2008			$89.19
United Taconite		2010	(2)		$96.49
Wabush		2010			$101.81
Asia Pacific
Koolyanobbing		2010			Lump - $1.079
					Fines - $0.837
Cockatoo Island		2008			Fines - $0.685

(1)	Pricing in North America reflects US$ per long tons of pellets F.O.B. port, except for Empire and Tilden, which are F.O.B. mine. Pricing in Asia Pacific reflects US$ per product dry metric ton iron unit.

(2)

The decision was made to exclude anomolous 2008 Benchmark Pricing from the three-year trailing average price used in determining our North American Iron Ore reserve estimates. Therefore, the three-year trailing average for the 2009 reserve analysis reflects 2005-2007 prices and the 2010 reserve analysis reflects 2006-2009 prices, exluding 2008.

The following tables reflect expected current annual capacity and economic ore reserves for our North American and Asia Pacific iron ore mines as of December 31, 2010. Ore reserves for Amapá, in which we have a 30 percent ownership interest, have not been estimated by Cliffs. The ore reserve estimation process is controlled and managed by Anglo as the parent company and mine operator. Sufficient technical data on the processing of Amapá mineralized material does not exist at this time, precluding estimation of recoverable product and grade, and therefore economic reserves as defined by SEC Industry Guide 7. An economic ore reserve estimate is anticipated to be available in 2011 from Anglo.

North American Iron Ore


Mine	Iron Ore Mineralization	Current Annual Capacity		Mineral Reserves (2)								Mineral Rights						Method of Reserve Estimation	Operating Since		Infrastructure
				Current Year						Previous Year		Mineral Rights
				Proven		Probable		Total		Previous Year		Owned			Leased
		Tons in millions (1)
Empire	Negaunee Iron Formation (Magnetite)		5.5		10		—		10		13		53	%		47	%	Geologic - Block Model		1963	Mine, Concentrator, Pelletizer
Tilden	Negaunee Iron Formation (Hematite, Magnetite)		8.0		206		60		266		274		100	%		0	%	Geologic - Block Model		1974	Mine, Concentrator, Pelletizer, Railroad
Hibbing Taconite	Biwabik Iron Formation (Magnetite)		8.0		97		10		107		113		3	%		97	%	Geologic - Block Model		1976	Mine, Concentrator, Pelletizer
Northshore (3)	Biwabik Iron Formation (Magnetite)		6.0		300		16		316		320		0	%		100	%	Geologic - Block Model		1989	Mine, Concentrator, Pelletizer, Railroad
United Taconite	Biwabik Iron Formation (Magnetite)		5.4		124		12		136		140		0	%		100	%	Geologic - Block Model		1965	Mine, Concentrator, Pelletizer
Wabush	Sokoman Iron Formation (Hematite)		5.5		64		7		71		72		0	%		100	%	Geologic - Block Model		1965	Mine, Concentrator, Pelletizer, Railroad

	Total		38.4		801		105		906		932

(1)	Tons are long tons of 2,240 pounds.

(2)	Estimated standard equivalent pellets, including both proven and probable reserves based on life-of-mine operating schedules.

(3)	Capacity at Northshore increased to 6.0 million tons of combined pellet and concentrate capacity in 2010 by reactivating idle concentrator capacity.

In 2010, there were no changes in reserve estimates at Empire, Tilden, Hibbing Taconite, or Northshore except for production.

New economic reserve analyses were performed at United Taconite and Wabush in 2010. Each of the new reserve analyses incorporate updates to both iron ore pellet pricing and operating costs. Changes in the reserve estimates are as follows:

•

United Taconite – Pellet reserves increased by 0.9 million tons net of 2010 production. The reserves increased due to improved mine pit designs and recovery realizations.

•

Wabush – Pellet reserves increased by 2.7 million tons net of 2010 production. The increased reserves are the result of a new resource model and realigned business and marketing plan.

Asia Pacific Iron Ore

Mine

Iron Ore
Mineralization

Current
Annual
Capacity

Mineral Reserves (2)

Previous
Year

Mineral
Rights

Method of

Reserve

Estimation

Operating
Since

Infrastructure

Current Year

Proven

Probable

Total

Owned

Leased

Metric tons in millions (1)

Koolyanobbing (3)

Banded Iron Formations Southern Cross Terrane Yilgarn Mineral Field (Hematite, Goethite)

8.5

0.9

98.5

99.3

85.2

100

Geologic - Block Model

1994

Mine, Road Train Haulage, Crushing- Screening Plant

Cockatoo Island JV (4)

Sandstone Yampi Formation Kimberley Mineral Field (Hematite)

1.4

—

2.0

2.3

100

Geologic - Block Model

1994

Mine, Crushing- Screening Plant, Shiploader

Total

9.9

0.9

100.5

101.3

87.5

(1)	Metric tons of 2,205 pounds.

(2)	Reported ore reserves restricted to proven and probable tonnages based on life of mine operating schedules. 0.9 million metric tons of the Koolyanobbing reserves are sourced from current stockpiles.

(3)	Rail and plant upgrades in 2009 increased the annual capacity to 8.5 million metric tons .

(4)	Asia Pacific Iron Ore has a 50% interest in the Cockatoo Island joint venture. Reserves reported at 100% and represent the Stage 3 Seawall extension project area.

Net of 2010 production, Koolyanobbing ore reserves increased by 23 million metric tons. The increase is attributable to the addition of newly discovered resources and mine planning optimization.

During 2010, construction of a Stage 3 extension of the seawall embankment was completed. Production recommenced in 2010 following completion of the seawall. This extension is expected to extend production for approximately two years.

Coal Reserves

North American Coal

Coal reserve estimates for our North American underground and surface coal mines as of December 31, 2010 were estimated using three-dimensional modeling techniques, coupled with mine plan designs. Coal pricing for the North American Coal reserve estimates utilized $85 per ton F.O.B. mine based upon a three-year trailing average from 2006 to 2008. We will generate a new coal reserve estimate for CLCC in 2011. The Pinnacle and Oak Grove coal reserves have not changed net of 2010 mine production.

The following table reflects expected current annual capacities and economically recoverable reserves for our North American coal mines as of December 31, 2010.

Mine (2)

Category (3)

Current
Annual
Capacity

Proven and Probable Reserves

Mineral Rights

Method of
Reserve
Estimation

Infrastructure

In-place

Moist Recoverable

Owned

Leased

Tons in Millions (1)

Pinnacle Complex

4.0

100

Geologic -

Mine, Preparation

Pocahontas No 3

Assigned

113.1

52.4

Strat Model

Plant, Load-out

Pocahontas No 4

Unassigned

26.8

9.8

Oak Grove

2.5

100

Geologic -

Mine, Preparation

Blue Creek Seam

Assigned

80.0

42.1

Strat Model

Plant, Load-out

Cliffs Logan County Coal

Multi-Seam Underground

Assigned

1.7

137.5

58.9

100

Geologic -

Mine, Preparation

Strat Model

Plant, Load-out

Multi-Seam Surface

Assigned

1.2

65.9

61.8

100

Geologic -

Mine,Loadout

Strat Model

Total

9.4

423.3

225.0

(1)	Short tons of 2,000 pounds.

(2)	All coal extracted by underground mining using longwall and continuous miner equipment except for Cliffs Logan County Coal Surface which is mined by contour and highwall mining methods.

(3)	Assigned reserves represent coal reserves that can be mined without a significant capital expenditure for mine development, whereas unassigned reserves will require significant capital expenditures to mine the reserves.

The North American recoverable coal reserves increased 121 million tons net of 2010 production due to the acquisition of CLCC in 2010.

The recoverable coal reserves at our North American operations consist of both high quality, low and high volatile, metallurgical grade coal and thermal coal. The following table presents the coal quality at our North American coal mines:

Mine

Coal Type

Moist Recoverable
Reserves (1)
Proven & Probable

Sulfur
Content %

As Received
Btu/lb

Pinnacle Complex

Pocahontas No 3

Metallurgical

52.4

0.77

14,870

Pocahontas No 4

Metallurgical

9.8

0.58

14,000

Oak Grove

Blue Creek Seam

Metallurgical

42.1

0.57

14,000

Cliffs Logan County Coal

Multi-Seam Underground

Metallurgical

58.9

0.74

13,600

Multi-Seam Surface (2)

Thermal

61.8

0.89

12,000

Subtotals

Metallurgical

163.2

Thermal

61.8

Total

225.0

(1)	In millions of short tons of 2,000 pounds.

(2)	Cliffs Logan County Coal’s thermal recoverable reserves do not meet U.S. compliance standards as defined by Phase II of the Clean Air Act as coal having sulfur dioxide content of 1.2 pounds or less per million Btu.

Asia Pacific Coal

The coal reserve estimate for our Asia Pacific coal mine as of December 31, 2010 is based on a JORC-compliant resource estimate. An optimized pit design for an initial 10-year mine operating schedule was generated supporting the reserve estimate. Coal pricing for the reserve estimate is based upon international benchmark pricing for our Sonoma joint venture at the time of investment in 2007, which was $71 per metric ton F.O.B. port for the range of products generated at Sonoma.

The following table reflects expected current annual capacity and economically recoverable reserves for Sonoma:

Mine (2)

Category (3)

Current
Annual
Capacity

Proven and Probable

Mineral Rights

Method of
Reserve
Estimation

Infrastructure

In-place

Moist Recoverable

Owned

Leased

Metric tons in Millions (1)

Sonoma

Moranbah Coal Measures B, C and E Seams

Assigned

4.0

35.5

20.2

100

Geologic -
Block Model

Mine, Preparation,
Plant, Load-out

(1)	Metric tons of 2,205 pounds. In-place coal at 8 percent moisture, recoverable clean coal at 9 percent moisture. Reserves listed on 100 percent basis. Cliffs has an effective 45 percent interest in the joint venture.

(2)	All coal is extracted by conventional surface mining techniques.

(3)	Assigned reserves represent coal reserves that can be mined without a significant capital expenditure for mine development, whereas unassigned reserves will require significant capital expenditures to mine the reserves.

Sonoma’s recoverable coal reserves are primarily metallurgical grade coal (standard coking coal plus low volatile coal for pulverized coal injection) with lesser steam coal. Sonoma coal quality is presented in the following table.

Mine

Coal Type (2)

Moist Recoverable Reserves
Proven & Probable (1)

Sulfur
Content %

As Received
Btu/lb

Sonoma

Metallurgical

7.0

0.48

13,800

Thermal

13.2

0.55

10,800

Total

20.2

(1)	In million of metric tons of 2,205 pounds. In-place coal at 8 percent moisture, recoverable clean coal at 9 percent moisture. Reserves listed on 100% basis. Cliffs has an effective 45 percent interest in the joint venture.

(2)	Sonoma thermal coal recoverable reserves meet U.S. compliance standards as defined by Phase II of the Clean Air Act as coal having sulfur dioxide content of 1.2 pounds or less per million Btu.

Item 3. Legal Proceedings.

Alabama Dust Litigation. There are currently three cases that comprise the Alabama Dust Litigation. In 1997, a case styled White, et al. v. USX Corporation, et al. was brought alleging that dust from the Concord Preparation Plant damaged properties in the area. In 2002, the plaintiffs entered into a non-opt out, injunctive-relief only settlement agreement with the former owner to implement fourteen remedial measures. PinnOak and Oak Grove were added to the case in 2004. Plaintiffs subsequently sought additional remedial measures because they claimed the original fourteen remedial measures were not adequate. The parties agreed to a supplement to the 2002 settlement that was approved by the court on December 11, 2008. The terms of the supplement provided that in exchange for an immaterial payment amount for plaintiffs’ attorneys’ fees and costs and the implementation of a one-year ambient air monitoring plan, the plaintiffs would provide a release and dismiss the lawsuit if the monitoring plan were successfully completed. Despite successful completion of that plan, the plaintiffs now contend that the air monitors should be relocated and testing should start over due to continuing complaints of excess dust. We opposed this and on September 22, 2010, filed a motion to enforce the supplement to the settlement agreement and to dismiss the case. An evidentiary hearing was held in December 2010. We are awaiting a ruling, although we expect the losing side will appeal to the Supreme Court of Alabama.

Waid et al. v. U.S. Steel Mining Company et al., was brought in 2004 by approximately 160 individual plaintiffs asserting property damage and injuries arising from particulate emissions from the Concord Preparation Plant. On June 26, 2009, the Supreme Court of Alabama ruled that the plaintiffs in this case could pursue their damages claims originating after July 1, 2003, as only claims before that date are barred by the White class action settlement. Plaintiffs have been ordered to sever the claims of any personal injury plaintiffs; currently there are none, and after the completion of property inspections, the number of plaintiffs has been reduced to 116. The judge asked the parties to consider mediation and report back on June 8, 2010, after the depositions of ten plaintiffs; however that hearing never went forward. A new judge was assigned to the case and sworn in on January 17, 2011, and has scheduled a status conference for February 28, 2011. We intend to continue to defend this case vigorously.

On February 1, 2009, an additional lawsuit, the Alexander case, was filed by approximately 210 individual plaintiffs also asserting post July 1, 2003 claims for property damage and injuries arising from particulate emissions from the Concord Preparation Plant. This case has been consolidated with the Waid litigation for purposes of discovery. We have also completed property inspections and appraisals in this case, which may result in a reduction of the number of plaintiffs. The new judge assigned to this case has scheduled a status conference on February 28, 2011. This litigation is in the early stages and we intend to defend this case vigorously.

ArcelorMittal Arbitrations — Nomination dispute. On September 11, 2009, Cliffs, The Cleveland-Cliffs Iron Company, Cliffs Mining Company, Northshore Mining Company and Cliffs Sales Company filed two arbitration demands against ArcelorMittal USA Inc., ISG Cleveland Inc., ISG Indiana Harbor Inc. and Mittal Steel USA Weirton Inc. with respect to ArcelorMittal’s attempt to modify its pellet nominations submitted to Cliffs in 2008 for the calendar year 2009 and with respect to ArcelorMittal’s attempt to revoke a one-time deferral election to defer 550,000 tons from 2009 to 2010. Both arbitrations were settled on April 14, 2010. Under the settlement, Cliffs reached an agreement with ArcelorMittal as to the final nomination for 2009 and the binding nomination for 2010. On June 7, 2010, ArcelorMittal filed a complaint in the Circuit Court of Cook County, Illinois seeking a declaratory judgment that Cliffs must permit it to change the amounts and types of pellets to be shipped to its Indiana Harbor East facility in 2010 from the amounts and types set forth in the settlement agreement as part of ArcelorMittal’s 2010 nomination. On June 25, 2010, Cliffs filed a motion to stay the case and to compel arbitration. On August 20, 2010, ArcelorMittal dismissed the Cook County lawsuit and commenced arbitration in Cleveland, Ohio. Cliffs filed an answering statement in the arbitration on September 10, 2010. An evidentiary hearing has been scheduled for May 2, 2011.

ArcelorMittal Arbitrations — Price Re-opener dispute. On May 18, 2010, The Cleveland-Cliffs Iron Company and Cliffs Mining Company filed an arbitration demand against ArcelorMittal USA for arbitration with respect to the Pellet Sale and Purchase Agreement dated December 31, 2002 covering the Indiana Harbor East facility. The agreement provides for the use of published annual pellet prices to adjust the prices of the pellets sold to ArcelorMittal. Cliffs contends that such prices have ceased to be published and is seeking a declaration that the agreement requires ArcelorMittal to enter into negotiations with Cliffs to amend the agreement in this regard, and that pending the outcome of such negotiations or an order from the arbitration panel amending the agreement, Cliffs need not comply with certain conditions for requesting a price reopener for 2010 under the agreement that would otherwise have to be met by July 1, 2010. ArcelorMittal filed its response on June 7, 2010. On July 9, 2010, Cliffs filed a second amended demand in the arbitration seeking a declaration that Cliffs is entitled to a price reopener for 2010. On January 25, 2011, the arbitrator denied both parties cross-motions for summary judgment. An evidentiary hearing has not yet been scheduled.

ArcelorMittal Litigation — 2011 Nomination Dispute. On January 31, 2011, ArcelorMittal USA Inc. filed a complaint in the Circuit Court of Cook County, Illinois against Cliffs, Cliffs Sales Company, The Cleveland-Cliffs Iron Company, Cliffs Mining Company and Northshore Mining Company with respect to ArcelorMittal’s attempt to twice modify its pellet nomination submitted to Cliffs in 2010 for the calendar year 2011. The nomination modifications in dispute relate to significant increases in iron ore pellets to be delivered in 2011 to ArcelorMittal’s Cleveland Works and Indiana Harbor Works. ArcelorMittal is demanding a declaratory judgment and claiming breach of contract. We strongly disagree with ArcelorMittal’s allegations and intend to defend this case vigorously.

Essar Steel Algoma Application and Arbitration. On May 28, 2010, Essar Steel Algoma filed an Application for Emergency Relief in the Ontario Superior Court of Justice in Ontario, Canada requesting that the court order The Cleveland-Cliffs Iron Company, Cliffs Mining Company and Northshore Mining Company to ship pellets to the Algoma facility in Sault Ste. Marie, Ontario. Algoma and Cliffs are parties to a Pellet Sale and Purchase Agreement dated January 31, 2002. The agreement provides for a mid-year adjustment of the price paid by Algoma for the pellets that it purchases. Algoma disputed the adjustment made by Cliffs in May 2010 and refused to pay the adjusted price. The agreement permits Cliffs to suspend performance if Algoma does not pay any amount due to Cliffs. Algoma’s application sought to preclude Cliffs from suspending shipments of pellets and to require it to continue performance at a provisional price set by Cliffs in December 2009 until such time as arbitration resolves the pricing issues. The court granted the application and ordered Cliffs to resume shipping pellets at the December 2009 price. The injunction expired on October 1, 2010, following an agreement between the parties on an interim price to be paid by Algoma pending the outcome of the related arbitration in Ohio.

Simultaneously with the Application for Emergency Relief, Algoma filed an arbitration demand pursuant to the agreement. The demand requested that the arbitration panel determine a price adjustment and declare that the May 2010 adjustment by Cliffs is invalid and ineffective. Cliffs filed an answer and counterclaim on June 18, 2010 and an amended answer and counterclaim in the arbitration on July 16, 2010. The amended counterclaim asserted that published annual prices used to adjust the price of the pellets sold to Algoma under the agreement

ceased to be published and asked the arbitration panel to either amend the agreement in this regard or require Algoma to enter into negotiations with Cliffs to amend the agreement. In a binding decision on December 17, 2010, the arbitration panel redefined world prices for blast furnace pellets, a factor used in determining annual price increases or decreases under the agreement. This revised definition entitled us to use an increase in excess of 95 percent over 2009 prices for seaborne blast furnace pellets in the agreement’s pricing formula. On December 21, 2010, Algoma filed an application to vacate the award in the U.S. District Court for the Northern District of Ohio. On January 3, 2011, Algoma filed a complaint in the U.S. District Court, Northern District, Eastern Division of Ohio seeking to enjoin Cliffs from suspending performance if Algoma continued to pay the interim price agreed to in the Canadian litigation. The court denied Algoma’s motion for a temporary restraining order. Algoma then agreed to pay a current price and a true-up payment based on the arbitration and to withdraw its motion for the injunctive relief in exchange for continued shipments. On January 6, 2011, we received $129 million in “true-up” payments from Algoma. Despite this cash payment, Algoma is maintaining a court application to vacate the arbitration award. We are vigorously contesting Alogma’s motion to vacate the award and we have counterclaimed to confirm the award. Currently, Algoma’s invoices are calculated pursuant to the arbitration panel’s decision. On January 28, 2011, Cliffs filed three counterclaims against Algoma in the U.S. District Court for the Northern District of Ohio. The first counterclaim relates to the interpretation of a term used in the arbitration panel’s award and seeks a declaratory judgment. The second counterclaim alleges that Algoma is obligated to pay the 2010 contract price for any pellets nominated for 2010, but not delivered until 2011, and seeks a declaratory judgment. The third counterclaim alleges that Algoma breached its contract with Cliffs by failing to take delivery in 2010 of the full amount of pellets that it nominated for 2010 and refusing to pay the 2010 price for any pellets not delivered until 2011 and seeks an award of damages.

KHD Humboldt Wedag International Ltd. (“KHD”). On June 20, 2006, KHD and Cade Struktur Corporation (“Cade”) submitted an arbitration notice, appointment of an arbitrator and request to appoint an arbitrator to the participants in Wabush in connection with a dispute over the calculation of royalties under the terms of an Amended and Consolidation of Mining Leases Agreement dated September 2, 1959, as amended, between Wabush Iron Co. Limited and Canadian Javelin Limited (a predecessor to KHD and Cade). KHD and Cade claimed that Wabush had underpaid royalties since 1991 and claimed underpayments in excess of C$21 million plus interest and costs. As part of the Wabush acquisition earlier this year, the agreement contains certain provisions that allow Cliffs to recover a portion of any liability from the former owners of Wabush. On May 28, 2010, the arbitration panel delivered a verdict wherein both parties were successful in various parts of the claim. The panel concluded that Cliffs was using the correct iron ore content of 63.5 percent and had fulfilled its fiduciary duties, but that certain portions of the royalty calculation were incorrectly tabulated. On October 8, 2010, approximately C$2.3 million was paid to the Newfoundland tax authority and approximately C$9.3 million was paid to KHD as a result of the misinterpretation of the royalty calculation from December 22, 1999. The amount owed in interest and costs remains outstanding before the arbitration panel. The hearing on interest and costs has been scheduled for March 1, 2011 through March 3, 2011.

Maritime Asbestos Litigation. The Cleveland-Cliffs Iron Company and/or The Cleveland-Cliffs Steamship Company have been named defendants in 489 actions brought from 1986 to date by former seamen in which the plaintiffs claim damages under federal law for illnesses allegedly suffered as the result of exposure to airborne asbestos fibers while serving as crew members aboard the vessels previously owned or managed by our entities until the mid-1980s. All of these actions have been consolidated into multidistrict proceedings in the Eastern District of Pennsylvania, whose docket now includes a total of over 30,000 maritime cases filed by seamen against ship-owners and other defendants. All of these cases have been dismissed without prejudice, but could be reinstated upon application by plaintiffs’ counsel. By a series of court orders, the court has been reinstating cases and dismissing other cases without prejudice. We are a defendant in 14 cases that have been reinstated and 34 cases that have been dismissed. The claims in the 14 reinstated cases involve allegations with respect to lung cancer, asbestosis and pleural changes of varying severity. The court entered an order on March 2, 2010, dismissing without prejudice, at the request of plaintiffs’ counsel, the claims against the viable defendants in 7,405 cases. Separately, the cases that were reinstated have been placed in suspense pending further order of the court. In their place, plaintiffs’ counsel are identifying approximately 4,000 cases that they wish to pursue, with the remaining cases to be dismissed subject to a tolling agreement, which remains under negotiation, and presented to the parties for approval. Currently, approximately 3,400 cases have been identified of which we are

named the defendant in 68. The claims against our entities are insured in amounts that vary by policy year; however, the manner in which these retentions will be applied remains uncertain. Our entities continue to vigorously contest these claims and have made no settlements on them.

Pinnacle Mine Environmental Litigation. On June 24, 2010, the West Virginia DEP filed a lawsuit against the Pinnacle Mine and other West Virginia coal mining operations alleging non-compliance with its NPDES discharge permit. The complaint alleges various exceedances of the permit’s effluent quality limits and seeks injunctive relief and penalties. Pinnacle has responded denying the alleged violations and we are currently seeking a meeting with the DEP to clarify and resolve the suit. At this time, we do not believe this suit will have a material impact on the mine’s operations.

The Rio Tinto Mine Site. The Rio Tinto Mine Site is a historic underground copper mine located near Mountain City, Nevada, where tailings were placed in Mill Creek, a tributary to the Owyhee River. Site investigation and remediation work is being conducted in accordance with a Consent Order between the NDEP and the RTWG composed of Cliffs, Atlantic Richfield Company, Teck Cominco American Incorporated, and E. I. du Pont de Nemours and Company. The Consent Order provides for technical review by the U.S. Department of the Interior Bureau of Indian Affairs, the U.S. Fish & Wildlife Service, U.S. Department of Agriculture Forest Service, the NDEP and the Shoshone-Paiute Tribes of the Duck Valley Reservation (collectively, “Rio Tinto Trustees”). The Consent Order is currently projected to continue with the objective of supporting the selection of the final remedy for the site. As of December 31, 2010, the estimated costs of the available remediation alternatives currently range from approximately $10.0 million to $30.5 million in total for all potentially responsible parties. In recognition of the potential for an NRD claim, the parties actively pursued a global settlement that would include the EPA and encompass both the remedial action and the NRD issues.

On May 29, 2009, the RTWG entered into a Rio Tinto Mine Site Work and Cost Allocation Agreement (the “Allocation Agreement”) to resolve differences over the allocation of any negotiated remedy. The Allocation Agreement contemplates that the RTWG will enter into an insured fixed-price cleanup agreement, or IFC, pursuant to which a contractor would assume responsibility for the implementation and funding of the remedy in exchange for a fixed price. We are obligated to fund 32.5 percent of the IFC. In the event an IFC is not implemented, the RTWG has agreed on allocation percentages in the Allocation Agreement, with Cliffs being committed to fund 32.5 percent of any remedy. We have a current reserve that we believe is adequate to fund our anticipated portion of the IFC. While a global settlement with the EPA has not been finalized, we expect an agreement will be reached in 2011.

United Taconite Air Emissions Matter. On March 27, 2008, United Taconite received a DSA from the MPCA alleging various air emissions violations of the facility’s air permit limit conditions, reporting and testing requirements. The allegations generally stem from procedures put in place prior to 2004 before our acquisition of our interest in the mine. The DSA requires the facility to install continuous emissions monitoring, evaluate compliance procedures, submit a plan to implement procedures to eliminate air deviations during the relevant time period, and proposes a civil penalty in an amount to be determined. While United Taconite does not agree with MPCA’s allegations, United Taconite and the MPCA continue discussions on the matter with the intent of working toward a mutual resolution. In the second quarter of 2009, United Taconite satisfied various requirements of the DSA, including installation of continuous emission monitoring systems (CEMS) on furnace waste gas stacks, purchase of a new water truck, installation of improved dust collector controls, retirement of 1,160 tons of sulfur dioxide emission allowances, and payment of a $125,000 civil penalty. All outstanding stipulation agreement requirements have been completed except for the certification of the CEMS units. All the relevant units have been certified except the SO₂ monitor on Line 1, which will undergo certification when Line 1 switches to solid fuel in late 2011.

Wisconsin Electric Power Company Rate Cases. On July 2, 2009, WEPCO filed a new rate case at the MPSC wherein WEPCO proposed to increase its rates for electric service. On August 18, 2009, the judge granted our petition to intervene in the new rate case. Testimony in the case was completed in early February 2010. On July 1, 2010, the MPSC approved new rates, effective on July 2, 2010, that were projected to increase Tilden and Empire’s electric costs by approximately $14.4 million per year, or 13.6 percent, as compared to the rates that

were in effect when the case was filed. Because WEPCO had self-implemented an interim rate increase in February 2010, the actual increase in rates beginning in July 2010 was much lower than 13.6 percent. Tilden and Empire’s rates increased by approximately $2.5 million, or 2.1 percent, on an annual basis in July over the rates in effect since February 2010. On August 2, 2010, Tilden and Empire filed a petition for rehearing with respect to certain issues in the rate case. On October 14, 2010, the MPSC granted, in part, Tilden and Empire’s petition for rehearing and directed that WEPCO’s rates implemented in July 2010 be reduced. The rate reduction is projected to lower Tilden and Empire’s annual electric costs by approximately $200,000 below the annual electric costs that Tilden and Empire would have incurred under the rates implemented in July. On November 12, 2010, Tilden and Empire filed a Claim of Appeal with the Michigan Court of Appeals raising two issues, which if decided favorably to the mines could further reduce the mines’ annual electric costs. On December 28, 2010, the MPSC filed a motion for remand with the Court of Appeals requesting that the case be sent back to the MPSC for further clarification. It is expected that the Court of Appeals will rule on the motion for remand in February 2011. Assuming the motion is denied, a final decision from the Court of Appeals would be expected sometime during the middle of 2012.

Item 4. (Removed and Reserved)

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Stock Exchange Information

Our common shares (ticker symbol CLF) are listed on the New York Stock Exchange and the Professional Segment of NYSE Euronext Paris.

Common Share Price Performance and Dividends

The following table sets forth, for the periods indicated, the high and low sales prices per common share as reported on the NYSE and the dividends declared per common share:


	2010						2009
	High		Low		Dividends		High		Low		Dividends
First Quarter	$	73.95	$	39.13	$	0.0875	$	32.48	$	11.80	$	0.0875
Second Quarter		76.17		46.40		0.1400		32.14		17.18		0.0400
Third Quarter		68.83		44.20		0.1400		35.57		19.44		0.0400
Fourth Quarter		80.40		61.93		0.1400		48.41		29.05		0.0875

Year		80.40		39.13	$	0.5075		48.41		11.80	$	0.2550

At February 14, 2011, we had 1,466 shareholders of record.

Shareholder Return Performance

The following graph shows changes over the past five-year period in the value of $100 invested in: (1) Cliffs’ common shares; (2) S&P 500 Stock Index; (3) S&P 500 Steel Group Index; and (4) S&P Midcap 400 Index. The values of each investment are based on price change plus reinvestment of all dividends report to shareholders.

LOGO


		2005		2006		2007		2008		2009		2010
Cliffs Natural Resources Inc.	Return %				9.77		108.77		-48.90		81.92		70.69
	Cum $		100.00		109.77		229.16		117.11		213.05		363.65
S&P 500 Index - Total Returns	Return %				15.78		5.49		-36.99		26.47		15.07
	Cum $		100.00		115.78		122.14		76.96		97.33		111.99
S&P 500 Steel Index	Return %				80.26		21.72		-51.73		28.88		33.86
	Cum $		100.00		180.26		219.41		105.91		136.50		182.72
S&P Midcap 400 Index	Return %				10.31		7.97		-36.24		37.37		26.64
	Cum $		100.00		110.31		119.10		75.94		104.32		132.11

Issuer Purchases of Equity Securities


Period	Total Number of Shares (or Units) Purchased		Average Price Paid per Share (or Unit) $		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs		Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet be Purchased Under the Plans or Programs (1)
October 1 — 31, 2010		—		—		—		2,495,400
November 1 — 30, 2010		—		—		—		2,495,400
December 1 — 31, 2010		—		—		—		2,495,400

Total		—		—		—		2,495,400

(1)	On July 11, 2006, we received the approval by the Board of Directors to repurchase up to an aggregate of four million common shares. There were no repurchases in the fourth quarter of 2010 under this program.

Item 6.

Selected Financial Data.

Summary of Financial and Other Statistical Data

Cliffs Natural Resources Inc. and Subsidiaries


	2010 (e)			2009			2008 (b)			2007 (a)			2006
Financial data (in millions, except per share amounts and employees)
Revenue from product sales and services	$	4,682.2		$	2,342.0		$	3,609.1		$	2,275.2		$	1,921.7
Cost of goods sold and operating expenses		(3,158.7	)		(2,033.1	)		(2,449.4	)		(1,813.2	)		(1,507.7	)
Other operating expense		(258.5	)		(78.7	)		(220.8	)		(80.4	)		(48.3	)

Operating income		1,265.0			230.2			938.9			381.6			365.7
Income from continuing operations (f)		1,019.7			204.3			537.0			285.4			296.9
Income from discontinued operations		—			—			—			0.2			0.3

Net income		1,019.7			204.3			537.0			285.6			297.2
Less: Net income (loss) attributable to noncontrolling interest		(0.2	)		(0.8	)		21.2			15.6			17.1

Net income attributable to Cliffs shareholders		1,019.9			205.1			515.8			270.0			280.1
Preferred stock dividends		—			—			(1.1	)		(5.2	)		(5.6	)

Income attributable to Cliffs common shareholders		1,019.9			205.1			514.7			264.8			274.5
Earnings per common share attributable to Cliffs shareholders — basic (c)
Continuing operations		7.54			1.64			5.07			3.19			3.26
Discontinued operations		—			—			—			—			—

Earnings per common share attributable to Cliffs shareholders — basic (c)		7.54			1.64			5.07			3.19			3.26
Earnings per common share attributable to Cliffs shareholders — diluted (c)
Continuing operations		7.49			1.63			4.76			2.57			2.60
Discontinued operations		—			—			—			—			—

Earnings per common share attributable to Cliffs shareholders — diluted (c)		7.49			1.63			4.76			2.57			2.60
Total assets		7,778.2			4,639.3			4,111.1			3,075.8			1,939.7
Long-term obligations		1,881.3			644.3			580.2			490.9			47.2
Net cash from operating activities		1,320.0			185.7			853.2			288.9			428.5
Redeemable cumulative convertible perpetual preferred stock		—			—			0.2			134.7			172.3
Distributions to preferred shareholders cash dividends		—			—			1.1			5.5			5.6
Distributions to common shareholders cash dividends (d)
- Per share (c)		0.51			0.26			0.35			0.25			0.24
- Total		68.9			31.9			36.1			20.9			20.2
Repurchases of common shares		—			—			—			2.2			121.5
Iron ore and coal production and sales statistics (tons in millions — North America; metric tons in millions — Asia-Pacific)
Production tonnage - North American iron ore		32.0			19.6			35.2			34.6			33.6
- North American coal		3.2			1.7			3.5			1.1			—
- Asia Pacific iron ore		9.3			8.3			7.7			8.4			7.7
Production tonnage — North American iron ore (Cliffs’ share)		25.4			17.1			22.9			21.8			20.8
Sales tonnage - North American iron ore		26.2			16.4			22.7			22.3			20.4
- North American coal		3.3			1.9			3.2			1.2			—
- Asia Pacific iron ore		9.3			8.5			7.8			8.1			7.4
Common shares outstanding — basic (millions) (c)
- Average for year		135.3			125.0			101.5			83.0			84.1
- At year-end		135.5			131.0			113.5			87.2			81.8

(a)	On July 31, 2007, we completed the acquisition of Cliffs North American Coal LLC (formerly PinnOak), a producer of high-quality, low-volatile metallurgical coal. Results for 2007 include PinnOak’s results since the acquisition.

(b)

On May 21, 2008, Portman authorized a tender offer to repurchase shares, and as a result, our ownership interest in Portman increased from 80.4 percent to 85.2 percent on June 24, 2008. On September 10, 2008, we announced an off-market takeover offer to acquire the remaining shares in Portman, which closed on November 3, 2008. We subsequently proceeded with a compulsory acquisition of the remaining shares and have full ownership of Portman as of December 31, 2008. Results for 2008 reflect the increase in our ownership of Portman since the date of each step acquisition.

(c)

On March 11, 2008, our Board of Directors declared a two-for-one stock split of our common shares. The record date for the stock split was May 1, 2008 with a distribution date of May 15, 2008. On May 9, 2006, our Board of Directors approved a two-for-one stock split of our common shares. The record date for the stock split was June 15, 2006 with a distribution date of June 30, 2006. Accordingly, all common shares and per share amounts for all periods presented have been adjusted retroactively to reflect the stock splits.

(d)

On May 12, 2009, our Board of Directors enacted a 55 percent reduction in our quarterly common share dividend to $0.04 from $0.0875 for the second and third quarters of 2009 in order to enhance financial flexibility. The $0.04 common share dividends were paid on June 1, 2009 and September 1, 2009 to shareholders of record as of May 22, 2009 and August 14, 2009, respectively. In the fourth quarter of 2009, the dividend was reinstated to its previous level. On May 11, 2010, our Board of Directors increased our quarterly common share dividend from $0.0875 to $0.14 per share. The increased cash dividend was paid on June 1, 2010, September 1, 2010, and December 1, 2010 to shareholders on record as of May 14, 2010, August 13, 2010, and November 19, 2010, respectively.

(e)

On January 27, 2010, we acquired all of the remaining outstanding shares of Freewest, including its interest in the Ring of Fire properties in Northern Ontario Canada. On February 1, 2010, we acquired entities from our former partners that held their respective interests in Wabush, thereby increasing our ownership interest from 26.8 percent to 100 percent. On July 30, 2010, we acquired all of the coal operations of privately-owned INR, and since that date, the operations acquired from INR have been conducted through our wholly-owned subsidiary known as CLCC. Results for 2010 include Freewest’s, Wabush’s and CLCC’s results since the respective acquisition dates. As a result of acquiring the remaining ownership interest in Freewest and Wabush, our 2010 results were impacted by realized gains of $38.6 million primarily related to the increase in fair value of our previous ownership interest in each investment held prior to the business acquisition.

(f)

In December 2010, we completed a legal entity restructuring that resulted in a change to deferred tax liabilities of $78.0 million on certain foreign investments to a deferred tax asset of $9.4 million for tax basis in excess of book basis on foreign investments as of December 31, 2010. A valuation allowance of $9.4 million was recorded against this asset due to the uncertainty of realization. The deferred tax changes were recognized as a reduction to our income tax provision in 2010.

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Overview

Cliffs Natural Resources Inc. traces its corporate history back to 1847. Today, we are an international mining and natural resources company. A member of the S&P 500 Index, we are the largest producer of iron ore pellets in North America, a major supplier of direct-shipping lump and fines iron ore out of Australia, and a significant producer of metallurgical coal. Our company’s operations are organized according to product category and geographic location: North American Iron Ore; North American Coal; Asia Pacific Iron Ore: Asia Pacific Coal; Latin American Iron Ore; Alternative Energies; Ferroalloys; and our Global Exploration Group.

Over recent years, we have been executing a strategy designed to achieve scale in the mining industry and focused on serving the world’s largest and fastest growing steel markets. In North America, we operate six iron ore mines in Michigan, Minnesota and Eastern Canada, five metallurgical coal mines located in West Virginia and Alabama and one thermal coal mine located in West Virginia. Our Asia Pacific operations are comprised of two iron ore mining complexes in Western Australia, serving the Asian iron ore markets with direct-shipping fines and lump ore, and a 45 percent economic interest in a coking and thermal coal mine located in Queensland, Australia. In Latin America, we have a 30 percent interest in Amapá, a Brazilian iron ore project, and in Ontario, Canada, we have recently acquired chromite properties. Our operations also include our 95 percent controlling interest in renewaFUEL located in Michigan. In addition, our Global Exploration Group was established in 2009 and is focused on early involvement in exploration activities to identify new world-class projects for future development or projects that add significant value to existing operations.

The strengthening recovery and improving outlook during 2010 was characterized by increased steel production, higher demand and rising prices. In 2010, global crude steel production, a significant driver of our business, was up approximately 15 percent from 2009 with even greater production increases in some areas, including North America, where the economy grew at an annual rate of nearly three percent during 2010. Steel production in China also remained strong, increasing 10.4 percent from 2009.

Consolidated revenues for 2010 increased to $4.7 billion, with net income per diluted share of $7.49. This compares with revenues of $2.3 billion and net income per diluted share of $1.63 in 2009. Based on the signs of marked improvement in customer demand, we increased production at all of our facilities in order to meet increases in demand. Higher sales volumes in North America during the year were attributable to increased sales of iron ore pellets, as well as metallurgical and thermal coal made available through our acquisitions of Wabush and CLCC during the first and third quarters of 2010, respectively. In Asia Pacific, the demand for steelmaking raw materials remained strong throughout 2010 primarily led by demand from China. Earlier in 2010, the world’s largest iron ore producers moved away from the annual international benchmark pricing mechanism referenced in our customer supply agreements, resulting in a shift in the industry toward shorter-term pricing arrangements linked to the spot market. We finalized short-term pricing arrangements with our Asia Pacific Iron Ore customers and reached final pricing settlements with some of our North American customers through the fourth quarter of 2010 for the 2010 contract year, reflecting significant increases over 2009 prices. Although pricing has been settled with some of our North American customers for 2010, we are still in the process of assessing the impact a change to the historical annual pricing mechanism will have on certain of our larger existing North American Iron Ore customer supply agreements that extend over multiple years, and negotiations are still ongoing with these customers.

Results in 2010 reflect strong performance at our operations around the world and improved pricing for our products. Our strong cash flow generation and positive outlook for our business are allowing us to resume our focus on investments in our assets, which will enable us to continue to pursue strategic objectives and enhance our long-term operating performance, while also providing us with greater confidence and the ability to increase our cash payouts to shareholders. In May 2010, our Board of Directors increased our quarterly common share dividend from $0.0875 to $0.14 per share. We also continued to strengthen our balance sheet and enhance financial flexibility, including the completion of two public offerings of senior notes in the aggregate principal amount of $400 million and $1 billion in the first and third quarters of 2010, respectively. The net proceeds from

these offerings have been used for the repayment of a portion of our debt obligations and have been or may be used for the funding of all or a portion of other strategic transactions and acquisitions, such as the pending acquisition of Consolidated Thompson for which a definitive arrangement agreement to acquire all of its common shares in an all-cash transaction was entered into in January 2011 and is subject to the satisfaction or waiver of various closing conditions.

Segments

We organize our business according to product category and geographic location: North American Iron Ore; North American Coal; Asia Pacific Iron Ore; Asia Pacific Coal; Latin American Iron Ore; Alternative Energies; Ferroalloys and Global Exploration Group. The Asia Pacific Coal, Latin American Iron Ore, Alternative Energies; Ferroalloys and Global Exploration Group operating segments do not meet reportable segment disclosure requirements and therefore are not separately reported.

Growth Strategy and Strategic Transactions

Throughout 2010, we continued to increase our operating scale and presence as an international mining and natural resources company by expanding both geographically and through the minerals we mine and market. The long-term outlook remains healthy and we are now focusing on our growth projects with sustained investment in our core businesses. Our growth in North America, as well as acquisitions in minerals outside of iron ore and coal, illustrate the execution of this strategy during 2010. We also expect to achieve growth through early involvement in exploration activities by partnering with junior mining companies, which provide us low-cost entry points for potentially significant reserve additions.

We continued our strategic growth and transformation to an international mining and natural resources company through the following transactions:

•

Acquisition of remaining interest in Freewest

•

Acquisition of remaining interest in Wabush

•

Acquisition of certain coal operations of privately-owned INR

•

Acquisition of Spider

We plan to continue to execute our strategy in 2011 through acquisitions such as the pending acquisition of Consolidated Thompson that was announced in January 2011 and is subject to the satisfaction or waiver of various closing conditions.

The Freewest, Wabush, CLCC, and Spider acquisitions allowed us to increase production capacity and add additional reserves at our North American Iron Ore and North American Coal businesses, gain additional access to the seaborne iron ore markets serving steelmakers in Europe and Asia, and further broaden our mineral and customer diversification. The agreement to acquire Consolidated Thompson will allow us to continue to build scale within our North American Iron Ore business through the acquired ownership of expandable and exportable steelmaking raw material assets serving international markets. Refer to Recent Developments within Item 1 — Business, for additional information regarding each of these strategic transactions.

Results of Operations — Consolidated

2010 Compared to 2009

The following is a summary of our consolidated results of operations for 2010 compared with 2009:


	(In Millions)
	2010			2009			Variance Favorable/ (Unfavorable)
Revenues from product sales and services	$	4,682.2		$	2,342.0		$	2,340.2
Cost of goods sold and operating expenses		(3,158.7	)		(2,033.1	)		(1,125.6	)

Sales Margin	$	1,523.5		$	308.9		$	1,214.6

Sales Margin %		32.5	%		13.2	%		19.3	%

Revenue from Product Sales and Services

Sales revenue in 2010 increased $2.3 billion, or 100 percent from 2009. The increase in sales revenue was primarily due to higher sales volume and pricing related to our Asia Pacific and North American business operations. Sales volume increased 60 percent at North American Iron Ore in 2010 when compared to 2009, and sales volume for North American Coal was 75 percent higher than the prior year. Improving market conditions throughout 2010 led to increasing production in the North American steel industry, and in turn higher demand for iron ore and metallurgical coal. Higher sales volumes in 2010 were also attributable to increased sales of Wabush pellets, made available through our acquisition of full ownership of the mine during the first quarter of 2010, and increased sales of metallurgical and thermal coal, made available through our acquisition of CLCC during the third quarter of 2010.

Higher sales prices also contributed to the increase in our consolidated revenue for the year ended 2010. A recent shift in the industry toward shorter-term pricing arrangements that are linked to the spot market and elimination of the annual benchmark system caused us to reassess and, in some cases, renegotiate the terms of certain of our supply agreements, primarily with our North American Iron Ore and Asia Pacific Iron Ore customers. We renegotiated the terms of our supply agreements with our Chinese and Japanese Asia Pacific Iron Ore customers moving to shorter-term pricing mechanisms of various durations based on the average daily spot prices, with certain pricing mechanisms that have a duration of up to a quarter. This change was effective in the first quarter of 2010 for our Chinese customers and the second quarter of 2010 for our Japanese customers. The increase in 2010 pricing was on average an 87 percent and 98 percent increase for lump and fines, respectively. In North America, we reached final pricing settlement with some of our North American Iron Ore customers through the fourth quarter of 2010. The increase in 2010 pricing was an average increase of 98 percent over 2009 prices for contracts based on world pellet prices. Although pricing has been settled with some of our North American customers for 2010, for the 2010 contract year, we are still in the process of assessing the impact a change to the historical annual pricing mechanism will have on certain of our larger existing North American Iron Ore customer supply agreements that extend over multiple years, and negotiations are still ongoing with these customers.

Refer to “Results of Operations — Segment Information” for additional information regarding the impact of specific factors that impacted revenue during the period.

Cost of Goods Sold and Operating Expenses

Cost of goods sold and operating expenses was $3.2 billion in 2010, an increase of $1.1 billion, or 55 percent compared with 2009. The increase in 2010 was primarily attributable to higher costs at both our North American and Asia Pacific business operations as a result of higher sales volume, partially offset by lower idle expense at our North American businesses as a result of higher production levels in 2010 to meet increasing customer demand. Costs were also negatively impacted in 2010 by approximately $125.3 million related to unfavorable foreign exchange rates compared with the same period in 2009, $35.3 million of inventory step-up

and amortization of purchase price adjustments related to the accounting for the acquisition of the remaining interest in Wabush and $143.3 million related to higher royalty expenses, maintenance and repairs spending, energy and labor rates and stripping and recovery costs at our North American Iron Ore operations.

Refer to “Results of Operations — Segment Information” for additional information regarding the impact of specific factors that impacted our operating results during the period.

Other Operating Income (Expense)

Following is a summary of other operating income (expense) for 2010 and 2009:


	(In Millions)
	2010			2009			Variance Favorable/ (Unfavorable)
Royalties and management fee revenue	$	12.1		$	4.8		$	7.3
Selling, general and administrative expenses		(238.0	)		(120.7	)		(117.3	)
Gain on sale of other assets — net		3.0			13.2			(10.2	)
Casualty recoveries		3.3			—			3.3
Miscellaneous — net		(38.9	)		24.0			(62.9	)

	$	(258.5	)	$	(78.7	)	$	(179.8	)

The increase in selling, general and administrative expense of $117.3 million in 2010 compared with 2009 was primarily due to higher compensation costs of $25.8 million, additional performance royalty expense for our investment in Sonoma of $26.3 million and various other costs totaling $19.7 million. These various other costs consisted of outside professional service costs associated with our current year acquisition activity and on-going arbitrations, higher insurance premiums and higher technology costs. We also incurred costs of $16.6 million related to our recently acquired Ferroalloys operating segment that were primarily comprised of feasibility study costs of $11 million, drilling costs of $1.6 million, and other administrative expenses of $1.6 million. In addition, we incurred $13.1 million in 2010 related to our involvement in exploration activities, as our Global Exploration Group focuses on identifying new world-class projects for future development or projects that are intended to add significant value to existing operations.

The prior year gain on sale of assets of $13.2 million primarily related to the Asia Pacific Iron Ore sale of its 50 percent interest in the Irvine Island iron ore project to its joint venture partner, Pluton Resources Limited (“Pluton Resources”). The consideration received consisted of a cash payment of approximately $5 million and the issuance of 19.4 million shares in Pluton Resources, all of which resulted in recognition of a gain on sale amounting to $12.1 million.

Miscellaneous — net losses of $38.9 million in 2010 primarily relate to foreign exchange losses on our Australian bank accounts that are denominated in U.S. dollars and short-term intercompany loans that are denominated in Australian dollars, as a result of the increase in exchange rates during the current year from A$0.90 at December 31, 2009 to A$1.02 at December 31, 2010. In the prior year, we had gains on foreign currency transactions related to loans denominated in Australian dollars, as a result of the increase in exchange rates during the period from A$0.69 at December 31, 2008 to A$0.90 at December 31, 2009.

Other income (expense)

Following is a summary of other income (expense) for 2010 and 2009:


	(In Millions)
	2010			2009			Variance Favorable/ (Unfavorable)
Gain on acquisition of controlling interest	$	40.7		$	—		$	40.7
Changes in fair value of foreign currency contracts, net		39.8			85.7			(45.9	)
Interest income		9.9			10.8			(0.9	)
Interest expense		(69.7	)		(39.0	)		(30.7	)
Impairment of securities		(1.2	)		—			(1.2	)
Other non-operating income		13.7			2.9			10.8

	$	33.2		$	60.4		$	(27.2	)

As a result of acquiring the remaining ownership interests in Freewest and Wabush during the first quarter of 2010, our 2010 results were impacted by realized gains of $38.6 million primarily related to the increase in fair value of our previous ownership interest in each investment held prior to the business acquisition. The fair value of our previous 12.4 percent interest in Freewest was $27.4 million on January 27, 2010, the date of acquisition, resulting in a gain of $13.6 million being recognized in 2010. The fair value of our previous 26.8 percent equity interest in Wabush was $38.0 million on February 1, 2010, resulting in a gain of $25.0 million also being recognized in 2010. Refer to NOTE 5 – ACQUISITIONS AND OTHER INVESTMENTS for further information.

The impact of changes in the fair value of our foreign currency contracts held as economic hedges on the Statement of Consolidated Operations is due to fluctuations in foreign currency exchange rates during the year. The favorable changes in fair value of our foreign currency contracts of $39.8 million in 2010 relates to the Australian to U.S. dollar spot rate of A$1.02 as of December 31, 2010, which increased from the Australian to U.S. dollar spot rate of A$0.90 as of December 31, 2009. The changes in the spot rates are correlated to the appreciation of the Australian dollar relative to the U.S. dollar during the year. In addition, we entered into additional foreign exchange contracts during 2010 resulting in the notional amount of outstanding contracts in our foreign exchange hedge book increasing from $108.5 million at December 31, 2009 to $230.0 million at December 31, 2010. During 2010, approximately $228.5 million of outstanding contracts matured, resulting in a cumulative net realized gain of $12.2 million since inception of the contracts. The following table represents our foreign currency derivative contract position for contracts held as economic hedges as of December 31, 2010:


	($ in Millions)
Contract Maturity	Notional Amount		Weighted Average Exchange Rate		Spot Rate		Fair Value
Contract Portfolio (excluding AUD Call Options) (1):
Contracts expiring in the next 12 months	$	205.0		0.86		1.02	$	32.3
Contracts expiring in the next 13 to 24 months		15.0		0.86		1.02		2.0

Total	$	220.0		0.86		1.02	$	34.3

AUD Call Options (2)
Contracts expiring in the next 12 months	$	10.0		0.85		1.02	$	1.9

Total	$	10.0		0.85		1.02	$	1.9

Total Hedge Contract Portfolio	$	230.0					$	36.2

(1)	Includes collar options and convertible collar options.

(2)	AUD call options are excluded from the weighted average exchange rate used for the remainder of the contract portfolio due to the unlimited downside participation associated with these instruments.

The increase in interest expense in 2010 compared with 2009 is attributable to the completion of two public offerings of senior notes during the year. In the first quarter of 2010, we completed a $400 million public offering of 10-year senior notes at a 5.90 percent fixed interest rate. In addition, a $1 billion public offering of senior notes was completed in the third quarter of 2010 consisting of two tranches; a $500 million 10-year tranche at a 4.80 percent fixed interest rate and a $500 million 30-year tranche at a 6.25 percent fixed interest rate. See NOTE 8 — DEBT AND CREDIT FACILITIES for further information.

Income Taxes

Our tax rate is affected by recurring items, such as depletion and tax rates in foreign jurisdictions and the relative amount of income we earn in our various jurisdictions. It is also affected by discrete items that may occur in any given year, but are not consistent from year to year. The following represents a summary of our tax provision and corresponding effective rates for the years ended December 31, 2010 and 2009:


	(In Millions)
	2010			2009
Income tax expense	$	292.0		$	20.8
Effective tax rate		22.5	%		7.2	%

A reconciliation of the statutory tax rate to the effective tax rate for the years ended December 31, 2010 and 2009 is as follows:


	2010			2009
U.S. statutory rate		35.0	%		35.0	%
Increases/(Decreases) due to:
Percentage depletion		(7.9	)		(11.6	)
Impact of foreign operations		(6.9	)		(9.1	)
Valuation allowance		6.6			11.9
Other items — net		1.0			0.4

Effective income tax rate before discrete items		27.8			26.6
Discrete items		(5.3	)		(19.4	)

Effective income tax rate		22.5	%		7.2	%

Our tax provision for the years ended December 31, 2010 and 2009 was $292.0 million, for a 22.5 percent effective tax rate, and $20.8 million, for a 7.2 percent effective tax rate, respectively. The difference in the effective tax rate for 2010 compared with 2009 is primarily a result of discrete items that occurred during the year, as discussed below.

The PPACA and the Reconciliation Act were signed into law in March 2010. As a result of these two acts, tax benefits available to employers that receive the Medicare Part D subsidy are reduced beginning in years ending after December 31, 2012. The income tax effect related to the acts for year ended 2010 was an increase to expense, recorded discretely, of $16.1 million, representing approximately 1.2 percent of the effective tax rate. The amount recorded is related to the postretirement prescription drug benefits computed after the elimination of the deduction for the Medicare Part D subsidy beginning in taxable years ending after December 31, 2012.

Discrete items other than the expense resulting from the acts signed into law in March 2010, related legal entity restructuring, prior year U.S. and foreign provision benefits recognized in 2010 and interest expense related to unrecognized tax benefits. Discrete items for 2009 related to the benefits associated with the settlement of tax audits and filings for prior years.

The valuation allowance of $172.7 million against certain deferred tax assets as of December 31, 2010 relates primarily to ordinary losses of certain foreign operations.

See NOTE 13 — INCOME TAXES for further information.

Equity Income (Loss) in Ventures

Equity income (loss) in ventures is primarily comprised of our share of the results from Amapá and AusQuest, for which we have a 30 percent ownership interest in each. The equity income in ventures for the year ended December 31, 2010 of $13.5 million primarily represents our share of the operating results of our equity method investment in Amapá. Such results consisted of income of $17.2 million. During 2010, we recorded income of $12.9 million related to the reversal of certain accruals. In addition, during the second quarter of 2010, Amapá repaid its total project debt outstanding, for which we provided a several guarantee on our 30 percent share. Upon repayment of the project debt, our obligations under the provisions of the guarantee arrangement were relieved, and our estimate of the aggregate fair value of the outstanding guarantee of $6.7 million was reversed through Equity income (loss) from ventures for year ended December 31, 2010. Apart from the reversal of the debt guarantee and the reversal of certain accruals, our investment in Amapá realized nearly break-even operating results. This compares with equity losses related to Amapá of $62.2 million in 2009. The negative operating results in the prior year were primarily due to slower than anticipated ramp-up of operations and product yields.

2009 Compared to 2008

The following is a summary of our consolidated results of operations for 2009 compared with 2008:


	(In Millions)
	2009			2008			Variance Favorable/ (Unfavorable)
Revenues from product sales and services	$	2,342.0		$	3,609.1		$	(1,267.1	)
Cost of goods sold and operating expenses		(2,033.1	)		(2,449.4	)		416.3

Sales Margin	$	308.9		$	1,159.7		$	(850.8	)

Sales Margin %		13.2	%		32.1	%		-18.9	%

Revenue from Product Sales and Services

Sales revenue in 2009 declined $1.3 billion, or 35 percent from 2008. The decrease in sales revenue was primarily due to lower sales volumes related to our North American business operations as a result of the volatility and uncertainty in global markets throughout much of 2009, which led to production slowdowns in the North American steel industry, and in turn reduced demand for iron ore and metallurgical coal. In addition, the global economic crisis resulted in a great deal of pressure from customers, particularly in China, for a roll back of the 2008 price increases for seaborne iron ore and metallurgical coal in 2009. We experienced a reduction in 2009 pricing at each of our business units, thereby contributing to lower revenue levels during the year.

As a result of the deteriorating market conditions that continued throughout much of 2009, revenues related to our North American Iron Ore and Coal segments decreased approximately $921.8 million and $139.1 million, respectively, compared with 2008. Based upon the economic downturn and the resulting impact on demand, sales volumes in 2009 declined approximately 28 percent at North American Iron Ore. North American Coal experienced a decrease in volume of 42 percent year over year. Revenues in 2009 were also negatively impacted by base rate adjustments related to reductions in World Pellet Pricing and producer price indices referenced in certain of our North American Iron Ore contracts as well as the estimated decline in average annual hot band steel pricing for one of our North American Iron Ore customers.

Revenues from our Asia Pacific operations were negatively impacted by the decline in 2009 iron ore prices caused by lower demand for steel worldwide. As a result, revenues at Asia Pacific Iron Ore in 2009 declined 30 percent from 2008. Pricing decreases in 2009 contrasted with settled price increases in 2008 of 97 percent and 80 percent for lump and fines, respectively. The overall decline in 2009 revenue at Asia Pacific Iron Ore was partially offset by positive sales mix and a 9 percent increase in sales volume as a result of increased demand from China.

Refer to “Results of Operations — Segment Information” for additional information regarding the impact of specific factors that impacted revenue during the period.

Cost of Goods Sold and Operating Expenses

Cost of goods sold was $2.0 billion in 2009, a decrease of $416.3 million, or 17 percent compared with 2008. The decrease was primarily attributable to lower costs at our North American business operations as a result of declines in sales volume and cost reductions during the year related to ongoing cash conservation efforts that were reinforced in light of the economic environment. Costs were also favorably impacted in 2009 by approximately $35.2 million related to favorable foreign exchange rates compared with 2008. In addition, year-to-date fuel and energy costs in our North American and Asia Pacific iron ore operations for 2009 decreased approximately $71.6 million from 2008.

The overall decrease in cost of goods in 2009 was partially offset by idle expense of approximately $159.6 million related to production curtailments in North America throughout the year. In addition, costs in 2009 reflected the impact of the Asia Pacific Iron Ore and United Taconite step acquisitions, which occurred in the second half of 2008.

Refer to “Results of Operations — Segment Information” for additional information regarding the impact of specific factors that impacted our operating results during the period.

Other Operating Income (Expense)

Following is a summary of other operating income (expense) for 2009 and 2008:


	(In Millions)
	2009			2008			Variance Favorable/ (Unfavorable)
Royalties and management fee revenue	$	4.8		$	21.7		$	(16.9	)
Selling, general and administrative expenses		(120.7	)		(188.6	)		67.9
Terminated acquisition costs		—			(90.1	)		90.1
Gain on sale of other assets — net		13.2			22.8			(9.6	)
Casualty recoveries		—			10.5			(10.5	)
Miscellaneous — net		24.0			2.9			21.1

	$	(78.7	)	$	(220.8	)	$	142.1

The decrease in royalties and management fee revenue of $16.9 million in 2009 compared with 2008 was primarily attributable to lower production at our iron ore mines and reduced sales prices. Additionally, we received all of Tilden’s production in 2009. Therefore, the remaining venture partner at Tilden was not required to pay us the resulting royalty for its share of tons mined and produced from the ore reserves owned by Cliffs.

The decrease in selling, general and administrative expense of $67.9 million in 2009 compared with 2008 was primarily the result of an increased focus on cost reduction efforts due to the economic conditions during the year. In particular, outside professional service and legal fees associated with the expansion of our business declined approximately $38.4 million during 2009. Additionally, employment costs were reduced by $26.2 million primarily as a result of lower share-based and incentive compensation. Expenses at our Asia Pacific Iron Ore segment were $6.2 million higher in 2009 when compared with 2008, reflecting an increased focus on marketing activities due to the weakening economic climate, as well as higher employment costs and outside professional services to support business development and improvement efforts. In addition, selling, general and administrative expense in 2008 was impacted by a charge in the first quarter of approximately $6.8 million in connection with a legal judgment.

On November 17, 2008, we announced the termination of the definitive merger agreement with Alpha Natural Resources, Inc., under which we would have acquired all outstanding shares of Alpha. Both our Board of Directors and Alpha’s Board of Directors made the decision after considering various issues, including the macroeconomic environment, uncertainty in the steel industry, shareholder dynamics, and the risks and costs of potential litigation. Considering these issues, each board determined that termination of the merger agreement was in the best interest of its equity holders. Under the terms of the settlement agreement, we were required to

pay Alpha a $70 million termination fee, which was financed through our revolving credit facility and paid in November 2008. As a result, $90.1 million in termination fees and associated acquisition costs were expensed in the fourth quarter of 2008 upon termination of the definitive merger agreement.

In October 2009, Asia Pacific Iron Ore completed the sale of its 50 percent interest in the Irvine Island iron ore project to its joint venture partner, Pluton Resources. The consideration received consisted of a cash payment of approximately $5 million and the issuance of 19.4 million shares in Pluton Resources, all of which resulted in recognition of a gain on sale amounting to $12.1 million. Our interest in Pluton Resources was approximately 12.5 percent at December 31, 2009. The gain on sale of assets of $22.8 million in 2008 primarily related to the sale of Cliffs Synfuel Corp. (“Synfuel”), which was completed in June 2008.

Casualty recoveries in 2008 were primarily attributable to a $9.2 million insurance recovery related to a 2006 electrical explosion at our United Taconite facility.

Miscellaneous — net of $24.0 million in 2009 was primarily attributable to exchange rate gains on foreign currency transactions related to loans denominated in Australian dollars, as a result of the increase in exchange rates during the period from A$0.69 at December 31, 2008 to A$0.90 at December 31, 2009.

Other income (expense)

Following is a summary of other income (expense) for 2009 and 2008:


	(In Millions)
	2009			2008			Variance Favorable/ (Unfavorable)
Changes in fair value of foreign currency contracts, net	$	85.7		$	(188.2	)	$	273.9
Interest income		10.8			26.2			(15.4	)
Interest expense		(39.0	)		(39.8	)		0.8
Impairment of securities		—			(25.1	)		25.1
Other non-operating income		2.9			4.3			(1.4	)

	$	60.4		$	(222.6	)	$	283.0

The impact of changes in the fair value of our foreign currency contracts on the Statement of Consolidated Operations was due to fluctuations in foreign currency exchange rates during the year. The favorable unrealized mark-to-market fluctuation of $85.7 million in 2009 related to the Australian to U.S. dollar spot rate of A$0.90 as of December 31, 2009, which increased considerably from the Australian to U.S. dollar spot rate of A$0.69 as of December 31, 2008. The changes in the spot rates were correlated to the appreciation of the Australian dollar relative to the U.S. dollar during the year. During 2009, approximately $780 million of outstanding contracts matured or were sold, resulting in a cumulative net realized loss of $37.0 million since inception of the contracts. The following table represents our foreign currency derivative contract position as of December 31, 2009:


	($ in Millions)
Contract Maturity	Notional Amount		Weighted Average Exchange Rate		Spot Rate		Fair Value
Contract Portfolio (excluding AUD Call Options) (1):
Contracts expiring in the next 12 months	$	33.0		0.82		0.90	$	0.9

Total	$	33.0		0.82		0.90	$	0.9

AUD Call Options (2)
Contracts expiring in the next 12 months	$	75.5		0.88		0.90	$	3.3

Total	$	75.5		0.88		0.90	$	3.3

Total Hedge Contract Portfolio	$	108.5					$	4.2

(1)	Includes collar options and convertible collar options.

(2)	AUD call options are excluded from the weighted average exchange rate used for the remainder of the contract portfolio due to the unlimited downside participation associated with these instruments.

The decrease in interest income in 2009 compared with 2008 was attributable to a decline in interest-bearing cash and investments held during the period coupled with lower overall average returns. Investment returns in 2009 were lower as a result of market declines. The slight decrease in interest expense in 2009 was primarily due to lower average interest rates on total debt outstanding of 4.48 percent at December 31, 2009, compared with 5.85 percent at December 31, 2008, partially offset by an increase in the period outstanding related to borrowings under our senior notes. Higher interest expense in 2008 also reflected interest accretion for the deferred payment related to the PinnOak acquisition. See NOTE 8 – DEBT AND CREDIT FACILITIES for further information.

In 2008, we recorded impairment charges of $25.1 million related to declines in the fair value of our available-for-sale securities which we concluded were other than temporary. As of December 31, 2008, our investments in PolyMet and Golden West had fair values totaling $6.2 million and $4.7 million, respectively, compared with a cost of $14.2 million and $21.8 million, respectively. The severity of the impairments in relation to the carrying amounts of the individual investments was consistent with the macroeconomic market and industry developments during 2008. However, we evaluated the near-term prospects of the issuers in relation to the severity and rapid decline in the fair value of each of these investments, and based upon that evaluation, we could not reasonably assert that the impairment period would be temporary primarily as a result of the global economic crisis and the corresponding uncertainties in the market.

Income Taxes


	(In Millions)
	2009			2008
Income tax expense	$	20.8		$	144.2
Effective tax rate		7.2	%		20.1	%

Our tax provision for the years ended December 31, 2009 and 2008 was $20.8 million and $144.2 million, respectively. The $123.4 million decrease in income tax expense and 12.9 percent decrease in the effective tax rate were primarily attributable to lower pre-tax book income and increased benefits from certain discrete items, partially offset by increased valuation allowances. Discrete items in 2009 related to benefits associated with the settlement of tax audits and filings for prior years. We had a $39.0 million increase in the valuation allowance of certain deferred tax assets. Of this amount, $24.5 million related to certain foreign operating losses and $14.5 million related to certain foreign assets where tax basis exceeded book basis.

A reconciliation of the statutory tax rate to the effective tax rate for the years ended December 31, 2009 and 2008 is as follows:


	2009			2008
U.S. statutory rate		35.0	%		35.0	%
Increases/(Decreases) due to:
Percentage depletion		(11.6	)		(11.9	)
Impact of foreign operations		(9.1	)		(2.1	)
Valuation allowance		11.9			1.6
Other items — net		0.4			(0.6	)

Effective income tax rate before discrete items		26.6			22.0
Discrete items		(19.4	)		(1.9	)

Effective income tax rate		7.2	%		20.1	%

See NOTE 13 — INCOME TAXES for further information.

Equity Loss in Ventures

Equity loss in ventures is primarily comprised of our share of the results from Amapá and AusQuest, for which we have a 30 percent ownership interest in each. The equity loss in ventures for the year ended December 31, 2009 of $65.5 million primarily represented our share of the operating results of our equity method investment in Amapá. Such results consisted of operating losses of $62.2 million. Results in 2008 mainly consisted of operating losses of $45.6 million, partially offset by foreign currency hedge gains of $10.5 million. The negative operating results in each year were primarily due to slower than anticipated ramp-up of operations and product yields. Our equity share of the losses for Amapá was also higher in 2009 due to a write-down in the value of inventory, asset impairment charges, as well as changes in foreign currency exchange rates during 2009 and the resulting impact on project debt denominated in Brazilian real.

Noncontrolling Interest

Noncontrolling interest in consolidated income was a loss of $0.8 million in 2009 compared with income of $21.2 million in 2008. The change was primarily attributable to the acquisition of the remaining 19.6 percent interest in Asia Pacific Iron Ore (formerly known as Portman Limited) during 2008, thereby eliminating the related noncontrolling interests in 2009.

Results of Operations — Segment Information

Our company is organized and managed according to product category and geographic location. Segment information reflects our strategic business units, which are organized to meet customer requirements and global competition. We evaluate segment performance based on sales margin, defined as revenues less cost of goods sold identifiable to each segment. This measure of operating performance is an effective measurement as we focus on reducing production costs throughout the Company.

2010 Compared to 2009

North American Iron Ore

Following is a summary of North American Iron Ore results for 2010 and 2009:


	(In Millions)
							Change due to
	2010			2009			Rate			Volume			Idle cost/ Production volume variance		Freight and reimbursements			Total change
Revenues from product sales and services	$	2,921.4		$	1,447.8		$	549.0		$	794.9		$	—	$	129.7		$	1,473.6
Cost of goods sold and operating expense		(1,999.4	)		(1,172.3	)		(244.4	)		(534.9	)		81.9		(129.7	)		(827.1	)

Sales margin	$	922.0		$	275.5		$	304.6		$	260.0		$	81.9	$	—		$	646.5

Sales tons		26.2			16.4
Production tons (1):
Total		32.0			19.6
Cliffs’ share of total		25.4			17.1	(2)

(1)	Long tons of pellets (2,240 pounds).

(2)	Includes 1.6 million tons allocated to Cliffs due to re-nominations by Cliffs’ partners at Tilden and Wabush.

Sales margin for North American Iron Ore was $922.0 million in 2010, compared with a sales margin of $275.5 million in 2009. The improvement over 2009 is attributable to an increase in revenue of $1.5 billion, partially offset by an increase in cost of goods sold and operating expenses of $827.1 million. The increase in revenue is a result of improvements in both rate and sales volumes, which caused revenue to increase $549.0

million and $794.9 million, respectively, over 2009 results. Sales volumes for 2010 increased 60 percent at North American Iron Ore when compared to the prior year primarily due to an overall increase in customer demand as a result of improving market conditions during 2010 and incremental sales of 1.2 million tons of Wabush pellets that were made available through our acquisition of the remaining 73.2 percent interest in February 2010.

The increase in pricing in 2010 is attributable to higher demand in 2010 as the market continued to strengthen. There has been a recent shift in the industry toward shorter-term pricing arrangements that are linked to the spot market and elimination of the annual world pellet pricing mechanism referenced in certain of our supply contracts. We reached final pricing settlement with some of our North American Iron Ore customers through the fourth quarter of 2010 for the 2010 contract year, reflecting an average increase of 98 percent over 2009 prices for contracts based on world pellet prices. This compares to the prior year settled price decrease of 48.3 percent below 2008 prices. Although pricing has been settled with some of our North American customers for 2010, we are still in the process of assessing the impact a change to the historical annual pricing mechanism will have on certain of our larger existing North American Iron Ore customer supply agreements that extend over multiple years, and negotiations are still ongoing with these customers. In addition, 2010 sales rates were positively impacted by a favorable sales mix of seaborne shipments at higher average sales rates due to the incremental tonnage available through our acquisition of the remaining interest in Wabush. Revenue in 2010 also included $120.2 million related to supplemental contract payments compared with $22.2 million in 2009. The overall increase between years relates to the estimated rise in average annual hot band steel pricing for one of our North American Iron Ore customers. The increase in revenue was partially offset by lower prices realized for sales under one of our customer supply agreements that is currently in arbitration. Given the early stage of the arbitration, as discussed below, and the uncertainty regarding its outcome as of December 31, 2010, the prices realized for sales under this contract in 2010 do not reflect the estimated increase in 2010 iron ore pricing.

Throughout 2010, we have been party to two arbitration demands that were filed in relation to the pricing provisions referenced in the supply contracts for two of our largest customers. One arbitration relates to amendments of the supply contracts made necessary by changes in the world pellet pricing mechanism in 2010, specifically the move away from annual benchmark prices. In December 2010, a binding decision was reached by the arbitration panel that redefined world prices for blast furnace pellets, a factor used in determining annual price increases or decreases under the agreement. Although we received a $129 million settlement payment from the customer in January 2011, the customer is maintaining a court application to vacate the arbitration award. We are vigorously contesting the customer’s motion to vacate the award and we have counterclaimed to confirm the award. Currently, invoices and revenue are calculated pursuant to the arbitration panel’s decision. The other arbitration relates to a price reopener provision in the customer supply agreement and whether we are entitled to such a reopener for 2010. We are currently awaiting a ruling from the arbitration panel; however, we expect that we may collect approximately $300 million related to this arbitration in 2011. The outcome of such arbitrations may result in changes to the pricing mechanisms used and therefore, could impact sales prices realized in current and future periods. Refer to Part I — Item 3. Legal Proceedings, for additional information.

In 2010 and 2009, certain customers purchased and paid for approximately 2.4 million tons and 0.9 million tons of pellets, respectively, in order to meet minimum contractual purchase requirements for each year under the terms of take-or-pay contracts. The inventory was stored at our facilities in upper lakes stockpiles. At the request of the customers, the ore was not shipped, resulting in deferred revenue at December 31, 2010 and 2009 of $155.3 million and $81.9 million, respectively. As of December 31, 2010, all of the 0.9 million tons that were deferred at the end of 2009 were delivered, resulting in the related revenue being recognized in 2010.

Cost of goods sold and operating expense in 2010 increased $827.1 million or 71 percent from the prior year primarily due to higher sales volumes as noted above, which resulted in cost increases of approximately $534.9 million. In addition, cost of goods sold and operating expenses were unfavorably impacted during the current year by $244.4 million due to higher cost rates. The increase was attributable to higher maintenance and repairs costs of $57.6 million, higher energy and labor costs of $49.0 million, unfavorable exchange rate variances of $44.0 million, higher stripping and recovery costs of $20.2 million, and higher royalty expenses of $16.5 million. Costs also increased during 2010 due to $35.3 million of inventory step-up and amortization of purchase price adjustments related to our acquisition of Wabush. Approximately $10.7 of the inventory step-up was recognized

in the first quarter of 2010 and was associated with the pelletizing and sale of acquired in-process inventory that occurred during that period in conjunction with our acquisition of the remaining interest in Wabush. As such, the expense will not be recurring at this level in the future. The overall increase in cost was partially offset by $81.9 million related to lower idle expense due to increased production as a result of improving market conditions in the current year.

Production

Based on signs of marked improvements in customer demand that continued throughout 2010, we increased production at all of our facilities and called employees back to work in order to ensure that we were positioned to meet increases in demand. During 2010, Empire, Tilden and United Taconite were operating at full capacity. Northshore was operating three of its furnaces, with the fourth restarted in September. Wabush was operating two of its three furnaces with Cliffs taking all of the tonnage since acquiring full ownership on February 1, 2010. The shutdown at Hibbing, which began in May 2009, ended April 1, 2010.

Prior year production levels were impacted by production curtailments and temporary facility shutdowns, which were executed in response to the economic downturn and production slowdowns in the steel industry.

North American Coal

Following is a summary of North American Coal results for 2010 and 2009:


	(In Millions, except tonnage)
							Change due to
	2010 (1)			2009			Rate			Volume			CLCC acquisition			Idle cost/ Production volume variance		Freight and reimbursements			Total change
Revenues from product sales and services	$	438.2		$	207.2		$	82.9		$	31.7		$	111.7		$	—	$	4.7		$	231.0
Cost of goods sold and operating expenses		(466.8	)		(279.1	)		(57.1	)		(36.2	)		(98.3	)		8.6		(4.7	)		(187.7	)

Sales margin	$	(28.6	)	$	(71.9	)	$	25.8		$	(4.5	)	$	13.4		$	8.6	$	—		$	43.3

Sales tons (in thousands)		3,284			1,874
Production tons (in thousands) (2)		3,245			1,741

(1)	Results include CLCC since the July 30, 2010 acquistion date.

(2)	Tons are short tons (2,000 pounds).

We reported a sales margin loss for North American Coal of $28.6 million and $71.9 million for the years ended December 31, 2010 and 2009, respectively. Revenue for 2010 was $231.0 million higher than 2009 due to increases in both sales volume and prices. North American Coal sold 3.3 million tons during 2010 compared with 1.9 million tons during 2009, as a result of improving market conditions in 2010 and 1,072 thousand tons of additional sales since the third quarter 2010 acquisition of CLCC. The increase in North American Coal sales volume resulted in an increase in revenues of $143.4 million over the prior year, of which $111.7 million was related to the acquisition of CLCC. Sales prices were also higher during 2010, reflecting increases in steel demand and the associated raw material prices. The increase in our 2010 contract rates caused revenue for 2010 to increase $82.9 million over the prior year.

Cost of goods sold and operating expense in 2010 increased $187.7 million or 67 percent from the prior year primarily due to the significant increase in sales volume, which resulted in a cost increase of approximately $134.5 million. Of this amount, $98.3 million was attributable to the acquisition of CLCC. The increase in cost of goods sold and operating expenses during the year was also a result of increased costs primarily due to a lower-of-cost-or-market inventory charge of $26.1 million taken at our Pinnacle and Oak Grove mines as a result of geological and operational issues, higher depreciation and amortization of $11.7 million, higher royalties and

severance taxes of $8.2 million, and purchases of $6.6 million of third-party coal at our Pinnacle mine to meet shipping requirements. Despite the production issues encountered at our legacy coal mines throughout 2010, the cost increase was partially offset by a reduction in idle expense of $8.6 million, attributable to increased production at our mines as a result of improving market conditions in the current year. Idle costs in the first half of 2009 were significantly higher due to production curtailments, delays associated with mine development issues at Oak Grove as a result of unplanned geological conditions.

Production

We increased production levels in 2010 in response to improving market conditions and increases in customer demand. The increase over the prior year was primarily related to production curtailments that occurred in 2009 to match declining market conditions as well as delays in developing the longwall panel at Oak Grove during the first quarter of 2009. In addition, the increase in production levels over the prior year was a direct result of the acquisition of CLCC during the third quarter of 2010. The overall increase in current year production at our Pinnacle Complex was partially offset by a decrease in production at Green Ridge due to the planned closure of Green Ridge No. 1 in February 2010 as well as the idling of Green Ridge No. 2 during 2010. Production recommenced at the Green Ridge No. 2 mine in January 2011. Despite the increase in production over the prior year, our Pinnacle mine was negatively impacted during 2010 by adverse geological conditions and delayed longwall operations, resulting in force majeures being declared on customer shipments during the third and fourth quarters of 2010. The force majeure declared in the fourth quarter was due to roof falls at the Pinnacle mine and was lifted in January 2011 with the restarting of the longwall.

Asia Pacific Iron Ore

Following is a summary of Asia Pacific Iron Ore results for 2010 and 2009:


	(In Millions)
							Change due to
	2010			2009			Rate		Volume			Exchange Rate			Total change
Revenues from product sales and services	$	1,123.9		$	542.1		$	517.7	$	72.3		$	(8.2	)	$	581.8
Cost of goods sold and operating expenses		(557.7	)		(454.9	)		19.1		(40.6	)		(81.3	)		(102.8	)

Sales margin	$	566.2		$	87.2		$	536.8	$	31.7		$	(89.5	)	$	479.0

Sales metric tons		9.3			8.5
Production metric tons (1)		9.3			8.3

(1)	Metric tons (2,205 pounds). Cockatoo production reflects our 50 percent share.

Sales margin for Asia Pacific Iron Ore increased to $566.2 million in 2010 compared with $87.2 million in 2009. Revenue increased $581.8 million in 2010 compared with the prior year primarily as a result of higher prices for lump and fines, increased sales volume and favorable sales mix. During the first quarter of 2010, the world’s largest iron ore producers moved away from the annual international benchmark pricing mechanism referenced in our customer supply agreements, resulting in a shift in the industry toward shorter-term pricing arrangements linked to the spot market. As a result, we renegotiated the terms of our supply agreements with our Chinese and Japanese Asia Pacific Iron Ore customers moving to shorter-term pricing mechanisms of various durations based on the average daily spot prices, with certain pricing mechanisms that have a duration of up to a quarter. This change was effective in the first quarter of 2010 for our Chinese customers and the second quarter of 2010 for our Japanese customers. The increase in 2010 pricing over 2009 was on average an 87 percent and 98 percent increase for lump and fines, respectively. This compares to settled price decreases in the prior year of 44 percent and 33 percent for lump and fines, respectively. Pricing settlements in the current year reflect the increase in steel demand and spot prices for iron ore and are based upon quarterly index pricing mechanisms.

Sales volume reached 9.3 million metric tons in 2010 compared with 8.5 million metric tons for the prior year, resulting in an increase in revenue of $72.3 million. In addition, revenue was favorably impacted by a positive sales mix variance of $4.0 million primarily due to the cessation of low-grade fines sales in 2010.

Cost of goods sold and operating expenses in 2010 increased $102.8 million compared to 2009 primarily due to unfavorable foreign exchange rate variances of $81.3 million coupled with a nine percent increase in sales volume, which resulted in cost increases of approximately $40.6 million. The overall increase in cost was partially offset by favorable rate variances, driven by lower inventory movement of $33.2 million primarily due to increased long-term stockpile utilization and $14.6 million associated with lower shipping and processing costs during 2010. Higher royalties related to the increase in revenue, higher mining costs related to increased mining fleet maintenance and higher depletion costs due to increased rail volumes of $27.2 million partially offset the favorable rate variance.

Production

Production at Asia Pacific Iron Ore in 2010 was higher than 2009 as a result of increased sales demand in 2010 and initiatives taken to improve supply conditions and eliminate certain production and logistics constraints, including upgrades to the rail system. The increase in production over the prior year is also due to reduced availability in 2009 as a result of repairs to the production plant. Production at Cockatoo Island resumed in the third quarter of 2010.

2009 Compared to 2008

North American Iron Ore

Following is a summary of North American Iron Ore results for 2009 and 2008:


	(In Millions)
							Change due to
	2009			2008			Rate			Volume			Idle cost/ Production volume variance			Freight and reimbursements			Total change
Revenues from product sales and services	$	1,447.8		$	2,369.6		$	(165.5	)	$	(580.7	)	$	—		$	(175.6	)	$	(921.8	)
Cost of goods sold and operating expense		(1,172.3	)		(1,565.3	)		(22.0	)		358.3			(118.9	)		175.6			393.0

Sales margin	$	275.5		$	804.3		$	(187.5	)	$	(222.4	)	$	(118.9	)	$	—		$	(528.8	)

Sales tons		16.4			22.7
Production tons (1):
Total		19.6			35.2
Cliffs’ share of total		17.1	(2)		22.9

(1)	Long tons of pellets (2,240 pounds).

(2)	Includes 1.6 million tons allocated to Cliffs due to re-nominations by Cliffs’ partners at Tilden and Wabush.

Revenue in 2009 decreased $921.8 million, or 39 percent, compared with 2008 primarily as a result of a 28 percent decline in sales volume, which contributed $580.7 million to the overall decrease in revenue. The decline in sales volume was a result of the economic downturn and its impact on the global steel industry, which led to a decline in demand for steel-making products in North America during 2009. In addition to the year-over-year decline in sales volume, reported price settlements for iron ore pellets reflected a decrease of approximately 48 percent below 2008 prices, compared with an increase of 87 percent in 2008. As a result, base rate adjustments related to estimated reductions in World Pellet Pricing and producer price indices contributed to a $165.5 million decline in revenues in 2009. Revenue in 2009 included approximately $22.2 million related to supplemental contract payments compared with $225.5 million in 2008. The decrease between periods related to the estimated decline in average annual hot band steel pricing for one of our North American Iron Ore customers.

In 2009 and 2008, certain customers purchased and paid for approximately 0.9 million tons and 1.2 million tons of pellets, respectively, in order to meet minimum contractual purchase requirements for each year under the terms of take-or-pay contracts. The inventory was stored at our facilities in upper lakes stockpiles. At the request

of the customers, the ore was not shipped, resulting in deferred revenue at December 31, 2009 and 2008 of $81.9 million and $82.9 million, respectively. As of December 31, 2009, all of the 1.2 million tons that were deferred at the end of 2008 were delivered, resulting in the related revenue being recognized in 2009. Furthermore, the supply agreement with one of our customers required the customer to pay for any tons remaining under its 2009 nomination in addition to certain stockpile payments by December 31, 2009. There were approximately 1.7 million unshipped tons remaining under the customer’s 2009 nomination and 0.8 million tons related to December 2009 shipments, for which payment of $147.5 million was due on December 31, 2009 per the terms of the contract. The customer did not remit payment of this amount until January 4, 2010. As a result, such amounts were not reflected in our 2009 consolidated financial statements.

Cost of goods sold and operating expense in 2009 decreased $393.0 million or 25 percent from the prior year primarily due to lower sales volume, which resulted in cost reductions of approximately $358.3 million. The overall decrease was partially offset by idle expense of $118.9 million related to production curtailments at nearly all of the North American Iron Ore mines during 2009 in order to balance production with anticipated sales demand. In addition, cost of goods sold and operating expenses were unfavorably impacted in 2009 by approximately $22 million due to higher cost rates. The increase was primarily attributable to $43 million of higher labor costs related to the new labor agreement entered into in September 2008 at our iron ore facilities as well as higher fringe rates combined with an increase of $22 million related to higher energy costs. This was partially offset by a $25 million reduction in fuel costs, a decrease in royalty costs of $18 million as a result of lower iron ore pellet pricing, and cost reductions of $11 million related to ongoing cash conservation efforts during 2009. In addition, due to lower partner demand, Cliffs acquired 1.6 million tons produced at Tilden and Wabush from the mine partners’ share at variable cost, which resulted in a favorable cost impact of approximately $79 million in 2009.

Production

In response to the economic downturn, we continued to rationalize production to match customer demand. In 2009, we reduced production at our six North American Iron Ore mines to 17.1 million equity tons compared with 2008 production of 22.9 million equity tons.

Based on signs of marked improvements in customer demand beginning in the second half of 2009, we increased production at most of our facilities and called employees back to work in order to ensure that we were positioned to meet increases in demand. During the fourth quarter of 2009, Tilden and United Taconite began operating at full capacity. Northshore was operating its two large furnaces, and Empire continued to maintain its production levels. Wabush was operating two of its three furnaces with Cliffs taking essentially all of the tonnage. Only Hibbing continued to be fully curtailed.

North American Coal

Following is a summary of North American Coal results for 2009 and 2008:


	(In Millions, except tonnage)
							Change due to
	2009			2008			Rate			Volume			Idle cost/ Production volume variance			Freight and reimbursements			Total change
Revenues from product sales and services	$	207.2		$	346.3		$	0.9		$	(127.1	)	$	—		$	(12.9	)	$	(139.1	)
Cost of goods sold and operating expense		(279.1	)		(392.7	)		(5.3	)		146.7			(40.7	)		12.9			113.6

Sales margin	$	(71.9	)	$	(46.4	)	$	(4.4	)	$	19.6		$	(40.7	)	$	—		$	(25.5	)

Sales tons (in thousands)		1,874			3,241
Production tons (in thousands) (1)		1,741			3,468

(1)	Tons are short tons (2,000 pounds).

We reported sales margin losses of $71.9 million and $46.4 million for the years ended December 31, 2009 and 2008, respectively. Revenue of $207.2 million in 2009 was 40 percent lower than revenue in 2008. The decrease in revenue was primarily attributable to a 42 percent decline in sales volume as a result of market conditions which adversely impacted the demand for steel-making raw materials throughout 2009.

Cost of goods sold and operating expense in 2009 decreased $113.6 million or 29 percent from 2008 primarily due to lower sales volume, which resulted in cost reductions of approximately $146.7 million. The decrease in 2009 sales volume also resulted in a decline in freight costs of $12.9 million and a reduction in royalty costs of $7.5 million. In addition, in response to the economic downturn, we decreased spending across the North American Coal business segment and idled production at both the Oak Grove and Pinnacle complexes during 2009. Production curtailments and headcount reductions during 2009 resulted in lower production-related costs, including maintenance, supplies, and labor costs. Headcount reductions resulted in labor and benefit cost reductions of $32.2 million in 2009. Spending on operating supplies and maintenance costs was reduced in 2009 by approximately $26.1 million as we continued to focus on cash conservation and cost management strategies. However, these cost reductions were more than offset by higher cost per ton rates in 2009, due to the impact of lower volume, resulting in an overall unfavorable rate variance of $5.3 million. Cost of goods sold and operating expenses in 2009 were also negatively impacted by an increase in idle expense and production volume variance of $40.7 million related to production curtailments at both mine locations during the year and delays associated with development of longwall panels at Oak Grove in early 2009.

Production

Metallurgical coal demand decreased in 2009 as the steel industry cut back production in response to the global economic slowdown. As a result, we initiated plans in 2009 to align production with customer demand. In West Virginia, production was idled at our Green Ridge mines for part of the year, and production at our Pinnacle mine was temporarily suspended. In Alabama, operating levels were also reduced at our Oak Grove mine. However, production levels began to increase at the end of 2009 due to improvements in market conditions and increases in customer demand. In particular, during the fourth quarter, production increased at Oak Grove and development was also accelerated to avoid downtime in 2010. At Pinnacle, the longwall move was completed and we resumed production in mid-October. These production adjustments at North American Coal resulted in a 2009 annual operating rate of approximately 1.7 million tons. This compares with 2008 production of 3.5 million tons.

The Oak Grove mine was idled towards the end of 2009 due to ventilation, water and roofing issues at the mine. MSHA denied our request to continue limited production while we addressed these issues. Oak Grove continued to operate a continuous miner section to develop future longwall panels. MSHA approval was received on February 9, 2010 for longwall operations to resume.

Asia Pacific Iron Ore

Following is a summary of Asia Pacific Iron Ore results for 2009 and 2008:


	(In Millions)
							Change due to
	2009			2008			Rate			Volume			Other			Total change
Revenues from product sales and services	$	542.1		$	769.8		$	(257.5	)	$	72.5		$	(42.7	)	$	(227.7	)
Cost of goods sold and operating expense		(454.9	)		(421.2	)		1.8			(33.8	)		(1.7	)		(33.7	)

Sales margin	$	87.2		$	348.6		$	(255.7	)	$	38.7		$	(44.4	)	$	(261.4	)

Sales metric tons		8.5			7.8
Production metric tons (1)		8.3			7.7

(1)	Metric tons (2,205 pounds). Cockatoo production reflects our 50 percent share.

Sales margin for Asia Pacific Iron Ore declined to $87.2 million in 2009 compared with $348.6 million in 2008. Revenue decreased 30 percent in 2009 primarily as a result of lower pricing for lump and fines during the year compared with 2008 prices. While the 2009 benchmark prices for iron ore lump and fines did not settle with all of our customers, we negotiated pricing arrangements with certain customers in China to reflect the decline in steel demand and prices. Pricing decreases in 2009 of 44 percent and 33 percent for lump and fines, respectively, contrasted with settled price increases in 2008 of 97 percent and 80 percent, respectively. Pricing in 2009 was based upon previously reported settlements in Japan and worldwide pressures in the market and remained unchanged from the estimates we made throughout most of 2009. The overall decline in 2009 revenue was partially offset by a favorable variance of $72.5 million due to a nine percent increase in sales volume as a result of increased demand as well as a positive sales mix variance of $34.1 million due to more sales of lump and fines at higher prices and reduced sales of low-grade fines.

Cost of goods sold and operating expenses in 2009 were relatively consistent with 2008. Costs were unfavorably impacted by approximately $38.8 million of amortization expense related to the accounting for the acquisition of the remaining ownership interest in Asia Pacific Iron Ore, which occurred during the second half of 2008. Costs in 2009 also increased by approximately $29.6 million due to higher sales volumes as well as higher shipping costs of $5.3 million due to freight arrangements with customers to secure sales during the period. Increases in costs during 2009 were partially offset by favorable foreign exchange variances of $35.2 million.

Production

Production at Asia Pacific Iron Ore in 2009 was higher than 2008 as a result of increased demand and initiatives taken during the year to improve supply conditions and eliminate certain production and logistics constraints, including rail upgrades and stockpile utilization. Increases in production in 2009 were partially offset by the end of production at Cockatoo Island during 2008.

Liquidity, Cash Flows and Capital Resources

Our primary sources of liquidity are cash generated from our operating and financing activities. Our cash flows from operating activities are driven primarily by our operating results and changes in our working capital requirements. Our cash flows from financing activities are dependent upon our ability to access credit or other capital.

Throughout 2010, we have taken a balanced approach to the allocation of our capital resources and free cash flow. We have continued to strengthen our balance sheet and enhance financial flexibility, including the completion of two public offerings of senior notes in the aggregate principal amount of $400 million and $1 billion during the first and third quarters of 2010, respectively. All or a portion of the net proceeds from the offerings have been used for the repayment of a portion of other debt obligations, including those related to our investment in Amapá, and have been or may be used for the funding of all or a portion of other strategic transactions, such as the 2010 acquisitions and the pending acquisition of Consolidated Thompson pursuant to the definitive arrangement agreement that was entered into in January 2011 and is subject to the satisfaction or waiver of various closing conditions. Other uses of the proceeds from the $1 billion public offering of senior notes may include general corporate purposes and pending final use, investments in short-term marketable securities.

The following is a summary of significant sources and uses of cash in 2010 and 2009:


	(In Millions)
	2010			2009
Cash and cash equivalents — January 1	$	502.7		$	179.0
Net cash provided by operating activities		1,320.0			185.7

Significant Investing Transactions
Investment in ventures	$	(191.3	)	$	(81.8	)
Rail upgrade in Asia Pacific		(11.0	)		(28.8	)
Acquisition of Wabush		(101.9	)		—
Acquisition of Freewest (1)		(5.3	)		—
Acquisition of Spider		(108.0	)		—
Acquisition of CLCC		(775.9	)		—
Other capital expenditures		(255.9	)		(87.5	)
Redemption of marketable securities		32.5			5.4
Sale of assets		59.1			28.3

Total		(1,357.7	)		(164.4	)

Sources (Uses) of Financing
Proceeds from sale of common shares		—			347.3
Net proceeds from issuance of $400 million senior notes		397.8			—
Net proceeds from issuance of $1 billion senior notes		990.3			—
Dividend distributions		(68.9	)		(31.9	)
Repayment of term loan		(200.0	)		—
Net borrowings under credit facility		450.0			3.3
Repayments under credit facility		(450.0	)		—

Total		1,119.2			318.7
Other net activity		(17.5	)		(16.3	)

Cash and cash equivalents — December 31	$	1,566.7		$	502.7

(1)	The purchase consideration for Freewest included the issuance of 4.2 million common shares valued at $173.1 million and $12.8 million in cash. This amount represents the cash paid for the acquisition of the remaining interest of Freewest, net of the cash acquired through the acquisition.

The following discussion summarizes the significant activities impacting our cash flows during the year as well as those expected to impact our future cash flows over the next 12 months. Refer to the Statements of Consolidated Cash Flows for additional information.

Operating Activities

Net cash provided by operating activities was $1.3 billion in 2010, compared with $185.7 million in 2009 and $853.2 million in 2008. Operating cash flows in 2010 were primarily impacted by higher operating results, as previously noted. Our operating cash flows vary with prices realized from iron ore and coal sales, production levels, production costs, cash payments for income taxes and interest, other working capital changes and other factors. As a result of improved economic conditions, operating plans for 2011 reflect increased production and modestly higher prices for iron ore and coal.

The long-term outlook remains strong and we are now focusing on our growth projects with sustained investment in our core businesses. Throughout 2010, capacity utilization among steelmaking facilities in North America demonstrated ongoing improvement. The industry continued to show signs of stabilization based on increasing steel production and the restarting of blast furnaces in North America and Europe. As a result, we experienced marked improvements in customer demand and market expectations and increased production at most of our facilities.

Based on current mine plans and subject to future iron ore and coal prices, we expect estimated operating cash flows in 2011 to be greater than our budgeted investments and capital expenditures, expected debt payments, dividends, and other cash requirements. This expectation excludes acquisition activities related to the pending acquisition of Consolidated Thompson. Refer to “Outlook” for additional guidance regarding expected future results, including projections on pricing, sales volume and production for our various businesses.

Investing Activities

Net cash used by investing activities was $1.4 billion in 2010, compared with $179.3 million and $795.6 million in 2009 and 2008, respectively. Capital expenditures were $266.9 million, $116.3 million and $182.5 million in 2010, 2009 and 2008, respectively. Investing activities in 2010 also included $26.5 million of capital contributions related to the funding of operations at Amapá as well as $155 million related to the repayment of all Amapá’s debt in 2010. This compares with capital contributions of $70.2 million related to our investment in Amapá during 2009. In February 2010, we completed the acquisition of the remaining 73.2 percent interest in Wabush for an aggregate acquisition price of $103 million. We also completed the acquisition of all of the coal operations of CLCC in July 2010 for an aggregate acquisition price of $775.9 million. During the fourth quarter of 2010, we completed the acquisition of the remaining shares of Spider through an amalgamation, increasing our ownership interest to 100 percent and resulting in a total cash investment in Spider of $108 million as of December 31, 2010. In December 2010, our North American Coal segment sold the new longwall plow system at our Pinnacle mine in West Virginia and subsequently leased the longwall back for a period of ten years. We received proceeds of $57.3 million from the sale of the longwall, and the leaseback was accounted for as a capital lease. Significant investing activities in 2009 included the sale of a fleet of Asia Pacific Iron Ore rail cars that were subsequently leased back for a period of ten years. We received proceeds of $23.8 million from the sale of the rail cars, and the leaseback was accounted for as a capital lease.

Non-cash investing activities during 2010 included the issuance of 4.2 million of our common shares valued at $173.1 million as part of the purchase consideration for the acquisition of the remaining interest in Freewest, which was completed on January 27, 2010. Non-cash items during 2010 also included gains of $38.6 million primarily related to the remeasurement of our previous ownership interest in Freewest and Wabush held prior to each business acquisition.

Based upon improving market conditions and a strengthening long-term outlook, we anticipate that total cash used for capital expenditures in 2011 will be approximately $700 million. This expectation excludes capital expenditures related to the pending acquisition of Consolidated Thompson. As we continue to increase production into 2011, capital expenditures will include the expansion of our Empire and Tilden mines in Michigan’s Upper Peninsula in order to increase production capacity. The project has currently been approved for capital investments in equipment of approximately $143 million, of which approximately $125 million is expected to be spent in 2011. In Asia Pacific, an expansion project has been approved at our Koolyanobbing mine in order to increase production capacity to 11 million metric tons per year. We estimate the project to require an initial capital cash outflow of approximately $195 million, of which approximately $22 million was spent in 2010 and $146 million is expected to be spent in 2011. At Pinnacle, a new longwall plow system was purchased to reduce maintenance costs and increase production at the mine. Remaining expenditures for the new longwall plow system of approximately $14 million are expected to be made in 2011. The remaining expenditures are related to the longwall plow system assets pending delivery; therefore, they were not included within the longwall sale-leaseback discussed above. Construction of a new portal at Oak Grove will continue in 2011 in order to improve productivity and support growth and expansion of the mine. The portal requires a total capital investment of approximately $29 million, of which $25 million was committed and $9 million was spent in 2010. Remaining expenditures for the portal of approximately $16 million are expected to be made in 2011. We are also in the process of upgrading the preparation plant at Pinnacle in order to increase product yield and plant availability. The modification project requires a capital investment of approximately $20 million, of which $17 million was spent in 2010. Additional significant capital expenditures are expected in 2011 related to our pending acquisition of Consolidated Thompson.

We have implemented a global exploration program, which is integral to our growth strategy and is focused on identifying and capturing new world-class projects for future development or projects that add significant

value to existing operations. Our Global Exploration Group is expected to spend between $50 million and $55 million on exploration activities in 2011, which we expect will provide us with opportunities for significant future potential reserve additions globally. Throughout 2010, we incurred expenses of $13.3 million and investments of $16.3 million related to our involvement in exploration activities.

We continue to evaluate funding options for our capital needs and expect to be able to fund these requirements through operations and availability under our existing borrowing arrangements. Other funding options may include new lines of credit or other financing arrangements.

The following represents our future cash commitments and contractual obligations as of December 31, 2010:


	Payments Due by Period (1) (In Millions)
Contractual Obligations	Total		Less Than 1 Year		1 - 3 Years		3 - 5 Years		More Than 5 Years
Long-term debt	$	1,729.0	$	4.0	$	270.0	$	55.0	$	1,400.0
Interest on debt (2)		1,462.3		101.2		190.5		163.1		1,007.5
Operating lease obligations		81.5		21.3		34.1		18.1		8.0
Capital lease obligations		201.9		33.0		60.9		65.9		42.1
Purchase obligations:
Longwall plow system		14.4		14.4		—		—		—
Oak Grove portal project		16.1		16.1		—		—		—
Michigan expansion project		101.0		96.0		5.0		—		—
Koolyanobbing expansion project		99.8		89.6		10.2		—		—
Open purchase orders		216.5		215.4		1.1		—		—
Minimum “take or pay” purchase commitments (3)		407.6		120.8		158.2		87.0		41.6

Total purchase obligations		855.4		552.3		174.5		87.0		41.6
Other long-term liabilities:
Pension funding minimums		328.8		72.5		137.6		96.1		22.6
OPEB claim payments		592.6		40.0		58.8		42.2		451.6
Deferred revenue (6)		215.6		174.7		34.2		6.7		—
Environmental and mine closure obligations		199.1		14.2		10.7		51.2		123.0
FIN 48 obligations (4)		6.6		6.6		—		—		—
Personal injury		20.1		6.1		7.8		4.4		1.8
Other (5)

Total other long-term liabilities		1,362.8		314.1		249.1		200.6		599.0

Total	$	5,692.9	$	1,025.9	$	979.1	$	589.7	$	3,098.2

(1)	Includes our consolidated obligations.

(2)

For the $325 million senior notes, interest is calculated for the $270 million five-year senior notes using a fixed rate of 6.31 percent from 2011 to maturity in June 2013, and the $55 million seven-year notes, interest is calculated at 6.59 percent from 2010 to maturity in June 2015. For the $400 million senior notes, interest is calculated using a fixed rate of 5.90 percent from 2011 to maturity in March 2020. For the $1 billion senior notes, interest is calculated for the $500 million 10-year notes using a fixed rate of 4.80 percent from 2011 to maturity in October 2020, and the $500 million 30-year notes using a fixed rate of 6.25 percent from 2011 to maturity in October 2040.

(3)	Includes minimum electric power demand charges, minimum coal, diesel and natural gas obligations, minimum railroad transportation obligations, and minimum port facility obligations.

(4)	Includes accrued interest.

(5)	Other contractual obligations of approximately $87.2 million primarily include FIN 48 obligations and deferred income tax amounts for which timing of payment is non-determinable.

(6)	This is for services to be provided in future periods.

Refer to NOTE 17 — COMMITMENTS AND CONTINGENCIES of the Consolidated Financial Statements for additional information regarding our future purchase commitments and obligations.

Financing Activities

Net cash provided by financing activities in 2010 was $1.1 billion compared with $304.3 million in 2009 and $32.4 million in 2008. Cash flows from financing activities in 2010 primarily included $397.8 million and $990.3 million in net proceeds, respectively, from two public offerings of senior notes, which we completed on March 17, 2010 and September 20, 2010, respectively. A portion of the net proceeds from the $400 million public offering of senior notes were used for the repayment of our $200 million term loan under our credit facility, which we repaid in March 2010, as well as the repayment of our share of Amapá’s remaining debt outstanding of $100.8 million in May 2010. In addition, a portion of the net proceeds were used to fund a portion of the purchase price for the Spider and CLCC acquisitions. A portion of the net proceeds from the $1 billion public offering of senior notes were used for the repayment of the $350 million borrowings outstanding under our credit facility. Other uses of the net proceeds from the $1 billion public offering of senior notes may include general corporate purposes, the funding of strategic acquisitions such as the pending acquisition of Consolidated Thompson and pending final use, investments in short-term marketable securities. Successful execution of these offerings allowed us to enhance our financial flexibility and better position ourselves to take advantage of possible opportunities as the market continues to improve in 2011.

In May 2010, our Board of Directors increased our quarterly common share dividend from $0.0875 to $0.14 per share. The increased cash dividend was paid on June 1, 2010, September 1, 2010 and December 1, 2010. In May 2009, our Board of Directors enacted a 55 percent reduction in our quarterly common share dividend to $0.04 from $0.0875 for the second and third quarters of 2009 in order to enhance financial flexibility. In the fourth quarter of 2009, the dividend was reinstated to its previous level.

Cash flows from financing activities in 2009 primarily included $348 million in net proceeds from the sale of our common shares.

As previously discussed, on January 11, 2011, we entered into a definitive arrangement agreement with Consolidated Thompson to acquire all of its common shares in an all-cash transaction including net debt, valued at approximately C$4.9 billion. We have currently entered into a $3.7 billion bridge financing commitment to provide for the financing of the arrangement. We intend to arrange permanent financing for the transaction by, among other things, accessing the capital markets depending on market conditions during 2011. A portion of our cash will also be used to fund a portion of the purchase price; however management focus is on maintaining sufficient cash balances to address our future operational needs.

Capital Resources

We expect to fund our business obligations from available cash, current operations and existing borrowing arrangements. The following represents a summary of key liquidity measures as of December 31, 2010 and 2009:


	(In Millions)
	December 31, 2010			December 31, 2009
Cash and cash equivalents	$	1,566.7		$	502.7

Credit facility	$	600.0		$	800.0
Senior notes		1,725.0			325.0
Senior notes drawn		(1,725.0	)		(325.0	)
Term loans drawn		—			(200.0	)
Letter of credit obligations and other commitments		(64.7	)		(31.4	)

Borrowing capacity available	$	535.3		$	568.6

Refer to NOTE 8 — DEBT AND CREDIT FACILITIES of our consolidated financial statements for further information regarding our debt and credit facilities.

We are subject to certain financial covenants contained in the agreements governing certain of our debt instruments. As of December 31, 2010 and 2009, we were in compliance with each of our financial covenants.

Apart from cash generated by the business, our primary source of funding is cash on hand, which totaled $1.6 billion as of December 31, 2010. We also have a $600 million revolving credit facility, which matures in 2012. This facility has available borrowing capacity of $535.3 million as of December 31, 2010. Effective October 29, 2009, we amended our credit facility agreement, which resulted in improved borrowing flexibility, more liberally defined financial covenants and debt restrictions, and other benefits in exchange for a modest increase in pricing. The combination of cash and the credit facility gives us over $2.0 billion in liquidity entering the first quarter of 2011, which is expected to be used to fund operations and finance strategic transactions such as the pending acquisition of Consolidated Thompson.

We are party to financing arrangements under which we issue guarantees on behalf of certain of our unconsolidated subsidiaries. In the event of non-payment, we are obligated to make payment in accordance with the provisions of the guarantee arrangement. As of December 31, 2010, Amapá repaid its total project debt outstanding, for which we had previously provided a several guarantee on our 30 percent share. Repayment of our share of the total project debt outstanding consisted of $54.2 million and $100.8 million repaid on February 17, 2010 and May 27, 2010, respectively. Upon repayment of the project debt, our obligations under the provisions of the guarantee arrangement have been relieved.

Based on our current borrowing capacity and the actions we have taken in response to the global financial crisis to conserve cash, we have adequate liquidity and expect to fund our business obligations from available cash, current operations and existing borrowing arrangements. Other sources of funding may include new lines of credit or other financing arrangements.

Several credit markets may provide additional capacity should that become necessary. The bank market may provide funding through a term loan, bridge loan, revolving credit facility, or through exercising the $200 million accordion in our current credit facility. The risk associated with this market is significant increases in borrowing costs as a result of limited capacity. As in all debt markets, capacity is a global issue that impacts the bond market. Our issuance of a $400 million public offering of 10-year senior notes in March 2010 and a $1 billion public offering of 10-year and 30-year senior notes in September 2010 provide evidence that capacity in the bond markets has improved for investment grade companies compared to conditions impacting such markets in 2009. These transactions represent the successful execution of our strategy to increase liquidity and extend debt maturities to align with longer-term capital structure needs. Accessing the capital markets may provide additional sources of funding, as well as other alternative sources such as lease financing.

Off-Balance Sheet Arrangements

We have operating leases, which are primarily utilized for certain equipment and office space. Aside from this, we do not have any other off-balance sheet financing arrangements.

Market Risks

We are subject to a variety of risks, including those caused by changes in foreign currency exchange rates, interest rates and commodity prices. We have established policies and procedures to manage such risks; however, certain risks are beyond our control.

Foreign Currency Exchange Rate Risk

We are subject to changes in foreign currency exchange rates primarily as a result of our operations in Australia, which could impact our financial condition. Foreign exchange risk arises from our exposure to fluctuations in foreign currency exchange rates because our reporting currency is the United States dollar, but the functional currency of our Asia Pacific operations is the Australian dollar. Our Asia Pacific operations receive funds in U.S. currency for their iron ore and coal sales and incur costs in Australian currency. We use forward

exchange contracts, call options and collar options to hedge our foreign currency exposure for a portion of our sales receipts. The primary objective for the use of these instruments is to reduce exposure to changes in Australian and U.S. currency exchange rates and to protect against undue adverse movement in these exchange rates. At December 31, 2010, we had $70 million of outstanding exchange rate contracts with varying maturity dates ranging from February 2011 to December 2011 for which we elected hedge accounting, effective October 2010. We also had $230 million of outstanding exchange rate contracts with varying maturity dates ranging from January 2011 to January 2012 that we have been holding as economic hedges, entered into prior to October 2010. A 10 percent increase in the value of the Australian dollar from the month-end rate would increase the fair value of these contracts by approximately $31.2 million, and a 10 percent decrease would reduce the fair value by approximately $26.4 million. We may enter into additional hedging instruments in the near future as needed in order to further hedge our exposure to changes in foreign currency exchange rates.

The pellets produced at our Wabush operation in Canada represented approximately 15 percent of our North American Iron Ore pellet production as of December 31, 2010. This operation is subject to currency exchange fluctuations between the United States and Canadian currency. We do not currently hedge our exposure to this currency exchange fluctuation; however, we plan to enter into hedging instruments in the future to hedge such exposures. The functional currency for Wabush was determined to be the Canadian dollar prior to our acquisition of the remaining interest. At the time, we had a 26.8 percent noncontrolling interest in the mining venture. Our acquisition to obtain full ownership of Wabush and the resulting change in control in February 2010 triggered a reassessment of the accounting principles related to the determination of Wabush’s functional currency during the first quarter of 2010. As a result, effective February 1, 2010, we changed the functional currency of Wabush from the local currency to the U.S. dollar reporting currency primarily due to changes in the nature of intercompany transactions and changes in the structure under which the entity is financed, resulting in the U.S. dollar becoming the currency of the primary economic environment in which the business operates.

Interest Rate Risk

Interest payable on our $1 billion, $400 million and $325 million senior notes is at fixed rates. Interest for borrowings under our credit facility is at a floating rate, dependent in part on the LIBOR rate, which could expose us to the effects of interest rate changes; however, there were no borrowings outstanding under our credit facility as of December 31, 2010.

Pricing Risks

Provisional Pricing Arrangements

During the first quarter of 2010, the world’s largest iron ore producers moved away from the annual international benchmark pricing mechanism referenced in certain of our customer supply agreements, resulting in a shift in the industry toward shorter-term pricing arrangements linked to the spot market. Such changes are likely to yield increased volatility in iron ore pricing. In addition, these changes led to extended pricing negotiations with certain customers during 2010. As a result, we recorded certain shipments made throughout the year on a provisional basis until final settlements were reached. The pricing provisions were characterized as freestanding derivatives, which were marked to fair value as a revenue adjustment each reporting period based upon the estimated forward settlement until prices were actually settled. The fair value of the instrument was determined based on the forward price expectation of the final price settlement. Therefore, to the extent final prices were higher or lower than what was recorded on a provisional basis, an increase or decrease to revenues was recorded each reporting period until the date of final pricing. We renegotiated the terms of our supply agreements and reached short-term pricing arrangements with our Asia Pacific Iron Ore customers. In addition, we reached final pricing settlements with some of our North American Iron Ore customers through the fourth quarter of 2010 for the 2010 contract year. With respect to the North American Iron Ore customers for which final pricing for the 2010 contract year has not yet been settled as of December 31, 2010, we did not record shipments on a provisional basis due to pending arbitrations. As a result, there are no provisionally priced derivative assets recorded at December 31, 2010. Although pricing has been settled with some of our North American customers for 2010, we are still in the process of assessing the impact a change to the historical annual pricing mechanism will have on certain of our larger existing North American Iron Ore customer supply agreements that extend over multiple years, and negotiations are still ongoing with these customers.

Arbitration

We are currently in discussions with certain of our customers regarding how our supply agreements will take into account the change in international market pricing. Additionally, we currently have arbitrations pending relating to the price adjustment provisions of two supply agreements, as further discussed under Part II – Item 1, Legal Proceedings. These discussions and arbitrations may result in changes to the pricing mechanisms used with our various customers and could impact sales prices realized in current and future periods. In the event that we are unsuccessful in defending our position, the retroactive revised pricing for 2010 sales under one of the supply agreements could have a material impact on our consolidated results of operations. The outcome and timing of the arbitrations are uncertain.

Customer Supply Agreements

Certain supply agreements with one North American Iron Ore customer provide for supplemental revenue or refunds based on the customer’s average annual steel pricing at the time the product is consumed in the customer’s blast furnace. The supplemental pricing is characterized as an embedded derivative, which is finalized based on a future price, and is marked to fair value as a revenue adjustment each reporting period until the pellets are consumed and the amounts are settled. The fair value of the instrument is determined using a market approach based on an estimate of the annual realized price of hot rolled steel at the steelmaker’s facilities, and takes into consideration current market conditions and nonperformance risk.

At December 31, 2010, we had a derivative asset of $45.6 million, representing the fair value of the pricing factors, based upon the amount of unconsumed tons and an estimated average hot band steel price related to the period in which the tons are expected to be consumed in the customer’s blast furnace at each respective steelmaking facility, subject to final pricing at a future date. This compares with a derivative asset of $63.2 million as of December 31, 2009, based upon the amount of unconsumed tons and the related estimated average hot band steel price. We estimate that a $100 change in the average hot band steel price realized from the December 31, 2010 estimated price recorded would cause the fair value of the derivative instrument to increase or decrease by approximately $10 million, thereby impacting our consolidated revenues by the same amount.

We have not entered into any hedging programs to mitigate the risk of adverse price fluctuations, nor do we intend to hedge our exposure to such risks in the future; however, certain of our term supply agreements contain price collars, which typically limit the percentage increase or decrease in prices for our products during any given year.

Volatile Energy and Fuel Costs

The volatile cost of energy is an important issue affecting our production costs, primarily in relation to our iron ore operations. Our consolidated North American Iron Ore mining ventures consumed approximately 14.4 million MMBtu’s of natural gas at an average delivered price of $4.82 per MMBtu, and 28.7 million gallons of diesel fuel at an average delivered price of $2.45 per gallon in 2010. Our recently acquired CLCC operations consumed approximately 1.9 million gallons of diesel fuel at an average delivered rate of $2.60 per gallon since the date of acquisition. Consumption of diesel fuel by our Asia Pacific Operations was approximately 13.0 million gallons at an average delivered price of $1.67 per gallon for the same period.

Our strategy to address increasing energy rates includes improving efficiency in energy usage and utilizing the lowest cost alternative fuels. In addition, we purchased forward contracts for projected natural gas and diesel needs related to our North American Iron Ore operations as a hedge against price volatility during 2010. Such contracts are in quantities expected to be delivered and used in the production process. As of December 31, 2010, all of our natural gas hedge contracts have matured. We have 2011 diesel purchases for a volume of 1.1 million gallons at an average price of $2.36 per gallon. This represents five percent of the total projected usage for 2011. At December 31, 2010, the notional amount of the outstanding diesel fuel forward contracts was $2.5 million. The contracts for 2011 mature at various times through May 2011. If the forward rates were to change 10 percent from the month-end rate, the value and potential cash flow effect on the contracts would be approximately $0.3 million. We will continue to monitor relevant energy markets for risk mitigation opportunities and may make additional forward purchases or employ other hedging instruments in the future as warranted and deemed

appropriate by management. Assuming we do not enter into further hedging activity in the near term, a 10 percent change in natural gas and diesel fuel prices would result in a change of approximately $16.9 million in our annual fuel and energy costs base on expected consumption in 2011.

Supply Concentration Risks

Many of our mines are dependent on one source for electric power and for natural gas. A significant interruption or change in service or rates from our energy suppliers could materially impact our production costs, margins and profitability.

Uncertainties of Health Care Reform Legislation

On March 23, 2010, the PPACA was signed into law. On March 30, 2010, a companion bill, the Reconciliation Act was also signed into law. Among other things, the PPACA and the Reconciliation Act, when taken together, reduce the tax benefits available to an employer that receives the Medicare Part D subsidy. The Reconciliation Act partially restores the reduction under the PPACA.

The impact of the U.S. health care reform will be phased in between 2011 and 2014 and will likely have a significant impact on our costs of providing employee health benefits beginning in 2011. In addition, as a result of the health care reform legislation that has been passed, our results of operations have been negatively impacted by a non-cash income tax charge of approximately $16.1 million in the first quarter of 2010 to reflect the reduced deductibility of the postretirement prescription drug coverage. The charge was recorded in the first quarter of 2010 based upon the period of enactment. As with any significant government action, the provisions of the Acts are still being assessed and may have additional financial accounting and reporting ramifications. In addition, it is possible that standard setters or regulators may decide to address the accounting for the Acts in the future. The impact of any such changes on our business operations and financial statements remains uncertain. However, as additional information becomes available, we will continue to monitor current developments and assess the potential implications of the PPACA and the Reconciliation Act on our business.

Outlook

We anticipate global steel production will continue to grow in 2011, primarily driven by emerging economies such as China, India and Brazil. Based on these dynamics, we continue to have an optimistic outlook for our businesses.

Subsequent to year end, we announced we had entered into a definitive arrangement agreement with Consolidated Thompson to acquire all of its common shares in an all-cash transaction including net debt, valued at approximately C$4.9 billion, which was unanimously approved by Consolidated Thompson’s board of directors. In addition, we entered into a support agreement with Consolidated Thompson’s largest shareholder, Wuhan Iron and Steel (Group) Corporation of China, along with the directors and certain senior officers of Consolidated Thompson. This transaction is expected to close in early second quarter of 2011, subject to the satisfaction or waiver of various closing conditions. After closing this transaction, we anticipate including this business in subsequent market outlooks.

North American Iron Ore Outlook (Long tons)

For 2011, we are increasing our North American Iron Ore sales volume expectation to approximately 28 million tons, partially as a result of an additional 600,000 tons of sales volume that we expect to recognize in the first quarter of 2011. Revenue was not recognized during the fourth quarter of 2010 for these tons due to payment timing and severe weather conditions on the Great Lakes. The balance of the increase is due to improved market conditions.

Our North American Iron Ore 2011 revenue per ton expectation is $140 to $145, based on the following assumptions:

•

2011 U.S. blast furnace utilization of approximately 70 percent;

•

2011 average hot rolled steel pricing of $650 to $700;

•

2011 settled annual pellet increases of 35 percent from 2010’s pricing; and

•

Successful collection of $300 million associated with the pending arbitration discussed above.

The revenue per ton expectation also considers various contract provisions, lag year adjustments and pricing caps and floors contained in certain supply agreements. Actual realized average revenue per ton for the full year will ultimately depend on increases or decreases for blast furnace pellets from annual 2010 seaborne pellet prices, sales volume levels, customer mix, production input costs and/or steel prices (all factors in our formula-based pricing in the North American Iron Ore business segment) and the final award for the on-going arbitration.

In addition, the following approximate sensitivities could impact actual realized prices:

•

For every 10 percent change from the above expectation for annual blast furnace pellet prices, we expect our average realized revenue per ton in North American Iron Ore to change by approximately $6; and

•

For every $25 change from the estimated 2011 hot rolled steel prices noted above, we expect our average revenue per ton in North American Iron Ore to change by $0.55.

We expect our North American Iron Ore 2011 production volume to be approximately 28 million tons. At this production level, we anticipate our cost per ton to be $65 to $70, with approximately $5 per ton comprised of depreciation, depletion and amortization.

North American Coal Outlook (Short tons F.O.B. the mine)

We are maintaining our 2011 North American Coal sales and production volumes expectation of approximately 6.5 million tons, comprised of 1.0 million tons of thermal coal, 1.5 million tons of high volatile metallurgical coal and 4.0 million tons of low volatile metallurgical coal.

Our North American Coal 2011 revenue per ton expectation is $135 to $140. This revenue per ton estimate is based on the following factors:

•

Virtually all of the expected thermal coal sales volume committed at an average price of $71 per ton;

•

95 percent of the expected high-volatile metallurgical coal sales volume committed at an average of $115 per ton;

•

70 percent of the expected low-volatile metallurgical coal sales volume committed at an average of $150 per ton; and

•

Uncommitted tons of low-volatile metallurgical coal priced at $185 per ton.

In 2011, we anticipate cost per ton for the year of approximately $105 to $110, with approximately $15 per ton comprised of depreciation, depletion and amortization.

Asia Pacific Iron Ore Outlook (metric tons F.O.B. the port)

Asia Pacific Iron Ore 2011 sales and production volumes are expected to be 9 million tons.

Our 2011 Asia Pacific Iron Ore revenue per ton expectation is $175 to $180, based on the following assumptions:

•

The Platts spot price of $187 per ton (C.I.F. China) as of January 31, 2011, is maintained for the remainder of 2011;

•

Pricing for the majority of Chinese customers, which represents approximately 80 percent of the expected sales volume, continues to use a mechanism closely correlated to spot prices;

•

Pricing mechanisms for the majority of Japanese customers, which represents approximately 20 percent of the expected sales volumes, continue to use quarterly lag spot prices; and

•

A product mix of approximately 50 percent lump and 50 percent fines.

We expect costs per ton to be approximately $70 to $75. The year over year increase in the average cost expectation is primarily driven by higher royalties, higher stripping costs and a less favorable foreign exchange rate. Depreciation, depletion and amortization costs per ton are expected to be $12.

The following table provides a summary of our 2011 guidance for these three business segments:

2011 Outlook Summary

North American
Iron Ore (1)

North American
Coal (2)

Asia Pacific
Iron Ore (3)

Current
Outlook

Sales volume (in millions)

28.0

6.5

9.0

Revenue per ton

140 - $145

135 - $140

175 - $180

Cost per ton

65 - $70

105 - $110

70 - $75

(1)	North American Iron Ore tons are reported in long tons.

(2)	North American Coal tons are reported in short tons F.O.B. the mine.

(3)	Asia Pacific Iron Ore tons are reported in metric tons F.O.B. the port.

Outlook for Sonoma Coal and the Amapá Iron Ore Project (metric tons F.O.B. the port)

In 2011, we expect our equity sales and production volume at Sonoma Coal to be 1.6 million tons. The approximate product mix is expected to be two-thirds thermal coal and one-third metallurgical coal. We expect per ton costs to be $105 to $110. The year over year increase in the average cost expectation is primarily driven by higher royalties and an unfavorable exchange rate variance.

We expect the Amapá Iron Ore Project to be modestly profitable in 2011.

SG&A Expenses and Other Expectations

We anticipate SG&A expenses to be approximately $200 million in 2011. We intend to incur the following additional cash outflows:

•

Approximately $50 million to $55 million related to our global exploration activities;

•

Approximately $35 million related to our chromite project in Ontario, Canada; and

•

Approximately $50 million related to Sonoma Coal partner profit sharing.

We anticipate an effective tax rate of approximately 30 percent for the year and depreciation, depletion, and amortization of approximately $360 million.

2011 Capital Budget Update and Other Uses of Cash

Based on the above outlook, we expect to generate more than $2.7 billion in cash from operations in 2011. We expect capital expenditures of approximately $700 million, comprised of approximately $300 million in sustaining capital and approximately $400 million in growth and expansion, including the following projects within our business segments:

North American Iron Ore

•

$125 million related to the previously disclosed extension of our Empire Mine in Michigan to 2014; and

•

$20 million related to increasing production at Wabush to 5.5 million tons by 2013.

North American Coal

•

$45 million related to bringing Lower War Eagle, a high volatile metallurgical coal mine in West Virginia, into production;

•

$16 million related to the previously disclosed mine shaft construction at our Oak Grove Mine in Alabama; and

•

$14 million related to the previously disclosed long-wall installation at our Pinnacle Mine in West Virginia.

Asia Pacific Iron Ore

•

$146 million related to the previously disclosed infrastructure upgrades at our Koolyanobbing Mine in Western Australia.

Recently Issued Accounting Pronouncements

Refer to NOTE 1 – BUSINESS SUMMARY AND SIGNIFICANT ACCOUNTING POLICIES of the consolidated financial statements for a description of recent accounting pronouncements, including the respective dates of adoption and effects on results of operations and financial condition.

Critical Accounting Estimates

Management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP. Preparation of financial statements requires management to make assumptions, estimates and judgments that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and the related disclosures of contingencies. Management bases its estimates on various assumptions and historical experience, which are believed to be reasonable; however, due to the inherent nature of estimates, actual results may differ significantly due to changed conditions or assumptions. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are fairly presented in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. Management believes that the following critical accounting estimates and judgments have a significant impact on our financial statements.

Revenue Recognition

North American Iron Ore Customer Supply Agreements

Most of our North American Iron Ore long-term supply agreements are comprised of a base price with annual price adjustment factors, some of which are subject to annual price collars in order to limit the percentage increase or decrease in prices for our iron ore pellets during any given year. The base price is the primary component of the purchase price for each contract. The inflation-indexed price adjustment factors are integral to the iron ore supply contracts and vary based on the agreement but typically include adjustments based upon changes in international pellet prices, changes in specified Producers Price Indices including those for all commodities, industrial commodities, energy and steel. The pricing adjustments generally operate in the same manner, with each factor typically comprising a portion of the price adjustment, although the weighting of each factor varies based upon the specific terms of each agreement. In most cases, these adjustment factors have not been finalized at the time our product is sold. In these cases, we have historically estimated the adjustment factors at each reporting period based upon the best third-party information available. The estimates are then adjusted to actual when the information has been finalized. During the third quarter of 2010, we revised our approach for estimating the adjustment factors to include 2010 published pricing settlements realized by other companies in the industry.

With respect to international pellet prices, certain long-term supply agreements reference the previous year’s settled price, in which case, no estimate is required. However, pricing in some of our supply agreements is based upon the international pellet price for the current year. The period during which we must estimate changes in international pellet prices varies year to year based on the timing of final settlement. Historically, contract negotiations were completed and pricing settlements for the upcoming year were reached during the first quarter of the contract year, in which case an estimate was required only for a short period of time and was adjusted to actual prior to reporting first quarter results. This was the case in 2007. As a result, the price adjustment provisions related to international pellet prices were essentially a fixed component of the purchase price for that contract year based upon the timing of settlement. Several instances occurred in both 2009 and 2008, in which

contract negotiations were extended with settlement occurring later in the year. Information used in developing the estimate prior to settlement included such factors as previous pricing settlements among other iron ore producers and consumers in the industry, current spot prices, market trends, publications and other industry information. However, based on the timing of settlement, adjustments of our estimate to the actual international pellet price were not material in 2009 or 2008 as a result of having limited shipments to customers with these contract provisions during the first quarter of each respective year.

The producer price indices remain a provisional component of the sales price throughout the contract year and are estimated each quarter using publicly available forecasts of such indices. The final indices referenced in certain of the North American Iron Ore supply contracts are typically not published by the U.S. Department of Labor until the second quarter of the subsequent year. As a result, we record an adjustment for the difference between the fourth quarter estimate and the final price in the following year. Historically, such adjustments have not been material as they have represented less than half of 1 percent of North American Iron Ore’s revenue for each of the three preceding fiscal years ended December 31, 2009, 2008 and 2007.

In addition, certain supply agreements with one customer include provisions for supplemental revenue or refunds based on the customer’s average annual steel pricing for the year the product is consumed in the customer’s blast furnaces. The supplemental pricing is characterized as an embedded derivative, which is finalized based on a future price, and is marked to fair value as a revenue adjustment each reporting period until the pellets are consumed and the amounts are settled. The fair value of the instrument is determined using a market approach based on an estimate of the annual realized price of hot rolled steel at the steelmaker’s facilities. At December 31, 2010, we had a derivative asset of $45.6 million, representing the fair value of the pricing factors, based upon the amount of unconsumed tons and an estimated average hot band steel price related to the period in which the tons are expected to be consumed in the customer’s blast furnace at each respective steelmaking facility, subject to final pricing at a future date. This compares with a derivative asset of $63.2 million as of December 31, 2009, based upon the amount of unconsumed tons and the related estimated average hot band steel price.

The customer’s average annual price is not known at the time of sale and the actual price is received on a delayed basis at the end of the year, once the average annual price has been finalized. As a result, we estimate the average price and adjust the estimate to actual in the fourth quarter when the information is provided by the customer at the end of each year. Information used in developing the estimate includes such factors as production and pricing information from the customer, current spot prices, third-party analyst forecasts, publications and other industry information. The accuracy of our estimates typically increases as the year progresses based on additional information in the market becoming available and the customer’s ability to more accurately determine the average price it will realize for the year. The following represents the historical accuracy of our pricing estimates related to the derivative as well as the impact on revenue resulting from the difference between the estimated price and the actual price for each quarter during 2010, 2009 and 2008 prior to receiving final information from the customer for tons consumed during each year:


	Hot Band Steel Price - Estimate vs. Actual
	2010							2009							2008
	Final Price		Estimated Price		Impact on Revenue (in millions)			Final Price		Estimated Price		Impact on Revenue (in millions)			Final Price		Estimated Price		Impact on Revenue (in millions)
First Quarter	$	593	$	624	$	(0.8	)	$	528	$	523	$	1.2		$	763	$	645	$	24.9
Second Quarter		593		634		(12.1	)		528		545		(1.3	)		763		773		(5.4	)
Third Quarter		593		609		(7.0	)		528		536		(0.6	)		763		794		(17.6	)
Fourth Quarter		593		593		—			528		528		—			763		763		—

We estimate that a $100 change in the average hot band steel price realized from the December 31, 2010 estimated price recorded for the unconsumed tons remaining at year-end would cause the fair value of the derivative instrument to increase or decrease by approximately $10 million, thereby impacting our consolidated revenues by the same amount.

Provisional Pricing Arrangements

Historically, certain supply agreements primarily with our Asia Pacific Iron Ore customers provided for revenue or refunds based on the ultimate settlement of annual international benchmark pricing for lump and fines. As a result of the derivative accounting treatment applied to the provisions, revenue reflected the estimated benchmark price until final settlement occurred. Therefore, to the extent final prices were higher or lower than what was recorded on a provisional basis, an increase or decrease to revenues was recorded each reporting period until the date of final pricing. Accordingly, in times of rising iron ore prices, our revenues benefited from higher prices received for contracts priced at the current benchmark price and also from an increase related to the final pricing of provisionally priced sales pursuant to contracts entered into in prior periods; in times of falling iron ore prices, the opposite occurred. Pricing estimates were primarily based upon reported price settlements in the industry and worldwide pressures in the market.

As discussed above, in 2010, the world’s largest iron ore producers moved away from the annual international benchmark pricing mechanism referenced in certain of our customer supply agreements, resulting in a shift in the industry toward shorter-term pricing arrangements linked to the spot market. As a result, we renegotiated the terms of our supply agreements with our Chinese and Japanese Asia Pacific Iron Ore customers moving to shorter-term pricing mechanisms of various durations based on the average daily spot prices, with certain pricing mechanisms that have a duration of up to a quarter. This change was effective in the first quarter of 2010 for our Chinese customers and the second quarter of 2010 for our Japanese customers. Based on timing of these changes, pricing settlements were finalized with customers during each of the 2010 quarters with the exception of the first quarter of 2010. Therefore, provisional pricing estimates were used during the first quarter of 2010 to reflect an increase of 26 percent over 2009 settled prices for both lump and fines based on provisional quarterly index pricing. The pricing estimates for the first quarter of 2010 reflected the increase in steel demand and spot prices for iron ore and were based upon index-pricing mechanisms previously reported in the industry. In addition, sales to our Japanese customers during the first quarter of 2010 reflected 2009 prices based upon contract years of April 1 to March 31.

The following represents the historical accuracy of our provisional price estimates, as well as the impact on Product revenues resulting from the difference between the estimated change in price and the actual change in price for the quarters during 2010, 2009 and 2008 prior to settlement. The derivative instrument recorded during the first quarter of 2010 was settled during the second quarter of 2010 upon the move to short-term pricing arrangements with Asia Pacific Iron Ore customers. The timing of the pricing settlements for 2009 and 2008 is described further in the table below.

Provisional Price - Estimate vs. Actual

2010

2009 (1)

2008 (2)

First Quarter

Second &
Third
Quarter

First Quarter

Customer
(geographic

location)

Final
Settled
Price
Decrease
(lump/
fines)

Estimated
Price
Decrease
(lump/
fines)

Revenue
Impact (3)
(in millions)

Final
Settled
Price
Decrease
(lump/
fines)

Estimated
Price
Decrease
(lump/
fines)

Revenue
Impact (3)
(in millions)

Estimated
Price
Decrease
(lump/
fines)

Final
Settled
Price
Increase
(lump/
fines)

Estimated
Price
Increase
(lump/
fines)

Revenue
Impact (3)
(in millions)

Japan

N/A

$ —

-44%/-33%

-30%/-30%

$ (1.3)

N/A

97%/80%

0.0%

$ —

China

69%/69%

26%/26%

36.7

-44%/-33%

-30%/-30%

(17.1)

-44%/-33%

97%/80%

0.0%

65.0

$ 36.7

$ (18.4)

$ 65.0

(1)

The 2009 benchmark prices referenced in our Asia Pacific Iron Ore contracts settled with Japan in the second quarter of 2009. We agreed to final prices with our customers in China during the fourth quarter of 2009. Prices with our customers in China were settled at the estimated price decreases and therefore no additional revenue impact was realized during 2009.

(2)	In 2008, Cliffs used 2007 prices as a proxy for 2008 prices prior to settlement. The 2008 benchmark prices referenced in our Asia Pacific Iron Ore contracts settled in the second quarter of 2008.

(3)	The impact on product revenue resulting from the difference between the estimated price and the actual price was recorded in the second quarter of each respective year.

Refer to NOTE 3 — DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, for further information.

Mineral Reserves

We regularly evaluate our economic mineral reserves and update them as required in accordance with SEC Industry Guide 7. The estimated mineral reserves could be affected by future industry conditions, geological conditions and ongoing mine planning. Maintenance of effective production capacity or the mineral reserve could require increases in capital and development expenditures. Generally as mining operations progress, haul lengths and lifts increase. Alternatively, changes in economic conditions, or the expected quality of mineral reserves could decrease capacity or mineral reserves. Technological progress could alleviate such factors, or increase capacity of mineral reserves.

We use our mineral reserve estimates combined with our estimated annual production levels, to determine the mine closure dates utilized in recording the fair value liability for asset retirement obligations. Refer to NOTE 10 – ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS, for further information. Since the liability represents the present value of the expected future obligation, a significant change in mineral reserves or mine lives would have a substantial effect on the recorded obligation. We also utilize economic mineral reserves for evaluating potential impairments of mine assets and in determining maximum useful lives utilized to calculate depreciation and amortization of long-lived mine assets. Decreases in mineral reserves or mine lives could significantly affect these items.

Asset Retirement Obligations and Environmental Remediation Costs

The accrued mine closure obligations for our active mining operations provide for contractual and legal obligations associated with the eventual closure of the mining operations. Our obligations are determined based on detailed estimates adjusted for factors that a market participant would consider (i.e., inflation, overhead and profit), which are escalated at an assumed rate of inflation to the estimated closure dates, and then discounted

using the current credit-adjusted risk-free interest rate. The estimate also incorporates incremental increases in the closure cost estimates and changes in estimates of mine lives. The closure date for each location is determined based on the exhaustion date of the remaining iron ore reserves, which is dependent on our estimate of the economically recoverable mineral reserves. The estimated obligations are particularly sensitive to the impact of changes in mine lives given the difference between the inflation and discount rates. Changes in the base estimates of legal and contractual closure costs due to changes in legal or contractual requirements, available technology, inflation, overhead or profit rates would also have a significant impact on the recorded obligations.

We have a formal policy for environmental protection and restoration. Our obligations for known environmental matters at active and closed mining operations and other sites have been recognized based on estimates of the cost of investigation and remediation at each site. If the obligation can only be estimated as a range of possible amounts, with no specific amount being more likely, the minimum of the range is accrued. Management reviews its environmental remediation sites quarterly to determine if additional cost adjustments or disclosures are required. The characteristics of environmental remediation obligations, where information concerning the nature and extent of clean-up activities is not immediately available, and which are subject to changes in regulatory requirements, result in a significant risk of increase to the obligations as they mature. Expected future expenditures are not discounted to present value unless the amount and timing of the cash disbursements can be reasonably estimated. Potential insurance recoveries are not recognized until realized. Refer to NOTE 10 — ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS, for further information.

Income Taxes

Our income tax expense, deferred tax assets and liabilities and reserves for unrecognized tax benefits reflect management’s best assessment of estimated future taxes to be paid. We are subject to income taxes in both the U.S. and numerous foreign jurisdictions. Significant judgments and estimates are required in determining the consolidated income tax expense.

Deferred income taxes arise from temporary differences between tax and financial statement recognition of revenue and expense. In evaluating our ability to recover our deferred tax assets we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In projecting future taxable income, we begin with historical results adjusted for the results of discontinued operations and changes in accounting policies and incorporate assumptions including the amount of future state, federal and foreign pretax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we are using to manage the underlying businesses. In evaluating the objective evidence that historical results provide, we consider three years of cumulative operating income (loss).

At December 31, 2010, we had a valuation allowance of $172.7 million against our deferred tax assets. Our losses in certain foreign locations in recent periods represented sufficient negative evidence to require a full valuation allowance against certain of our foreign deferred tax assets. We intend to maintain a valuation allowance against our net deferred tax assets until sufficient positive evidence exists to support the realization of such assets.

Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. Management is not aware of any such changes that would have a material effect on the Company’s results of operations, cash flows or financial position.

The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across our global operations.

Accounting for uncertainty in income taxes recognized in the financial statements requires that a tax benefit from an uncertain tax position be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on technical merits.

We recognize tax liabilities in accordance with ASC 740, and we adjust these liabilities when our judgment changes as a result of evaluation of new information not previously available. Due to the complexity of some of these uncertainties, the ultimate resolution may result in payment that is materially different from our current estimate of the tax liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which they are determined.

Goodwill Impairment

In assessing the recoverability of our goodwill, significant assumptions regarding the estimated future cash flows and other factors to determine the fair value of a reporting unit must be made, including among other things, estimates related to pricing, volume and reserves. The fair value of a reporting unit is estimated using a discounted cash flow valuation model. If these estimates or their related assumptions change in the future as a result of changes in strategy or market conditions, we may be required to record impairment charges for these assets in the period such determination was made.

Goodwill is allocated among and evaluated for impairment at the reporting unit level in the fourth quarter of each year. We determined that the fair value of the reporting units for which goodwill has been assigned was in excess of our carrying value as of December 31, 2010, and that we did not have any reporting units that were at risk of failing the first step of the goodwill impairment test. The fair values were substantially in excess of our carrying values for our North American Iron Ore, North American Coal, and Asia Pacific Iron Ore reporting units. The fair value of our Ferroalloys operating unit was not substantially in excess of our carrying values due the fact that this reporting unit is primarily comprised of the assets acquired and liabilities assumed through the Freewest and Spider acquisitions in 2010. Therefore, our carrying values for the Ferroalloys operating unit were recorded at fair value through the completion of these acquisitions.

In addition to the annual impairment test required under U.S. GAAP, we assessed whether events or circumstances occurred that potentially indicate that the carrying amount of these assets may not be recoverable. Based on the assessment performed, we concluded that there were no such events or changes in circumstances during 2010. Consequently, no goodwill impairment charges were recorded in 2010. Refer to NOTE 1 — BUSINESS SUMMARY AND SIGNIFICANT ACCOUNTING POLICIES, for further information regarding our policy on goodwill impairment.

Asset Impairment

In assessing the recoverability of our long-lived assets, significant assumptions regarding the estimated future cash flows and other factors to determine the fair value of the respective assets must be made, as well as the related estimated useful lives. If these estimates or their related assumptions change in the future as a result of changes in strategy or market conditions, we may be required to record impairment charges for these assets in the period such determination was made.

We monitor conditions that indicate that the carrying value of an asset or asset group may be impaired. In order to determine if assets have been impaired, assets are grouped and tested at the lowest level for which identifiable, independent cash flows are available. An impairment loss exists when projected undiscounted cash flows are less than the carrying value of the assets. The measurement of the impairment loss to be recognized is based on the difference between the fair value and the carrying value of the assets. Fair value can be determined using a market approach, income approach or cost approach. The impairment analysis and fair value determination can result in substantially different outcomes based on critical assumptions and estimates including the quantity and quality of remaining economic ore reserves, future iron ore prices and production costs. Refer to NOTE 1 — BUSINESS SUMMARY AND SIGNIFICANT ACCOUNTING POLICIES, for further information regarding our policy on asset impairment.

Employee Retirement Benefit Obligations

Company through the July 2007 acquisition, and employees of CLCC, who became employees of the Company through the July 2010 acquisition. Upon the acquisition of the remaining 73.2 percent interest in Wabush in February 2010, we fully consolidated the Canadian plans into our pension and OPEB obligations. We do not have employee retirement benefit obligations at our Asia Pacific Iron Ore operations.

Following is a summary of our defined benefit pension and OPEB funding and expense for the years 2008 through 2011:


	(In Millions)
	Pension				OPEB
	Funding		Expense		Funding		Expense
2008	$	24.9	$	20.3	$	19.7	$	8.6
2009		18.5		50.8		35.7		25.5
2010		45.6		45.6		38.5		24.2
2011 (Estimated)		72.5		38.0		40.0		26.1

Assumptions used in determining the benefit obligations and the value of plan assets for defined benefit pension plans and postretirement benefit plans (primarily retiree healthcare benefits) that we offer are evaluated periodically by management. Critical assumptions, such as the discount rate used to measure the benefit obligations, the expected long-term rate of return on plan assets, the medical care cost trend, and the rate of compensation increase are reviewed annually.

As of December 31, 2010, we used the following assumptions:


	Pension and Other Benefits
	2010			2009
U.S. plan discount rate		5.11	%		5.66	%
Canadian plan discount rate		5.00			(1	)
Rate of compensation increase		4.00			4.00
U.S. expected return on plan assets		8.50			(1	)
Canadian expected return on plan assets		7.50			(1	)

(1)	The Canadian plans were not consolidated into our pension and OPEB obligations prior to the acquisition of the remaining 73.2 percent interest in Wabush in February 2010.

Additionally, on December 31, 2010, we adopted the IRS 2011 prescribed mortality tables (separate pre-retirement and postretirement) to determine the expected life of our plan participants, replacing the IRS 2010 prescribed mortality tables for our U.S. plans. The assumed mortality remained the same as the previous year for our Canadian plans, UP 1994 with full projection.

Following are sensitivities of potential further changes in these key assumptions on the estimated 2011 pension and OPEB expense and the pension and OPEB benefit obligations as of December 31, 2010:


	Increase in Expense (In Millions)				Increase in Benefit Obligation (In Millions)
	Pension		OPEB		Pension		OPEB
Decrease discount rate .25 percent	$	1.7	$	1.2	$	27.5	$	14.2
Decrease return on assets 1 percent		7.3		1.9		—		—
Increase medical trend rate 1 percent		N/A		8.7		N/A		51.5

Changes in actuarial assumptions, including discount rates, employee retirement rates, mortality, compensation levels, plan asset investment performance, and healthcare costs, are determined based on analyses of actual and expected factors. Changes in actuarial assumptions and/or investment performance of plan assets can have a significant impact on our financial condition due to the magnitude of our retirement obligations. Refer to NOTE 11 — PENSIONS AND OTHER POSTRETIREMENT BENEFITS in Item 8 for further information.

Forward-Looking Statements

This report contains statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by the use of predictive, future-tense or forward-looking terminology, such as “believes,” “anticipates,” “expects,” “estimates,” “intends,” “may,” “will” or similar terms. These statements speak only as of the date of this report, and we undertake no ongoing obligation, other than that imposed by law, to update these statements. These statements appear in a number of places in this report and relate to, among other things, our intent, belief or current expectations of our directors or our officers with respect to: our future financial condition, results of operations or prospects, estimates of our economic iron ore and coal reserves; our business and growth strategies; and our financing plans and forecasts. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties, and that actual results may differ materially from those contained in or implied by the forward-looking statements as a result of various factors, some of which are unknown, including, without limitation:

•

the ability to successfully complete the pending acquisition of Consolidated Thompson;

•

the ability to successfully integrate acquired companies into our operations, including without limitation, Consolidated Thompson if it is successfully acquired;

•

uncertainty or weaknesses in global economic conditions, including downward pressure on prices;

•

trends affecting our financial condition, results of operations or future prospects;

•

the ability to reach agreement with our iron ore customers regarding modifications to sales contract pricing escalation provisions to reflect a shorter-term or spot-based pricing mechanism;

•

the outcome of any contractual disputes with our customers or significant energy, material or service providers;

•

the outcome of any arbitration or litigation;

•

changes in sales volume or mix;

•

the impact of price-adjustment factors on our sales contracts;

•

the ability of our customers to meet their obligations to us on a timely basis or at all;

•

our actual economic ore reserves;

•

the success of our business and growth strategies;

•

our ability to successfully identify and consummate any strategic investments;

•

our ability to successfully integrate the operations of our acquired businesses into our operations;

•

events or circumstances that could impair or adversely impact the viability of a mine and the carrying value of associated assets;

•

impacts of increasing governmental regulation including failure to receive or maintain required environmental permits, approvals, modifications or other authorization of, or from, any governmental or regulatory entity;

•

adverse changes in currency values;

•

the success of our cost-savings efforts;

•

our ability to maintain adequate liquidity and successfully implement our financing plans;

•

our ability to maintain appropriate relations with unions and employees;

•

uncertainties associated with unanticipated geological conditions, natural disasters, weather conditions, disruption of energy, equipment failures and other unexpected events;

•

risks related to international operations,;

•

the potential existence of significant deficiencies or material weakness in our internal control over financial reporting; and

You are cautioned that any such forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties, and that actual results may differ materially from those contained in the forward-looking statements as a result of various factors, some of which are unknown. For additional factors affecting the business of Cliffs Natural Resources Inc., refer to Part I — Item 1A. Risk Factors.

You are urged to carefully consider these risk factors. All forward-looking statements attributable to us are expressly qualified in their entirety by the foregoing cautionary statements.

Item 7A. Quantitative

and Qualitative Disclosures About Market Risk.

Information regarding our Market Risk is presented under the caption Market Risk, which is included in Item 7 and is incorporated by reference and made a part hereof.

Item 8.

Financial Statements and Supplementary Data.

Statements of Consolidated Financial Position

Cliffs Natural Resources Inc. and Subsidiaries


	(In Millions)
	December 31,
	2010		2009
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	1,566.7	$	502.7
Accounts receivable		359.1		103.5
Inventories		269.2		272.5
Supplies and other inventories		148.1		102.7
Deferred and refundable taxes		43.2		61.4
Derivative assets		82.6		51.5
Other current assets		114.8		66.9

TOTAL CURRENT ASSETS		2,583.7		1,161.2

PROPERTY, PLANT AND EQUIPMENT, NET		3,979.2		2,592.6
OTHER ASSETS
Marketable securities		85.9		88.1
Investments in ventures		514.8		315.1
Goodwill		196.5		74.6
Intangible assets, net		175.8		114.8
Long-term receivables		56.1		49.8
Deferred income taxes		140.3		151.1
Deposits and miscellaneous		45.9		92.0

TOTAL OTHER ASSETS		1,215.3		885.5

TOTAL ASSETS	$	7,778.2	$	4,639.3

See notes to consolidated financial statements.

Statements of Consolidated Financial Position

Cliffs Natural Resources Inc. and Subsidiaries


	(In Millions, Except Share Amounts)
	December 31,
	2010			2009
LIABILITIES
CURRENT LIABILITIES
Accounts payable	$	266.5		$	178.9
Accrued employment costs		129.9			78.4
Income taxes payable		103.4			6.1
State and local taxes payable		38.9			35.1
Below-market sales contracts — current		57.1			30.3
Accrued expenses		136.7			77.4
Deferred revenue		215.6			105.1
Other current liabilities		80.6			59.1

TOTAL CURRENT LIABILITIES		1,028.7			570.4
POSTEMPLOYMENT BENEFIT LIABILITIES
Pensions		284.9			267.3
Other postretirement benefits		243.1			178.5

TOTAL POSTEMPLOYMENT BENEFIT LIABILITIES		528.0			445.8
ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS		184.9			124.3
DEFERRED INCOME TAXES		63.7			70.8
SENIOR NOTES		1,713.1			325.0
TERM LOAN		—			200.0
BELOW-MARKET SALES CONTRACTS		164.4			153.3
OTHER LIABILITIES		256.7			212.7

TOTAL LIABILITIES		3,939.5			2,102.3
COMMITMENTS AND CONTINGENCIES
EQUITY
CLIFFS SHAREHOLDERS’ EQUITY
Preferred stock — no par value
Class A — 3,000,000 shares authorized and unissued
Class B — 4,000,000 shares authorized and unissued
Common Shares — par value $0.125 per share
Authorized — 224,000,000 shares;
Issued — 138,845,469 shares (2009 — 134,623,528 shares);
Outstanding — 135,456,999 shares (2009 — 130,971,470 shares)		17.3			16.8
Capital in excess of par value of shares		896.3			695.4
Retained Earnings		2,924.1			1,973.1
Cost of 3,388,470 common shares in treasury (2009 — 3,652,058 shares)		(37.7	)		(19.9	)
Accumulated other comprehensive income (loss)		45.9			(122.6	)

TOTAL CLIFFS SHAREHOLDERS’ EQUITY		3,845.9			2,542.8

NONCONTROLLING INTEREST		(7.2	)		(5.8	)

TOTAL EQUITY		3,838.7			2,537.0

TOTAL LIABILITIES AND EQUITY	$	7,778.2		$	4,639.3

See notes to consolidated financial statements.

Statements of Consolidated Operations

Cliffs Natural Resources Inc. and Subsidiaries


	(In Millions, Except Per Share Amounts)
	Year Ended December 31,
	2010			2009			2008
REVENUES FROM PRODUCT SALES AND SERVICES
Product	$	4,416.8		$	2,216.2		$	3,294.8
Freight and venture partners’ cost reimbursements		265.4			125.8			314.3

		4,682.2			2,342.0			3,609.1
COST OF GOODS SOLD AND OPERATING EXPENSES		(3,158.7	)		(2,033.1	)		(2,449.4	)

SALES MARGIN		1,523.5			308.9			1,159.7
OTHER OPERATING INCOME (EXPENSE)
Royalties and management fee revenue		12.1			4.8			21.7
Selling, general and administrative expenses		(238.0	)		(120.7	)		(188.6	)
Terminated acquisition costs		—			—			(90.1	)
Gain on sale of other assets — net		3.0			13.2			22.8
Casualty recoveries		3.3			—			10.5
Miscellaneous — net		(38.9	)		24.0			2.9

		(258.5	)		(78.7	)		(220.8	)

OPERATING INCOME		1,265.0			230.2			938.9
OTHER INCOME (EXPENSE)
Gain on acquisition of controlling interests		40.7			—			—
Changes in fair value of foreign currency contracts, net		39.8			85.7			(188.2	)
Interest income		9.9			10.8			26.2
Interest expense		(69.7	)		(39.0	)		(39.8	)
Impairment of securities		(1.2	)		—			(25.1	)
Other non-operating income		13.7			2.9			4.3

		33.2			60.4			(222.6	)

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY INCOME (LOSS) FROM VENTURES		1,298.2			290.6			716.3
INCOME TAX EXPENSE		(292.0	)		(20.8	)		(144.2	)
EQUITY INCOME (LOSS) FROM VENTURES		13.5			(65.5	)		(35.1	)

NET INCOME		1,019.7			204.3			537.0
LESS: NET INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTEREST (net of tax of $0.1, $0.3, and $9.1 in 2010, 2009 and 2008)		(0.2	)		(0.8	)		21.2
		(0.2	)		(0.8	)		21.2

NET INCOME ATTRIBUTABLE TO CLIFFS SHAREHOLDERS		1,019.9			205.1			515.8
PREFERRED STOCK DIVIDENDS		—			—			(1.1	)

INCOME ATTRIBUTABLE TO CLIFFS COMMON SHAREHOLDERS	$	1,019.9		$	205.1		$	514.7

EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CLIFFS SHAREHOLDERS — BASIC	$	7.54		$	1.64		$	5.07

EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CLIFFS SHAREHOLDERS — DILUTED	$	7.49		$	1.63		$	4.76

AVERAGE NUMBER OF SHARES (IN THOUSANDS)
Basic		135,301			124,998			101,471
Diluted		136,138			125,751			108,288
CASH DIVIDENDS DECLARED PER SHARE		0.51			0.26			0.35

See notes to consolidated financial statements.

Statements of Consolidated Cash Flows

Cliffs Natural Resources Inc. and Subsidiaries


	(In Millions)
	Year Ended December 31,
	2010			2009			2008
CASH FLOW FROM CONTINUING OPERATIONS
OPERATING ACTIVITIES
Net income	$	1,019.7		$	204.3		$	537.0
Adjustments to reconcile net income to net cash from operating activities:
Depreciation, depletion and amortization		322.3			236.6			201.1
Derivatives and currency hedges		(39.0	)		(204.5	)		58.4
Foreign exchange loss (gains)		39.1			(28.1	)		—
Share-based compensation		12.5			10.1			21.4
Equity (income) loss in ventures (net of tax)		(13.5	)		65.5			35.1
Pensions and other postretirement benefits		8.7			27.3			(32.9	)
Deferred income taxes		15.2			60.8			(88.5	)
Changes in deferred revenue and below-market sales contracts		39.3			(33.4	)		58.0
Impairment of securities		1.2			—			25.1
Gain on acquisition of controlling interests		(40.7	)		—			—
Other		8.9			4.6			(3.8	)
Changes in operating assets and liabilities:
Receivables and other assets		(204.6	)		(24.2	)		(55.4	)
Inventories		61.2			7.7			(44.6	)
Payables and accrued expenses		89.7			(141.0	)		142.3

Net cash from operating activities		1,320.0			185.7			853.2
INVESTING ACTIVITIES
Acquisition of controlling interests, net of cash acquired		(994.5	)		—			—
Purchase of noncontrolling interests		—			—			(589.5	)
Purchase of property, plant and equipment		(266.9	)		(116.3	)		(182.5	)
Investments in ventures		(191.3	)		(81.8	)		(62.7	)
Investment in marketable securities		(6.6	)		(14.9	)		(30.4	)
Redemption of marketable securities		32.5			5.4			17.8
Proceeds from sale of assets		59.1			28.3			41.2
Proceeds from property damage insurance recoveries		—			—			10.5

Net cash used by investing activities		(1,367.7	)		(179.3	)		(795.6	)
FINANCING ACTIVITIES
Net proceeds from issuance of common shares		—			347.3			—
Borrowings under credit facility		450.0			279.7			540.0
Repayments under credit facility		(450.0	)		(276.4	)		(780.0	)
Net proceeds from issuance of senior notes		1,388.1			—			325.0
Repayment of term loan		(200.0	)		—			—
Common stock dividends		(68.9	)		(31.9	)		(36.1	)
Repayment of other borrowings		(16.7	)		(9.7	)		(8.4	)
Contributions by (to) joint ventures, net		(1.4	)		(8.3	)		(10.5	)
Other financing activities		(13.5	)		3.6			2.4

Net cash from financing activities		1,087.6			304.3			32.4
EFFECT OF EXCHANGE RATE CHANGES ON CASH		24.1			13.0			(68.1	)

INCREASE IN CASH AND CASH EQUIVALENTS		1,064.0			323.7			21.9
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		502.7			179.0			157.1

CASH AND CASH EQUIVALENTS AT END OF YEAR	$	1,566.7		$	502.7		$	179.0

See notes to consolidated financial statements.

Statements of Consolidated Changes in Equity

Cliffs Natural Resources Inc. and Subsidiaries


	(In Millions)
	Cliffs Shareholders
	Number of Common Shares		Common Shares		Capital In Excess of Par Value of Shares			Retained Earnings			Common Shares in Treasury			Accumulated Other Compre- hensive Income (Loss)			Non- Controlling Interest			Total
January 1, 2008		87.2	$	16.8	$	116.6		$	1,316.2		$	(255.6	)	$	(30.3	)	$	117.8		$	1,281.5
Comprehensive income
Net income		—		—		—			515.8			—			—			21.2			537.0
Other comprehensive income
Pension and OPEB liability		—		—		—			—			—			(188.5	)		(8.0	)		(196.5	)
Unrealized net loss on marketable securities		—		—		—			—			—			(10.3	)		(1.4	)		(11.7	)
Unrealized net loss on foreign currency translation		—		—		—			—			—			(165.1	)		(13.7	)		(178.8	)
Unrealized loss on interest rate swap		—		—		—			—			—			(0.8	)		—			(0.8	)
Unrealized gain on derivative instruments		—		—		—			—			—			0.4			0.8			1.2

Total comprehensive income		—		—		—			—			—			—			(1.1	)		150.4
Equity purchase of noncontrolling interest		4.3		—		141.8			—			23.2			—			—			165.0
Purchase of subsidiary shares from noncontrolling interest		—		—		—			—			—			—			(111.2	)		(111.2	)
Undistributed losses to noncontrolling interest		—		—		—			—			—			—			(2.9	)		(2.9	)
Capital contribution by noncontrolling interest to subsidiary		—		—		—			—			—			—			0.7			0.7
PinnOak settlement		4.0		—		131.5			—			21.5			—			—			153.0
Stock and other incentive plans		—		—		19.2			—			0.8			—			—			20.0
Conversion of preferred stock		18.0		—		33.1			5.1			96.3			—			—			134.5
Preferred stock dividends		—		—		—			(1.1	)		—			—			—			(1.1	)
Common stock dividends		—		—		—			(36.1	)		—			—			—			(36.1	)

December 31, 2008		113.5		16.8		442.2			1,799.9			(113.8	)		(394.6	)		3.3			1,753.8
Comprehensive income
Net income		—		—		—			205.1			—			—			(0.8	)		204.3
Other comprehensive income
Pension and OPEB liability		—		—		—			—			—			24.2			(2.4	)		21.8
Unrealized net gain on marketable securities		—		—		—			—			—			29.5			—			29.5
Unrealized net gain on foreign currency translation		—		—		—			—			—			231.7			—			231.7
Unrealized gain on interest rate swap		—		—		—			—			—			1.7			—			1.7
Reclassification of net gains on derivative financial instruments into net income		—		—		—			—			—			(15.1	)		—			(15.1	)

Total comprehensive income		—		—		—			—			—			—			(3.2	)		473.9
Purchase of subsidiary shares from noncontrolling interest		—		—		—			—			—			—			0.1			0.1
Undistributed losses to noncontrolling interest		—		—		—			—			—			—			(6.7	)		(6.7	)
Capital contribution by noncontrolling interest to subsidiary		—		—		—			—			—			—			0.7			0.7
Issuance of common shares		17.3		—		254.5			—			92.8			—			—			347.3
Purchase of additional noncontrolling interest		—		—		(5.4	)		—			—			—			—			(5.4	)
Stock and other incentive plans		0.2		—		4.1			—			0.9			—			—			5.0
Conversion of preferred stock		—		—		—			—			0.2			—			—			0.2
Common stock dividends		—		—		—			(31.9	)		—			—			—			(31.9	)

December 31, 2009		131.0		16.8		695.4			1,973.1			(19.9	)		(122.6	)		(5.8	)		2,537.0

Cliffs Natural Resources Inc. and Subsidiaries — (Continued)

Cliffs Natural Resources Inc. and Subsidiaries


	(In Millions)
	Cliffs Shareholders
	Number of Common Shares		Common Shares		Capital In Excess of Par Value of Shares			Retained Earnings			Common Shares in Treasury			Accumulated Other Compre- hensive Income (Loss)			Non- Controlling Interest			Total
Comprehensive income
Net income		—		—		—			1,019.9			—			—			(0.2	)		1,019.7
Other comprehensive income
Pension and OPEB liability		—		—		—			—			—			14.0			0.8			14.8
Unrealized net gain on marketable securities		—		—		—			—			—			4.2			—			4.2
Unrealized net gain on foreign currency translation		—		—		—			—			—			151.6			—			151.6
Reclassification of net gains on derivative financial instruments into net income		—		—		—			—			—			(3.2	)		—			(3.2	)
Unrealized gain on derivative instruments		—		—		—			—			—			1.9			—			1.9

Total comprehensive income																		0.6			1,189.0
Purchase of subsidiary shares from noncontrolling interest		—		—		—			—			—			—			(0.5	)		(0.5	)
Undistributed losses to noncontrolling interest		—		—		—			—			—			—			(4.5	)		(4.5	)
Capital contribution by noncontrolling interest to subsidiary		—		—		—			—			—			—			3.0			3.0
Purchase of additional noncontrolling interest		—		—		(1.6	)		—			—			—			—			(1.6	)
Acquisition of controlling interest		4.2		0.5		172.6			—			—			—			—			173.1
Stock and other incentive plans		0.3		—		19.4			—			(7.3	)		—			—			12.1
Common stock dividends		—		—		—			(68.9	)		—			—			—			(68.9	)
Other		—		—		10.5			—			(10.5	)		—			—			—

December 31, 2010		135.5	$	17.3	$	896.3		$	2,924.1		$	(37.7	)	$	45.9		$	(7.2	)	$	3,838.7

See notes to consolidated financial statements.

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements

NOTE 1 — BUSINESS SUMMARY AND SIGNIFICANT ACCOUNTING POLICIES

Business Summary

We are an international mining and natural resources company, the largest producer of iron ore pellets in North America, a major supplier of direct-shipping lump and fines iron ore out of Australia, and a significant producer of metallurgical coal. In North America, we operate six iron ore mines in Michigan, Minnesota and Eastern Canada, five metallurgical coal mines located in West Virginia and Alabama and one thermal coal mine located in West Virginia. Our Asia Pacific operations are comprised of two iron ore mining complexes in Western Australia, serving the Asian iron ore markets with direct-shipping fines and lump ore, and a 45 percent economic interest in Sonoma, a coking and thermal coal mine located in Queensland, Australia. In Latin America, we have a 30 percent interest in Amapá, a Brazilian iron ore project, and in Ontario, Canada, we have recently acquired Ring of Fire properties. Our operations also include our 95 percent controlling interest in renewaFUEL located in Michigan. Our company’s operations are organized and managed according to product category and geographic location: North American Iron Ore; North American Coal; Asia Pacific Iron Ore; Asia Pacific Coal; Latin American Iron Ore; Alternative Energies; Ferroalloys; and our Global Exploration Group.

Accounting Policies

We consider the following policies to be beneficial in understanding the judgments that are involved in the preparation of our consolidated financial statements and the uncertainties that could impact our financial condition, results of operations and cash flows.

Use of Estimates

The preparation of financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from estimates. On an ongoing basis, management reviews estimates. Changes in facts and circumstances may alter such estimates and affect results of operations and financial position in future periods.

Basis of Consolidation

The consolidated financial statements include our accounts and the accounts of our wholly-owned and majority-owned subsidiaries, including the following subsidiaries:


Name	Location	Ownership Interest			Operation
Northshore	Minnesota		100.0	%		Iron Ore
United Taconite	Minnesota		100.0	%		Iron Ore
Wabush	Canada		100.0	%		Iron Ore
Tilden	Michigan		85.0	%		Iron Ore
Empire	Michigan		79.0	%		Iron Ore
Asia Pacific Iron Ore	Western Australia		100.0	%		Iron Ore
Pinnacle	West Virginia		100.0	%		Coal
Oak Grove	Alabama		100.0	%		Coal
CLCC	West Virginia		100.0	%		Coal
renewaFUEL	Michigan		95.0	%		Biomass
Freewest	Canada		100.0	%		Chromite
Spider	Canada		100.0	%		Chromite

Intercompany transactions and balances are eliminated upon consolidation.

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

On January 27, 2010, we acquired all of the outstanding shares of Freewest, a Canadian-based mineral exploration company, for C$1.00 per share, thereby increasing our ownership interest in Freewest to 100 percent. The consolidated financial statements as of and for the period ended December 31, 2010 reflect the acquisition of the remaining interest in Freewest since that date. At December 31, 2009, our ownership in Freewest represented approximately 12.4 percent of its outstanding shares; we did not exercise significant influence, and the investment was classified as an available-for-sale security. Refer to NOTE 5 – ACQUISITIONS AND OTHER INVESTMENTS for further information.

On February 1, 2010, we acquired the remaining 73.2 percent interest in Wabush, thereby increasing our ownership interest to 100 percent. The consolidated financial statements as of and for the period ended December 31, 2010 reflect the acquisition of the remaining interest in Wabush since that date. At December 31, 2009, our 26.8 percent ownership interest in Wabush was accounted for as an equity method investment. Refer to NOTE 5 – ACQUISITIONS AND OTHER INVESTMENTS for further information.

During the second quarter of 2010, we commenced a formal cash offer to acquire all of the outstanding common shares of Spider, a Canadian-based mineral exploration company, for C$0.19 per share. On July 6, 2010, all of the conditions to acquire the remaining common shares of Spider had been satisfied or waived and we increased our ownership percentage to 52 percent, representing a majority of the common shares outstanding on a fully-diluted basis. Subsequently, we extended the cash offer to permit additional shares to be tendered and taken up, thereby increasing our ownership percentage in Spider to 85 percent as of July 26, 2010. Effective October 6, 2010, we completed the acquisition of all of the remaining shares of Spider through an amalgamation. Consequently, we own 100 percent of Spider as of December 31, 2010 and have obtained majority ownership of the “Big Daddy” chromite deposit located in Northern Ontario. The consolidated financial statements as of and for the period ended December 31, 2010 reflect our 100 percent ownership interest in Spider. Prior to the acquisition date, our ownership in Spider represented approximately four percent of its issued and outstanding shares; we did not exercise significant influence, and the investment was classified as an available-for-sale security. Refer to NOTE 5 – ACQUISITIONS AND OTHER INVESTMENTS for further information.

On July 30, 2010, we acquired all of the coal operations of privately-owned INR, and since that date, the operations acquired from INR have been conducted through our wholly-owned subsidiary known as CLCC. CLCC is a producer of high-volatile metallurgical and thermal coal located in southern West Virginia. The consolidated financial statements as of and for the period ended December 31, 2010 reflect our 100 percent ownership interest in CLCC since the date of acquisition. Refer to NOTE 5 – ACQUISITIONS AND OTHER INVESTMENTS for further information.

In January 2009, we adopted the amended provisions of FASB ASC 810 related to noncontrolling interests in consolidated financial statements, which established accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The amendment clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. Our noncontrolling interests primarily relate to majority-owned subsidiaries within our North American Iron Ore business segment. The mining ventures function as captive cost companies, as they supply products only to their owners effectively on a cost basis. Accordingly, the noncontrolling interests’ revenue amounts are stated at cost of production and are offset entirely by an equal amount included in cost of goods sold and operating expenses, resulting in no sales margin reflected in noncontrolling interest participants. As a result, the adoption of the amendments to FASB ASC 810 did not have a material impact on our consolidated results of operations with respect to these subsidiaries.

Cash Equivalents

Cash and cash equivalents include cash on hand and in the bank as well as all short-term securities held for the primary purpose of general liquidity. We consider investments in highly liquid debt instruments with an

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

original maturity of three months or less from the date of acquisition to be cash equivalents. We routinely monitor and evaluate counterparty credit risk related to the financial institutions by which our short-term investment securities are held.

Inventories

The following table presents the detail of our Inventories on the Statements of Consolidated Financial Position at December 31, 2010 and 2009:


	(In Millions)
	2010						2009
Segment	Finished Goods		Work-in Process		Total Inventory		Finished Goods		Work-In Process		Total Inventory
North American Iron Ore	$	144.6	$	30.9	$	175.5	$	172.7	$	18.4	$	191.1
North American Coal		16.1		19.8		35.9		14.9		1.4		16.3
Asia Pacific Iron Ore		34.7		20.4		55.1		28.6		31.7		60.3
Other		2.6		0.1		2.7		1.6		3.2		4.8

Total	$	198.0	$	71.2	$	269.2	$	217.8	$	54.7	$	272.5

North American Iron Ore

North American Iron Ore product inventories are stated at the lower of cost or market. Cost of iron ore inventories is determined using the LIFO method. The excess of current cost over LIFO cost of iron ore inventories was $112.4 million and $81.4 million at December 31, 2010 and 2009, respectively. As of December 31, 2010, the product inventory balance for North American Iron Ore declined to $144.6 million, resulting in liquidation of LIFO layers in 2010. The effect of the inventory reduction was a decrease in Cost of good sold and operating expenses of $4.6 million in the Statements of Consolidated Operations for the year ended December 31, 2010. As of December 31, 2009, the product inventory balance for North American Iron Ore increased to $172.7 million, resulting in an additional LIFO layer being added during the year.

We had approximately 0.8 million tons and 1.2 million tons of finished goods stored at ports and customer facilities on the lower Great Lakes to service customers at December 31, 2010 and 2009, respectively. We maintain ownership of the inventories until title has transferred to the customer, usually when payment is made. Maintaining ownership of the iron ore products at ports on the lower Great Lakes reduces risk of non-payment by customers, as we retain title to the product until payment is received from the customer. We track the movement of the inventory and verify the quantities on hand.

North American Coal

North American Coal product inventories are stated at the lower of cost or market. Cost of coal inventories includes labor, supplies and operating overhead and related costs and is calculated using the average production cost. We maintain ownership until coal is loaded into rail cars at the mine for domestic sales and until loaded in the vessels at the terminal for export sales. We recorded lower-of-cost-or-market inventory charges of $26.1 million in Cost of good sold and operating expenses on the Statements of Consolidated Operations for the year ended December 31, 2010. These charges were a result of operational and geological issues at our Pinnacle and Oak Grove mines during the year.

Asia Pacific Iron Ore

Asia Pacific Iron Ore product inventories are stated at the lower of cost or market. Costs, including an appropriate portion of fixed and variable overhead expenses, are assigned to the inventory on hand by the method most appropriate to each particular class of inventory, with the majority being valued on a weighted average basis. We maintain ownership of the inventories until title has transferred to the customer at the F.O.B. point, which is generally when the product is loaded into the vessel.

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Derivative Financial Instruments

We are exposed to certain risks related to the ongoing operations of our business, including those caused by changes in commodity prices, interest rates and foreign currency exchange rates. We have established policies and procedures, including the use of certain derivative instruments, to manage such risks. Refer to NOTE 3 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES for further information.

Property, Plant and Equipment

North American Iron Ore

North American Iron Ore properties are stated at cost. Depreciation of plant and equipment is computed principally by the straight-line method based on estimated useful lives, not to exceed the estimated economic iron ore reserves. Northshore, United Taconite and our mines in Michigan use the double declining balance method of depreciation for certain mining equipment. Depreciation is provided over the following estimated useful lives:


Asset Class	Basis	Life
Buildings	Straight line	45 Years
Mining equipment	Straight line	10 to 20 Years
Processing equipment	Straight line	15 to 45 Years
Information technology	Straight line	2 to 7 Years

Depreciation is not curtailed when operations are temporarily idled.

North American Coal

North American Coal properties are stated at cost. Depreciation is provided over the estimated useful lives, not to exceed the mine lives and is calculated by the straight-line method. Depreciation is provided over the following estimated useful lives:


Asset Class	Basis	Life
Buildings	Straight line	30 Years
Mining equipment	Straight line	2 to 22 Years
Processing equipment	Straight line	2 to 30 Years
Information technology	Straight line	2 to 3 Years

Asia Pacific Iron Ore

Our Asia Pacific Iron Ore properties are stated at cost. Depreciation is calculated by the straight-line method or production output basis provided over the following estimated useful lives:


Asset Class	Basis	Life
Plant and equipment	Straight line	5 -10 Years
Plant and equipment and mine assets	Production output	10 Years
Motor vehicles, furniture & equipment	Straight line	3 - 5 Years

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

The following table indicates the value of each of the major classes of our consolidated depreciable assets as of December 31, 2010 and 2009:


	(In Millions)
	December 31,
	2010			2009
Land rights and mineral rights	$	3,019.9		$	1,877.3
Office and information technology		60.4			53.7
Buildings		107.6			77.3
Mining equipment		628.5			381.0
Processing equipment		658.8			499.5
Railroad equipment		122.9			92.2
Electric power facilities		54.4			60.0
Port facilities		64.0			52.5
Interest capitalized during construction		19.4			18.9
Land improvements		25.0			22.4
Other		36.0			41.6
Construction in progress		140.0			81.7

		4,936.9			3,258.1
Allowance for depreciation and depletion		(957.7	)		(665.5	)

	$	3,979.2		$	2,592.6

We recorded depreciation expense of $165.4 million, $120.6 million, and $113.5 million on the Statements of Consolidated Operations for the years ended December 31, 2010, 2009, and 2008, respectively.

The costs capitalized and classified as Land rights and mineral rights represent lands where we own the surface and/or mineral rights. The value of the land rights is split between surface only, surface and minerals, and minerals only.

Our North American Coal operation leases coal mining rights from third parties through lease agreements. The lease agreements are for varying terms and extend through the earlier of their lease termination date or until all merchantable and mineable coal has been extracted. Our interest in coal reserves and resources was valued using a discounted cash flow method. The fair value was estimated based upon the present value of the expected future cash flows from coal operations over the life of the reserves.

Our Asia Pacific Iron Ore, Wabush, and United Taconite operation’s interest in iron ore reserves and resources was valued using a discounted cash flow method. The fair value was estimated based upon the present value of the expected future cash flows from iron ore operations over the economic lives of the mines.

The net book value of the land rights and mineral rights as of December 31, 2010 and 2009 is as follows:


	(In Millions)
	December 31,
	2010		2009
Land rights	$	36.8	$	29.0

Mineral rights:
Cost	$	2,983.1	$	1,848.3
Less depletion		376.4		243.8

Net mineral rights	$	2,606.7	$	1,604.5

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Accumulated depletion relating to mineral rights, which was recorded using the unit-of-production method, is included in Allowances for depreciation and depletion. We recorded depletion expense of $95.5 million, $68.1 million and $66.6 million on the Statements of Consolidated Operations for the years ended December 31, 2010, 2009 and 2008, respectively.

We review iron ore and coal reserves based on current expectations of revenues and costs, which are subject to change. Iron ore and coal reserves include only proven and probable quantities which can be economically and legally mined and processed utilizing existing technology.

Capitalized Stripping Costs

Stripping costs during the development of a mine, before production begins, are capitalized as a part of the depreciable cost of building, developing and constructing a mine. These capitalized costs are amortized over the productive life of the mine using the units of production method. The productive phase of a mine is deemed to have begun when saleable minerals are extracted (produced) from an ore body, regardless of the level of production. The production phase does not commence with the removal of de minimis saleable mineral material that occurs in conjunction with the removal of overburden or waste material for purposes of obtaining access to an ore body. The stripping costs incurred in the production phase of a mine are variable production costs included in the costs of the inventory produced (extracted) during the period that the stripping costs are incurred.

Stripping costs related to expansion of a mining asset of proven and probable reserves are variable production costs that are included in the costs of the inventory produced during the period that the stripping costs are incurred.

Marketable Securities

Our marketable securities consist of debt and equity instruments and are classified as either held-to-maturity or available-for-sale. Securities investments that we have the intent and ability to hold to maturity are classified as held-to-maturity and recorded at amortized cost. Investments in marketable equity securities that are being held for an indefinite period are classified as available-for-sale. We determine the appropriate classification of debt and equity securities at the time of purchase and re-evaluate such designation as of each balance sheet date. In addition, we review our investments on an ongoing basis for indications of possible impairment. Once identified, the determination of whether the impairment is temporary or other-than-temporary requires significant judgment. The primary factors that we consider in classifying the impairment include the extent and time the fair value of each investment has been below cost, and the existence of a credit loss in relation to our debt securities. If a decline in fair value is judged other than temporary, the basis of the individual security is written down to fair value as a new cost basis, and the amount of the write-down is included as a realized loss. For our held-to-maturity debt securities, if the fair value is less than cost, and we do not expect to recover the entire amortized cost basis of the security, the other-than-temporary impairment is separated into the amount representing the credit loss, which is recognized in earnings, and the amount representing all other factors, which is recognized in Accumulated other comprehensive income (loss). Refer to NOTE 4 — MARKETABLE SECURITIES for additional information.

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Investments in Ventures

The following table presents the detail of our investments in unconsolidated ventures and where those investments are classified on the Statements of Consolidated Financial Position. Parentheses indicate a net liability.


					(In Millions)
Investment	Classification		Interest Percentage		December 31, 2010			December 31, 2009
Amapá		Investments in ventures		30	$	461.3		$	272.4
AusQuest		Investments in ventures		30		24.1			22.7
Cockatoo		Investments in ventures		50		10.5			9.1
Wabush (1)		Other liabilities		100		—			(11.4	)
Hibbing		Other liabilities		23		(5.8	)		(11.6	)
Other		Investments in ventures				18.9			10.9

					$	509.0		$	292.1

(1)

On February 1, 2010, we acquired U.S. Steel Canada’s 44.6 percent interest and ArcelorMittal Dofasco’s 28.6 percent interest in Wabush, thereby increasing our ownership interest in Wabush from 26.8 percent as of December 31, 2009 to 100 percent as of December 31, 2010. Refer to NOTE 5 — ACQUISITIONS & OTHER INVESTMENTS for further information.

Amapá

Our 30 percent ownership interest in Amapá, in which we do not have control but have the ability to exercise significant influence over operating and financial policies, is accounted for under the equity method. Accordingly, our share of the results from Amapá is reflected as Equity income (loss) from ventures on the Statements of Consolidated Operations. The financial information of Amapá included in our financial statements is for the periods ended November 30, 2010, 2009 and 2008 and as of November 30, 2010 and 2009. The earlier cut-off is to allow for sufficient time needed by Amapá to properly close and prepare complete financial information, including consolidating and eliminating entries, conversion to U.S. GAAP and review by the Company. There were no intervening transactions or events that materially affected Amapá’s financial position or results of operations that were not reflected in our year-end financial statements.

AusQuest

On September 11, 2008, we announced a strategic alliance and subscription and option agreement with AusQuest, a diversified Australian exploration company. Under the agreement, we acquired a 30 percent fully diluted interest in AusQuest through a staged issuance of shares and options. Our 30 percent ownership interest in AusQuest, in which we do not have control but have the ability to exercise significant influence over operating and financial policies, is accounted for under the equity method. Accordingly, our share of the results from AusQuest is reflected as Equity income (loss) from ventures on the Statements of Consolidated Operations. The financial information of AusQuest included in our financial statements is for the periods ended November 30, 2010, 2009 and 2008 and as of November 30, 2010 and 2009 since the date of acquisition. The earlier cut-off is to allow for sufficient time needed by AusQuest to properly close and prepare complete financial information, including consolidating and eliminating entries, conversion to U.S. GAAP and review and approval by the Company. There were no intervening transactions or events that materially affected AusQuest’s financial position or results of operations that were not reflected in our year-end financial statements.

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Hibbing and Cockatoo Island

Investments in certain joint ventures (Cockatoo Island and Hibbing) in which our ownership is 50 percent or less, or in which we do not have control but have the ability to exercise significant influence over operating and financial policies, are accounted for under the equity method. Our share of equity income (loss) is eliminated against consolidated product inventory upon production, and against cost of goods sold and operating expenses when sold. This effectively reduces our cost for our share of the mining venture’s production to its cost, reflecting the cost-based nature of our participation in unconsolidated ventures.

Sonoma

Through various interrelated arrangements, we achieve a 45 percent economic interest in the collective operations of Sonoma, despite the ownership percentages of the individual components of Sonoma. We own 100 percent of CAWO, 8.33 percent of the exploration permits and applications for mining leases for the real estate that is involved in Sonoma (“Mining Assets”) and 45 percent of the infrastructure, including the construction of a rail loop and related equipment (“Non-Mining Assets”). The following substantive legal entities exist within the Sonoma structure:

•

CAC, a wholly owned Cliffs subsidiary, is the conduit for Cliffs’ investment in Sonoma.

•

CAWO, a wholly owned subsidiary of CAC, owns a facility that prepares the extracted coal for sale (the “Washplant”) and receives 40 percent of Sonoma coal production in exchange for providing coal washing services to the remaining Sonoma participants.

•

SMM is the appointed operator of the mine assets, non-mine assets, and the Washplant. We own a 45 percent interest in SMM.

•

Sonoma Sales, a wholly owned subsidiary of QCoal, is the sales agent for the participants of the coal extracted and processed in the Sonoma Project.

The objective of Sonoma is to mine and process coking and thermal coal for the benefit of the participants. Pursuant to the terms of the agreements that comprise the Sonoma Project, at the time of investment in 2007, Cliffs through CAC paid $34.9 million for an 8.33 percent undivided interest in the Mining Assets and a 45 percent undivided interest in the Non-Mining Assets and other expenditures, and paid $85.2 million to construct the Washplant. In 2010, 2009 and 2008, we invested an additional $3.3 million, $8.6 million and $12.8 million, respectively, in the project, for a total investment of approximately $144.8 million.

While the individual components of our investment are disproportionate to the overall economics of the investment, the total investment is the same as if we had acquired a 45 percent interest in the Mining Assets and had committed to funding 45 percent of the cost of developing the Non-Mining Assets and the Washplant. In particular, the terms of the interrelated agreements under which we obtain our 45 percent interest provide that, we, through a wholly owned subsidiary, constructed and hold title to the Washplant. We wash all of the coal produced by the Sonoma Project for a fee based upon a cost to wash plus an arrangement such that we only bear 45 percent of the cost of owning and operating the Washplant. In addition, we have committed to purchasing certain amounts of coal from the other participants such that we take title to 45 percent of the coal mined. In addition, several agreements were entered into which provide for the allocation of mine and Washplant reclamation obligations such that we are responsible for 45 percent of the reclamation costs. Lastly, management agreements were entered into that allocate the costs of operating the mine to each participant based upon their respective ownership interests in SMM, 45 percent in our case. Once the coal is washed, each participant then engages Sonoma Sales to sell their coal to third parties for which Sonoma Sales earns a fee under an agreement with fixed and variable elements.

The legal entities were each evaluated under the guidelines for consolidation of a VIE as follows:

CAWO — CAC owns 100 percent of the legal equity in CAWO; however, CAC is limited in its ability to make significant decisions about CAWO because the significant decisions are made by, or subject to approval of,

100

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

the Operating Committee of the Sonoma Project, of which CAC is only entitled to 45 percent of the vote. As a result, we determined that CAWO is a VIE and that CAC should consolidate CAWO as the primary beneficiary because it absorbs greater than 50 percent of the residual returns and expected losses.

Sonoma Sales — We, including our related parties, do not have voting rights with respect to Sonoma Sales and are not party to any contracts that represent significant variable interests in Sonoma Sales. Therefore, even if Sonoma Sales were a VIE, it has been determined that we are not the primary beneficiary and therefore would not consolidate Sonoma Sales.

SMM — SMM does not have sufficient equity at risk and is therefore a VIE. Through CAC, we have a 45 percent voting interest in SMM and a contractual requirement to reimburse SMM for 45 percent of the costs that it incurs in connection with managing the Sonoma Project. However, we, along with our related parties, do not have any contracts that would cause us to absorb greater than 50 percent of SMM’s expected losses, and therefore, we are not considered to be the primary beneficiary of SMM. Thus, we account for our investment in SMM in accordance with the equity method rather than consolidate the entity. The effect of SMM on our financial statements is determined to be minimal.

Mining and Non-Mining Assets — Since we have an undivided interest in these assets and Sonoma is in an extractive industry, we have pro rata consolidated our share of these assets and costs.

Goodwill

Goodwill represents the excess purchase price paid over the fair value of the net assets of acquired companies. We had goodwill of $196.5 million and $74.6 million recorded on the Statements of Consolidated Financial Position at December 31, 2010 and 2009, respectively. In accordance with the provisions of ASC 350, we compare the fair value of the respective reporting unit to its carrying value on an annual basis to determine if there is potential goodwill impairment. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the fair value of the goodwill within the reporting unit is less than the carrying value of its goodwill.

We evaluate goodwill for impairment in the fourth quarter of each year or as circumstances occur that potentially indicate that the carrying amount of these assets may not be recoverable. Based on the assessment performed, we concluded that there were no such events or changes in circumstances during 2010. We determined that the fair value of the reporting units was in excess of our carrying value as of December 31, 2010, and that we did not have any reporting units that were at risk of failing the first step of the goodwill impairment test. Consequently, no goodwill impairment charges were recorded in 2010. Refer to NOTE 6 — GOODWILL AND OTHER INTANGIBLE ASSETS AND LIABILITIES for further information.

Asset Impairment

Long-Lived Assets and Intangible Assets

We monitor conditions that may affect the carrying value of our long-lived and intangible assets when events and circumstances indicate that the carrying value of the asset groups may not be recoverable. In order to determine if assets have been impaired, assets are grouped and tested at the lowest level for which identifiable, independent cash flows are available. An impairment loss exists when projected undiscounted cash flows are less than the carrying value of the assets. The measurement of the impairment loss to be recognized is based on the difference between the fair value and the carrying value of the assets. Fair value can be determined using a market approach, income approach or cost approach. We did not record any such impairment charges in 2010, 2009 or 2008.

Equity Investments

We evaluate the loss in value of our equity method investments each reporting period to determine whether the loss is other than temporary. The primary factors that we consider in evaluating the impairment include the

101

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

extent and time the fair value of each investment has been below cost, the financial condition and near-term prospects of the investment, and our intent and ability to hold the investment to recovery. If a decline in fair value is judged other than temporary, the basis of the investment is written down to fair value as a new cost basis, and the amount of the write-down is included as a realized loss.

Our investment in Amapá resulted in equity income of $17.2 million in 2010 compared with an equity loss of $62.2 million in 2009. The investment’s equity income in 2010 was a result of nearly break-even operating results during the year combined with the reversal of the debt guarantee, upon repayment of total project debt outstanding, and the reversal of certain accruals. The equity losses in 2009 resulted from start-up costs and production delays resulting in the determination that indicators of impairment may exist relative to our investment in Amapá. Although Amapá’s results improved throughout 2010, we continued to perform a quarterly assessment of the potential impairment of our investment, most recently in the fourth quarter of 2010, using a discounted cash flow model to determine the fair value of our investment in relation to its carrying value at each reporting period. Based upon the analyses performed, we have determined that our investment is not impaired as of December 31, 2010. In assessing the recoverability of our investment in Amapá, significant assumptions regarding the estimated future cash flows and other factors to determine the fair value of the investment must be made, including among other things, estimates related to pricing, volume and resources. If these estimates or their related assumptions change in the future as a result of changes in strategy or market conditions, we may be required to record impairment charges for our investment in the period such determination is made. We will continue to evaluate the results of our investment on a quarterly basis.

Fair Value Measurements

Valuation Hierarchy

ASC 820 establishes a three-level valuation hierarchy for classification of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Inputs refer broadly to the assumptions that market participants would use in pricing an asset or liability. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs are inputs that reflect our own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The three-tier hierarchy of inputs is summarized below:

•

Level 1 — Valuation is based upon quoted prices (unadjusted) for identical assets or liabilities in active markets.

•

Level 2 — Valuation is based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

•

Level 3 — Valuation is based upon other unobservable inputs that are significant to the fair value measurement.

The classification of assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement in its entirety. Valuation methodologies used for assets and liabilities measured at fair value are as follows:

Cash Equivalents

Where quoted prices are available in an active market, cash equivalents are classified within Level 1 of the valuation hierarchy. Cash equivalents classified in Level 1 at December 31, 2010 and 2009 include money market funds. The valuation of these instruments is determined using a market approach and is based upon unadjusted quoted prices for identical assets in active markets. If quoted market prices are not available, then fair

102

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. In these instances, the valuation is based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for substantially the full term of the financial instrument, and the related financial instrument is therefore classified within Level 2 of the valuation hierarchy. Level 2 securities include short-term investments for which the value of each investment is a function of the purchase price, purchase yield, and maturity date.

Marketable Securities

Where quoted prices are available in an active market, marketable securities are classified within Level 1 of the valuation hierarchy. Marketable securities classified in Level 1 at December 31, 2010 and 2009 include available-for-sale securities. The valuation of these instruments is determined using a market approach and is based upon unadjusted quoted prices for identical assets in active markets.

Derivative Financial Instruments

Derivative financial instruments valued using financial models that use as their basis readily observable market parameters are classified within Level 2 of the valuation hierarchy. Such derivative financial instruments include substantially all of our foreign currency exchange contracts and derivative financial instruments that are valued based upon published pricing settlements realized by other companies in the industry. Derivative financial instruments that are valued based upon models with significant unobservable market parameters, and that are normally traded less actively, are classified within Level 3 of the valuation hierarchy.

Non-Financial Assets and Liabilities

We adopted the provisions of ASC 820 effective January 1, 2009 with respect to our non-financial assets and liabilities. The initial measurement provisions of ASC 820 have been applied to our asset retirement obligations, guarantees, assets and liabilities acquired through business combinations, and certain other items, and are reflected as such in our consolidated financial statements. Effective January 1, 2009, we also adopted the fair value provision with respect to our pension and other postretirement benefit plan assets. No transition adjustment was necessary upon adoption.

In January 2010, we adopted the amended guidance on fair value to add new disclosures about transfers into and out of Levels 1 and 2. Our policy is to recognize any transfers between levels as of the beginning of the reporting period, including both transfers into and out of levels.

Refer to NOTE 7 — FAIR VALUE OF FINANCIAL INSTRUMENTS and NOTE 11 — PENSIONS AND OTHER POSTRETIREMENT BENEFITS for further information.

Pensions and Other Postretirement Benefits

We offer defined benefit pension plans, defined contribution pension plans and other postretirement benefit plans, primarily consisting of retiree healthcare benefits, to most employees in North America as part of a total compensation and benefits program. This includes employees of PinnOak and CLCC, who became employees of the Company through the July 2007 and July 2010 acquisitions, respectively. Upon the acquisition of the remaining 73.2 percent interest in Wabush in February 2010, we fully consolidated the related Canadian plans into our pension and OPEB obligations. We do not have employee retirement benefit obligations at our Asia Pacific Iron Ore operations.

We recognize the funded status of our postretirement benefit obligations on our December 31, 2010 and 2009 Statements of Consolidated Financial Position based on the market value of plan assets and the actuarial present value of our retirement obligations on that date. For each plan, we determine if the plan assets exceed the benefit obligations or vice-versa. If the plan assets exceed the retirement obligations, the amount of the surplus is

103

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

recorded as an asset; if the retirement obligations exceed the plan assets, the amount of the underfunded obligations are recorded as a liability. Year-end balance sheet adjustments to postretirement assets and obligations are charged to Accumulated other comprehensive income (loss).

The market value of plan assets is measured at the year-end balance sheet date. The PBO is determined based upon an actuarial estimate of the present value of pension benefits to be paid to current employees and retirees. The APBO represents an actuarial estimate of the present value of OPEB benefits to be paid to current employees and retirees.

The actuarial estimates of the PBO and APBO retirement obligations incorporate various assumptions including the discount rates, the rates of increases in compensation, healthcare cost trend rates, mortality, retirement timing and employee turnover. For the U.S. plans, the discount rate is determined based on the prevailing year-end rates for high-grade corporate bonds with a duration matching the expected cash flow timing of the benefit payments from the various plans. For the Canadian plans, the discount rate is determined by calculating the single level discount rate that, when applied to a particular cash flow pattern, produces the same present value as discounting the cash flow pattern using spot rates generated from a high-quality corporate bond yield curve. The remaining assumptions are based on our estimates of future events incorporating historical trends and future expectations. The amount of net periodic cost that is recorded in the Consolidated Statements of Operations consists of several components including service cost, interest cost, expected return on plan assets, and amortization of previously unrecognized amounts. Service cost represents the value of the benefits earned in the current year by the participants. Interest cost represents the cost associated with the passage of time. In addition, the net periodic cost is affected by the anticipated income from the return on invested assets, as well as the income or expense resulting from the recognition of previously deferred items. Certain items, such as plan amendments, gains and/or losses resulting from differences between actual and assumed results for demographic and economic factors affecting the obligations and assets of the plans, and changes in plan assumptions are subject to deferred recognition for income and expense purposes. The expected return on plan assets is determined utilizing the weighted average of expected returns for plan asset investments in various asset categories based on historical performance, adjusted for current trends. See NOTE 11 — PENSIONS AND OTHER POSTRETIREMENT BENEFITS for further information.

Asset Retirement Obligations

Asset retirement obligations are recognized when incurred and recorded as liabilities at fair value. The fair value of the liability is determined as the discounted value of the expected future cash flow. The asset retirement obligation is accreted over time through periodic charges to earnings. In addition, the asset retirement cost is capitalized as part of the asset’s carrying value and amortized over the life of the related asset. Reclamation costs are periodically adjusted to reflect changes in the estimated present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation costs. We review, on an annual basis, unless otherwise deemed necessary, the asset retirement obligation at each mine site in accordance with the provisions of ASC 410. We perform an in-depth evaluation of the liability every three years in addition to routine annual assessments.

Future remediation costs for inactive mines are accrued based on management’s best estimate at the end of each period of the costs expected to be incurred at a site. Such cost estimates include, where applicable, ongoing maintenance and monitoring costs. Changes in estimates at inactive mines are reflected in earnings in the period an estimate is revised. See NOTE 10 — ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS for further information.

Environmental Remediation Costs

We have a formal policy for environmental protection and restoration. Our mining and exploration activities are subject to various laws and regulations governing protection of the environment. We conduct our operations to protect the public health and environment and believe our operations are in compliance with applicable laws

104

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

and regulations in all material respects. Our environmental liabilities, including obligations for known environmental remediation exposures at active and closed mining operations and other sites, have been recognized based on the estimated cost of investigation and remediation at each site. If the cost can only be estimated as a range of possible amounts with no specific amount being more likely, the minimum of the range is accrued. Future expenditures are not discounted unless the amount and timing of the cash disbursements can be reasonably estimated. It is possible that additional environmental obligations could be incurred, the extent of which cannot be assessed. Potential insurance recoveries have not been reflected in the determination of the liabilities. See NOTE 10 — ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS for further information.

Revenue Recognition and Cost of Goods Sold and Operating Expenses

North American Iron Ore

Revenue is recognized on the sale of products when title to the product has transferred to the customer in accordance with the specified provisions of each term supply agreement and all applicable criteria for revenue recognition have been satisfied. Most of our North American Iron Ore term supply agreements provide that title and risk of loss transfer to the customer when payment is received.

We recognize revenue based on the gross amount billed to a customer as we earn revenue from the sale of the goods or services. Revenue from product sales also includes reimbursement for freight charges paid on behalf of customers in Freight and Venture Partners’ Cost Reimbursements separate from product revenue.

Costs of goods sold and operating expenses represents all direct and indirect costs and expenses applicable to the sales and revenues of our mining operations. Operating expenses within this line item primarily represent the portion of the mining venture costs for which we do not own; that is, the costs attributable to the share of the mine’s production owned by the other joint venture partners. The mining ventures function as captive cost companies; they supply product only to their owners effectively on a cost basis. Accordingly, the noncontrolling interests’ revenue amounts are stated at cost of production and are offset in entirety by an equal amount included in cost of goods sold and operating expenses resulting in no sales margin reflected in noncontrolling interest participants. As we are responsible for product fulfillment, we retain the risks and rewards of a principal in the transaction and accordingly record revenue under these arrangements on a gross basis.

The following table is a summary of reimbursements in our North American Iron Ore operations for the years ended December 31, 2010, 2009 and 2008:


	(In Millions)
	Year Ended December 31,
	2010		2009		2008
Reimbursements for:
Freight	$	83.6	$	22.4	$	98.5
Venture partners’ cost		139.8		71.3		170.8

Total reimbursements	$	223.4	$	93.7	$	269.3

Under certain term supply agreements, we ship the product to ports on the lower Great Lakes or to the customer’s facilities prior to the transfer of title. Our rationale for shipping iron ore products to certain customers and retaining title until payment is received for these products is to minimize credit risk exposure. In addition, certain supply agreements with one customer include provisions for supplemental revenue or refunds based on the customer’s annual steel pricing for the year the product is consumed in the customer’s blast furnaces. We account for this provision as a derivative instrument at the time of sale and record this provision at fair value until the year the product is consumed and the amounts are settled as an adjustment to revenue.

105

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Where we are joint venture participants in the ownership of a mine, our contracts entitle us to receive royalties and/or management fees, which we earn as the pellets are produced. Revenue is recognized on the sale of services when the services are performed.

North American Coal

We recognize revenue when title passes to the customer. For domestic coal sales, this generally occurs when coal is loaded into rail cars at the mine. For export coal sales, this generally occurs when coal is loaded into the vessels at the terminal. Revenue from product sales in 2010, 2009 and 2008 included reimbursement for freight charges paid on behalf of customers of $42.0 million, $32.1 million and $45.0 million, respectively.

Asia Pacific Iron Ore

Sales revenue is recognized at the F.O.B. point, which is generally when the product is loaded into the vessel.

Deferred Revenue

The terms of one of our North American Iron Ore pellet supply agreements require supplemental payments to be paid by the customer during the period 2009 through 2013, with the option to defer a portion of the 2009 monthly amount in exchange for interest payments until the deferred amount is repaid in 2013. Installment amounts received under this arrangement in excess of sales are classified as Deferred revenue on the Statement of Consolidated Financial Position upon receipt of payment. Revenue is recognized over the life of the supply agreement upon shipment of the pellets. As of December 31, 2010 and 2009, installment amounts received in excess of sales totaled $58.1 million and $23.2 million, respectively, which were recorded as Deferred revenue on the Statement of Consolidated Financial Position.

In 2010 and 2009, certain customers purchased and paid for 2.4 million tons and 0.9 million tons of pellets, respectively, in order to meet minimum contractual purchase requirements for each year under the terms of take-or-pay contracts. The inventory was stored at our facilities in upper lakes stockpiles. At the request of the customers, the ore was not shipped. We considered whether revenue should be recognized on these sales under the “bill and hold” guidance provided by the SEC Staff; however, based upon the assessment performed, revenue recognition on these transactions totaling $155.3 million and $81.9 million, respectively, was deferred on the December 31, 2010 and 2009 Statements of Consolidated Financial Position. As of December 31, 2010, all of the 0.9 million tons that were deferred at the end of 2009 were delivered, resulting in the related revenue being recognized in 2010 upon shipment.

Repairs and Maintenance

Repairs, maintenance and replacement of components are expensed as incurred. The cost of major power plant overhauls is capitalized and depreciated over the estimated useful life, which is the period until the next scheduled overhaul, generally five years. All other planned and unplanned repairs and maintenance costs are expensed when incurred.

Share-Based Compensation

We adopted the fair value recognition provisions of ASC 718 effective January 1, 2006 using the modified prospective transition method. Under restricted stock plans awarded prior to January 1, 2006, we continued to recognize compensation cost for awards to retiree-eligible employees without substantive forfeiture risk over the nominal vesting period. This recognition method differs from the requirements for immediate recognition for awards granted with similar provisions after the January 1, 2006 adoption.

106

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

The fair value of each grant is estimated on the date of grant using a Monte Carlo simulation to forecast relative TSR performance. Consistent with the guidelines of ASC 718, a correlation matrix of historic and projected stock prices was developed for both the Company and its predetermined peer group of mining and metals companies. The fair value assumes that performance goals will be achieved.

The expected term of the grant represents the time from the grant date to the end of the service period for each of the three plan year agreements. We estimated the volatility of our common shares and that of the peer group of mining and metals companies using daily price intervals for all companies. The risk-free interest rate is the rate at the grant date on zero-coupon government bonds, with a term commensurate with the remaining life of the performance plans.

Cash flows resulting from the tax benefits for tax deductions in excess of the compensation expense are classified as financing cash flows. Refer to NOTE 12 — STOCK COMPENSATION PLANS for additional information.

Income Taxes

Income taxes are based on income for financial reporting purposes calculated using tax rates by jurisdiction and reflect a current tax liability or asset for the estimated taxes payable or recoverable on the current year tax return and expected annual changes in deferred taxes. Any interest or penalties on income tax are recognized as a component of income tax expense.

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial results of operations. In the event we were to determine that we would be able to realize our deferred income tax assets in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance which would reduce the provision for income taxes.

Earnings Per Share

We present both basic and diluted EPS amounts. Basic EPS are calculated by dividing income attributable to Cliffs common shareholders by the weighted average number of common shares outstanding during the period presented. Diluted EPS are calculated by dividing net income attributable to Cliffs shareholders by the weighted average number of common shares, common share equivalents and convertible preferred stock outstanding during the period, utilizing the treasury share method for employee stock plans. Common share equivalents are excluded from EPS computations in the periods in which they have an anti-dilutive effect. See NOTE 16 — EARNINGS PER SHARE for further information.

Foreign Currency Translation

The financial statements of international subsidiaries are translated into U.S. dollars using the exchange rate at each balance sheet date for assets and liabilities and a weighted average exchange rate for each period for

107

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

revenues, expenses, gains and losses. Where the local currency is the functional currency, translation adjustments are recorded as Accumulated other comprehensive income (loss). Where the U.S. dollar is the functional currency, translation adjustments are recorded in the Statements of Consolidated Operations. Income taxes are generally not provided for foreign currency translation adjustments.

Retrospective Adjustments

During the second half of 2010, we retrospectively recorded adjustments to the Wabush purchase price allocation back to the date of acquisition that occurred during the first quarter of 2010. Therefore, the financial statements for the three months ended March 31, 2010 have been retrospectively adjusted for these changes, resulting in a decrease to Income From Continuing Operations Before Income Taxes and Equity Income (Loss) from Ventures of $22.0 million and a decrease to Net Income Attributable to Cliffs Shareholders of $16.1 million, respectively, on the Statements of Unaudited Condensed Consolidated Operations. The adjustments resulted in a decrease to basic and diluted earnings per common share of $0.12 per common share, respectively. In addition, Retained Earnings on the Statements of Unaudited Condensed Consolidated Financial Position as of March 31, 2010 has been decreased by $16.1 million for the effect of these retrospective adjustments. Accordingly, such amounts are reflected in the consolidated financial statements as of and for the period ended December 31, 2010. Refer to NOTE 5 — ACQUISITIONS AND OTHER INVESTMENTS and NOTE 21 — QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) for additional information.

Recent Accounting Pronouncements

Effective January 1, 2010, we adopted the consolidation guidance for VIE, amended in June of 2009. The amendment was issued in response to perceived shortcomings in the consolidation model that were highlighted by recent market events, including concerns about the ability to structure transactions under the current guidance to avoid consolidation, balanced with the need for more relevant, timely, and reliable information about an enterprise’s involvement in a VIE. The amendments include: (1) the elimination of the exemption for qualifying special purpose entities, (2) a new approach for determining who should consolidate a VIE, (3) changes to when it is necessary to reassess who should consolidate a VIE, and (4) additional disclosures of information related to a company’s interest in a VIE. The new guidance was effective January 1, 2010 for calendar year-end companies. The adoption of this amendment did not have a material impact on our consolidated financial statements.

In January 2010, the FASB amended the guidance on fair value to add new requirements for disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements. The revised guidance also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. The amendment also revises the guidance on employers’ disclosures about postretirement benefit plan assets to require that disclosures be provided by classes of assets instead of by major categories of assets. The new guidance was effective for the first reporting period beginning after December 15, 2009, except for the requirement to provide the Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which will be effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. We adopted the provisions of the guidance required for the period beginning January 1, 2010; however, adoption of this amendment did not have a material impact on our consolidated financial statements. We will adopt the provisions of the guidance required for the period beginning January 1, 2011, beginning with the interim period ended March 31, 2011.

In February 2010, the FASB issued amended guidance on subsequent events to remove the requirement to disclose the date through which an SEC filer has evaluated subsequent events. The amended guidance was effective upon issuance. We adopted this amendment as of the interim period ended March 31, 2010.

108

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

NOTE 2 — SEGMENT REPORTING

Our company’s primary operations are organized and managed according to product category and geographic location: North American Iron Ore, North American Coal, Asia Pacific Iron Ore, Asia Pacific Coal, Latin American Iron Ore, Alternative Energies, Ferroalloys and our Global Exploration Group. The North American Iron Ore segment is comprised of our interests in six North American mines that provide iron ore to the integrated steel industry. The North American Coal segment is comprised of our five metallurgical coal mines and one thermal coal mine that provide metallurgical coal primarily to the integrated steel industry and thermal coal primarily to the energy industry. The Asia Pacific Iron Ore segment is located in Western Australia and provides iron ore to steel producers in China and Japan. There are no intersegment revenues.

The Asia Pacific Coal operating segment is comprised of our 45 percent economic interest in Sonoma, located in Queensland, Australia. The Latin American Iron Ore operating segment is comprised of our 30 percent Amapá interest in Brazil. The Alternative Energies operating segment is comprised of our 95 percent interest in renewaFUEL located in Michigan. The Ferroalloys operating segment is comprised of our recently acquired interests in chromite deposits in Northern Ontario, Canada. Our Global Exploration Group was established in 2009 and is focused on early involvement in exploration activities to identify new world-class projects for future development or projects that add significant value to existing operations. The Asia Pacific Coal, Latin American Iron Ore, Alternative Energies, Ferroalloys and Global Exploration Group operating segments do not meet reportable segment disclosure requirements and therefore are not separately reported.

We evaluate segment performance based on sales margin, defined as revenues less cost of goods sold and operating expenses identifiable to each segment. This measure of operating performance is an effective measurement as we focus on reducing production costs throughout the Company.

109

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

The following table presents a summary of our reportable segments for the years ended December 31, 2010, 2009 and 2008, including a reconciliation of segment sales margin to income from continuing operations before income taxes and equity income (loss) from ventures:


	(In Millions)
	2010					2009					2008
Revenues from product sales and services:
North American Iron Ore	$	2,921.4		62	%	$	1,447.8		62	%	$	2,369.6		66	%
North American Coal		438.2		9	%		207.2		9	%		346.3		10	%
Asia Pacific Iron Ore		1,123.9		24	%		542.1		23	%		769.8		21	%
Other		198.7		5	%		144.9		6	%		123.4		3	%

Total revenues from product sales and services for reportable segments	$	4,682.2		100	%	$	2,342.0		100	%	$	3,609.1		100	%

Sales margin:
North American Iron Ore	$	922.0				$	275.5				$	804.3
North American Coal		(28.6	)				(71.9	)				(46.4	)
Asia Pacific Iron Ore		566.2					87.2					348.6
Other		63.9					18.1					53.2

Sales margin		1,523.5					308.9					1,159.7
Other operating expense		(258.5	)				(78.7	)				(220.8	)
Other income (expense)		33.2					60.4					(222.6	)

Income from continuing operations before income taxes and equity income (loss) from ventures	$	1,298.2				$	290.6				$	716.3

Depreciation, depletion and amortization:
North American Iron Ore	$	103.6				$	74.3				$	66.0
North American Coal		60.4					38.2					51.5
Asia Pacific Iron Ore		133.9					110.6					73.7
Other		24.4					13.5					9.9

Total depreciation, depletion and amortization	$	322.3				$	236.6				$	201.1

Capital additions (1):
North American Iron Ore	$	103.5				$	42.6				$	53.3
North American Coal		89.5					20.8					96.6
Asia Pacific Iron Ore		53.6					96.2					67.8
Other		29.2					8.6					14.9

Total capital additions	$	275.8				$	168.2				$	232.6

Assets:
North American Iron Ore	$	2,166.7				$	1,478.9
North American Coal		1,623.8					765.0
Asia Pacific Iron Ore		1,195.3					1,388.2
Other		1,257.8					300.0

Total segment assets		6,243.6					3,932.1
Corporate		1,534.6					707.2

Total assets	$	7,778.2				$	4,639.3

(1)	Includes capital lease additions.

110

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Included in the consolidated financial statements are the following amounts relating to geographic locations:


	(In Millions)
	2010		2009		2008
Revenue (1)
United States	$	1,966.4	$	1,049.5	$	1,617.0
China		1,262.0		711.5		774.2
Canada		696.5		236.6		573.6
Japan		311.1		157.4		263.4
Other countries		446.2		187.0		380.9

Total revenue	$	4,682.2	$	2,342.0	$	3,609.1

Long-lived assets
United States	$	2,498.8	$	1,686.2
Australia		973.7		906.4
Canada		506.7		—

Total long-lived assets	$	3,979.2	$	2,592.6

(1)	Revenue is attributed to countries based on the location of the customer and includes both Product sales and services.

Concentrations in Revenue

We have three customers which individually account for more than 10 percent of our consolidated product revenue in 2010. Total revenue from these customers represents approximately $1.8 billion, $1.0 billion and $1.6 billion of our total consolidated product revenue in 2010, 2009 and 2008, respectively, and is attributable to our North American Iron Ore and North American Coal business segments.

The following table represents the percentage of our total revenue contributed by each category of products and services in 2010, 2009 and 2008:


	2010			2009			2008
Revenue Category
Iron ore		81	%		81	%		79	%
Coal		13			14			12
Freight and venture partners’ cost reimbursements		6			5			9

Total revenue		100	%		100	%		100	%

111

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

NOTE 3 — DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The following table presents the fair value of our derivative instruments and the classification of each on the Statements of Consolidated Financial Position as of December 31, 2010 and 2009:


	(In Millions)
	Derivative Assets
	December 31, 2010				December 31, 2009
Derivative Instrument	Balance Sheet Location		Fair Value		Balance Sheet Location		Fair Value
Derivatives designated as hedging instruments under ASC 815:
Foreign Exchange Contracts		Derivative assets (current)	$	2.8			$	—

Total derivatives designated as hedging instruments under ASC 815			$	2.8			$	—

Derivatives not designated as hedging instruments under ASC 815:
Foreign Exchange Contracts		Derivative assets (current)	$	34.2		Derivative assets (current)	$	4.2
		Deposits and miscellaneous		2.0		Deposits and miscellaneous		—
Customer Supply Agreements		Derivative assets (current)		45.6		Derivative assets (current)		47.3
		Deposits and miscellaneous		—		Deposits and miscellaneous		15.9

Total derivatives not designated as hedging instruments under ASC 815				81.8			$	67.4

Total derivatives			$	84.6			$	67.4

There were no derivative instruments classified as a liability as of December 31, 2010 and 2009.

Derivatives Designated as Hedging Instruments

Cash Flow Hedges

Foreign Exchange Contracts

We are subject to changes in foreign currency exchange rates as a result of our operations in Australia. Foreign exchange risk arises from our exposure to fluctuations in foreign currency exchange rates because our reporting currency is the U.S. dollar. Our Asia Pacific operations receive funds in U.S. currency for their iron ore and coal sales. We use forward exchange contracts, call options and collar options to hedge our foreign currency exposure for a portion of our sales receipts. U.S. currency is converted to Australian dollars at the currency exchange rate in effect at the time of the transaction. The primary objective for the use of these instruments is to reduce exposure to changes in Australian and U.S. currency exchange rates and to protect against undue adverse movement in these exchange rates. Effective October 1, 2010, we elected hedge accounting for certain types of our foreign exchange contracts entered into subsequent to September 30, 2010. These instruments are subject to formal documentation, intended to achieve qualifying hedge treatment, and are tested at inception and at each reporting period as to effectiveness. Our hedging policy allows no more than 75 percent of anticipated operating

costs for up to 12 months and no more than 50 percent of operating costs for up to 24 months. If and when these hedge contracts are determined not to be highly effective as hedges, the underlying hedged transaction is no longer likely to occur, or the derivative is terminated, hedge accounting is discontinued.

112

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

As of December 31, 2010, we had outstanding exchange rate contracts with a notional amount of $70 million in the form of forward exchange contracts with varying maturity dates ranging from February 2011 to December 2011.

Changes in fair value of highly effective hedges are recorded as a component of Accumulated other comprehensive income (loss) on the Statements of Consolidated Financial Position. Unrealized gains of $1.9 million were recorded as of December 31, 2010 related to these hedge contracts. Any ineffectiveness is recognized immediately in income and as of December 31, 2010, there was no ineffectiveness recorded for these foreign exchange contracts. Of the amounts recorded in Accumulated other comprehensive income (loss), we estimate that $1.9 million will be reclassified to Changes in fair value of foreign currency contracts, net in the next 12 months upon maturity of the related contracts.

The following summarizes the effect of our derivatives designated as hedging instruments on Accumulated other comprehensive income (loss) and the Statements of Consolidated Operations for the years ended December 31, 2010, 2009 and 2008:


	(In Millions)
Derivatives in Cash Flow Hedging Relationships	Amount of Gain/(Loss) Recognized in OCI on Derivative (Effective Portion)						Location of Gain/(Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain/(Loss) Reclassified from Accumulated OCI into Income (Effective Portion)						Location of Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion)	Amount of Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion)
	Year ended December 31,							Year ended December 31,							Year ended December 31,
	2010		2009		2008			2010		2009		2008			2010		2009		2008
Foreign Exchange Contracts (hedge designation)	$	1.9	$	—	$	—	Product Revenue	$	—	$	—	$	—	Miscellaneous -net	$	—	$	—	$	—
Foreign Exchange Contracts (prior to de-designation)		—		—		32.1	Product Revenue		3.2		15.1		35.5	Miscellaneous -net		—		—		(8.6	)

Total	$	1.9	$	—	$	32.1		$	3.2	$	15.1	$	35.5		$	—	$	—	$	(8.6	)

Derivatives Not Designated as Hedging Instruments

Foreign Exchange Contracts

Effective July 1, 2008, we discontinued hedge accounting for foreign exchange contracts entered into for all outstanding contracts at the time and continued to hold such instruments as economic hedges to manage currency risk as described above. We entered into additional foreign exchange contracts during the first nine months of 2010. We did not designate hedge accounting for any of these foreign exchange contracts. As of December 31, 2010, we had outstanding exchange rate contracts with a notional amount of $230 million in the form of call options, collar options, and forward exchange contracts with varying maturity dates ranging from January 2011 to January 2012. This compares with outstanding exchange rate contracts with a notional amount of $108.5 million as of December 31, 2009. Effective October 1, 2010, we re-elected hedge accounting for certain types of our foreign exchange contracts entered into subsequent to September 30, 2010 as discussed above.

As a result of discontinuing hedge accounting, the instruments are prospectively marked to fair value each reporting period through Changes in fair value of foreign currency contracts, net on the Statements of Consolidated Operations. For the year ended December 31, 2010, the change in fair value of our foreign currency contracts resulted in net gains of $39.8 million, based on the Australian to U.S. dollar spot rate of 1.02 at December 31, 2010. For the year ended December 31, 2009, the change in fair value of our foreign currency contracts resulted in net gains of $85.7 million, based on the Australian to U.S. dollar spot rate of 0.90 at December 31, 2009. The amounts that were previously recorded as a component of Accumulated other

113

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

comprehensive income (loss) are reclassified to earnings and a corresponding realized gain or loss is recognized upon maturity of the related contracts. For the year ended December 31, 2010, we reclassified gains of $3.2 million from Accumulated other comprehensive income (loss) related to contracts that matured during the year, and recorded the amounts as Product revenues on the Statements of Consolidated Operations. In 2009, gains of $15.1 million were reclassified to earnings. As of December 31, 2010, approximately $0.7 million of gains remains in Accumulated other comprehensive income (loss) related to the effective cash flow hedge contracts prior to de-designation. We estimate the remaining $0.7 million will be reclassified to Product revenues in the next 12 months upon maturity of the related contracts.

Customer Supply Agreements

Most of our North American Iron Ore long-term supply agreements are comprised of a base price with annual price adjustment factors, some of which are subject to annual price collars in order to limit the percentage increase or decrease in prices for our iron ore pellets during any given year. The price adjustment factors vary based on the agreement but typically include adjustments based upon changes in international pellet prices, changes in specified Producers Price Indices including those for all commodities, industrial commodities, energy and steel. The adjustments generally operate in the same manner, with each factor typically comprising a portion of the price adjustment, although the weighting of each factor varies based upon the specific terms of each agreement. The price adjustment factors have been evaluated to determine if they contain embedded derivatives. The price adjustment factors share the same economic characteristics and risks as the host contract and are integral to the host contract as inflation adjustments; accordingly, they have not been separately valued as derivative instruments.

Certain supply agreements with one North American Iron Ore customer provide for supplemental revenue or refunds based on the customer’s average annual steel pricing at the time the product is consumed in the customer’s blast furnace. The supplemental pricing is characterized as an embedded derivative and is required to be accounted for separately from the base contract price. The embedded derivative instrument, which is finalized based on a future price, is marked to fair value as a revenue adjustment each reporting period until the pellets are consumed and the amounts are settled. We recognized $120.2 million, $22.2 million and $225.5 million as Product revenues on the Statements of Consolidated Operations for the years ended December 31, 2010, 2009 and 2008, respectively, related to the supplemental payments. Derivative assets, representing the fair value of the pricing factors, were $45.6 million and $63.2 million, respectively, on the December 31, 2010 and 2009 Statements of Consolidated Financial Position.

Provisional Pricing Arrangements

In 2010, the world’s largest iron ore producers moved away from the annual international benchmark pricing mechanism referenced in certain of our customer supply agreements, resulting in a shift in the industry toward shorter-term pricing arrangements linked to the spot market. As a result, we renegotiated the terms of our supply agreements with our Asia Pacific Iron Ore customers. Based on timing of these changes, pricing settlements were finalized with customers during each of the 2010 quarters with the exception of the first quarter of 2010. The provisional pricing arrangements related to first quarter shipments were subsequently settled during the second quarter of 2010. In addition, we reached final pricing settlement with some of our North American Iron Ore customers for the 2010 contract year. Prior to final pricing settlements, we recorded certain shipments made during 2010 on a provisional basis until final settlement was reached. The pricing provisions for both our Asia Pacific Iron Ore and North American customers were characterized as freestanding derivatives and were required to be accounted for separately once the products were shipped. The derivative instruments, which were settled and billed once final pricing settlement for the 2010 contract year was reached, were marked to fair value as revenue adjustments each reporting period based upon the estimated forward settlement until prices were actually settled. We recognized $960.7 million as Product revenues in the Statement of Consolidated Operations for the year ended December 31, 2010 under these pricing provisions. As of December 31, 2010, all of these

114

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

revenues have been realized due to the pricing settlements that occurred with our Asia Pacific Iron Ore customers during the second quarter and North American customers through the fourth quarter of 2010. For the year ended December 31, 2009, we recognized a reduction in Product revenues of $28.2 million under provisional pricing arrangements.

Upon the settlement of pricing provisions with some of our North American Iron Ore customers in the fourth quarter of 2010, the derivative instrument was settled and therefore is not reflected on the Statement of Consolidated Financial Position at December 31, 2010. With respect to the North American Iron Ore customers for which final pricing for the 2010 contract year has not yet been settled as of December 31, 2010, we did not record shipments on a provisional basis due to pending arbitrations. In 2009, the derivative instrument was settled in the fourth quarter upon settlement of the pricing provisions with each of our customers, and is therefore not reflected on the Statements of Consolidated Financial Position at December 31, 2009.

The following summarizes the effect of our derivatives that are not designated as hedging instruments, on the Statements of Consolidated Operations for the years ended December 31, 2010, 2009 and 2008:


(In Millions)
Derivative Not Designated as Hedging Instruments	Location of Gain/(Loss) Recognized in Income on Derivative		Amount of Gain/(Loss) Recognized in Income on Derivative
			Year ended December 31,
			2010		2009			2008
Foreign Exchange Contracts		Product Revenues	$	11.1	$	5.4		$	32.6
Foreign Exchange Contracts		Changes in fair value of foreign currency contracts, net		39.8		85.7			(188.2	)
Foreign Exchange Contracts		Miscellaneous - net		—		—			(8.6	)
Customer Supply Agreements		Product Revenues		120.2		22.2			225.5
Provisional Pricing Arrangements		Product Revenues		960.7		(28.2	)		(7.7	)
United Taconite Purchase Provision		Product Revenues		—		106.5			74.8

Total			$	1,131.8	$	191.6		$	128.4

In the normal course of business, we enter into forward contracts designated as normal purchases, for the purchase of commodities, primarily natural gas and diesel fuel, which are used in our North American Iron Ore operations. Such contracts are in quantities expected to be delivered and used in the production process and are not intended for resale or speculative purposes.

NOTE 4 — MARKETABLE SECURITIES

In July 2010, we sold substantially all of our held-to-maturity portfolio for approximately $15.6 million, resulting in a realized loss of $0.1 million. The majority of our held-to-maturity securities were due to mature by the end of 2010 and the decision to sell was made in order to increase the availability of cash for the funding of certain strategic transactions, including the acquisitions of Spider and CLCC.

115

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

At December 31, 2010 and 2009, we had $85.9 million and $81.0 million, respectively, of marketable securities classified as available for sale. Marketable securities classified as available-for-sale are stated at fair value, with unrealized holding gains and losses included in Accumulated other comprehensive income (loss). The cost, gross unrealized gains and losses and fair value of securities classified as available-for-sale at December 31, 2010 and 2009 are summarized as follows:

(In Millions)

December 31, 2010

Cost

Gross
Unrealized

Fair
Value

Gains

Losses

Equity securities

(without contractual maturity)

33.2

52.7

—

85.9

(In Millions)

December 31, 2009

Cost

Gross
Unrealized

Fair
Value

Gains

Losses

Equity securities

(without contractual maturity)

35.6

46.1

(0.7

)

81.0

KWG

We own 111.7 million shares of KWG common stock, representing 19.4 percent of its outstanding shares. KWG is an exploration stage company that participates in the discovery of chromite deposits in Northern Ontario. KWG holds a 26.5 percent interest in the “Big Daddy” chromite deposit, which we obtained majority ownership over during the second half of 2010. We do not exercise significant influence over KWG as of the reporting date, and the investment is classified as an available-for-sale security. Accordingly, we record unrealized mark-to-market changes in the fair value of the investment through Accumulated other comprehensive income (loss) each reporting period, unless the loss is deemed to be other than temporary.

Pluton Resources

In 2009, Asia Pacific Iron Ore completed the sale of its 50 percent interest in the Irvine Island iron ore project to its joint venture partner, Pluton Resources. The consideration received consisted of a cash payment of approximately $5 million and the issuance of 19.4 million shares of Pluton Resources, all of which resulted in recognition of a gain on sale amounting to $12.1 million. Our interest in Pluton Resources is approximately 10.9 percent at December 31, 2010. We do not exercise significant influence over Pluton as of the reporting date, and the investment is classified as an available-for-sale security. Accordingly, we record unrealized mark-to-market changes in the fair value of the investment through Accumulated other comprehensive income (loss) each reporting period, unless the loss is deemed to be other than temporary.

PolyMet

We own 9.2 million shares of PolyMet common stock, representing 6.0 percent of issued shares as a result of the sale of certain land, crushing and concentrating and other ancillary facilities located at our Cliffs Erie site (formerly owned by LTVSMC) to PolyMet. We have the right to participate in up to 6.0 percent of any future financing, and PolyMet has the first right to acquire or place our shares should we choose to sell. We classify the shares as available-for-sale and record unrealized mark-to-market changes in the fair value of the shares through Accumulated other comprehensive income (loss) each reporting period, unless the loss is deemed to be other than temporary.

116

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Golden West

During 2008, we acquired 24.3 million shares of Golden West, a Western Australia iron ore exploration company. Golden West owns the Wiluna West exploration ore project in Western Australia, containing a resource of 126 million metric tons of ore. The investment provides Asia Pacific Iron Ore a strategic interest in Golden West and Wiluna West. Our ownership in Golden West represents approximately 14.8 percent of its outstanding shares at December 31, 2010. Acquisition of the shares represented an original investment of approximately $22 million. We do not exercise significant influence, and at December 31, 2010 and 2009, the investment is classified as an available-for-sale security. Accordingly, we record unrealized mark-to-market changes in the fair value of the investment through Accumulated other comprehensive income (loss) each reporting period, unless the loss is deemed to be other than temporary.

Quest

Through our acquisition of the remaining shares of Freewest in January 2010, we acquired 4.2 million shares of Quest, a Canadian-based exploration company focused on the discovery of rare earth deposit opportunities. We sold approximately 3.6 million of our acquired ownership interest in Quest during the second half of 2010 for proceeds of $17.2 million, resulting in a realized gain of $6.3 million recognized as Other non-operating income on the Statements of Consolidated Operations. Our remaining interest in Quest, consisting of 0.6 million shares as of December 31, 2010, is classified as an available-for-sale security and we record unrealized mark-to-market changes in the fair value of the investment through Accumulated other comprehensive income (loss) each reporting period, unless the loss is deemed to be other than temporary.

NOTE 5 — ACQUISITIONS AND OTHER INVESTMENTS

Acquisitions

We allocate the cost of acquisitions to the assets acquired and liabilities assumed based on their estimated fair values. Any excess of cost over the fair value of the net assets acquired is recorded as goodwill.

Wabush

We acquired entities from our former partners that held their respective interests in Wabush on February 1, 2010, thereby increasing our ownership interest to 100 percent. Our full ownership of Wabush has been included in the consolidated financial statements since that date. The acquisition date fair value of the consideration transferred totaled $103 million, which consisted of a cash purchase price of $88 million and a working capital adjustment of $15 million. With Wabush’s 5.5 million tons of production capacity, acquisition of the remaining interest has increased our North American Iron Ore equity production capacity by approximately 4.0 million tons and has added more than 50 million tons of additional reserves. Furthermore, acquisition of the remaining interest has provided us additional access to the seaborne iron ore markets serving steelmakers in Europe and Asia.

Prior to the acquisition date, we accounted for our 26.8 percent interest in Wabush as an equity-method investment. We initially recognized an acquisition date fair value of the previous equity interest of $39.7 million, and a gain of $47.0 million as a result of remeasuring our prior equity interest in Wabush held before the business combination. The gain was recognized in the first quarter of 2010 and was included in Gain on acquisition of controlling interests in the Statements of Unaudited Condensed Consolidated Operations for the three months ended March 31, 2010.

In the months subsequent to the initial purchase price allocation, we further refined the fair values of the assets acquired and liabilities assumed. Additionally, we also continued to ensure our existing interest in Wabush was incorporating all of the book basis, including amounts recorded in Accumulated other comprehensive income (loss). Based on this process the acquisition date fair value of the previous equity interest was adjusted to $38 million. The changes required to finalize the U.S. and Canadian deferred tax valuations and to incorporate

117

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

additional information on assumed asset retirement obligations offset to a net decrease of $1.7 million in the fair value of the equity interest from the initial purchase price allocation. Thus, the gain resulting from the remeasurement of our prior equity interest, net of amounts previously recorded in Accumulated other comprehensive income (loss) of $20.3 million, was adjusted to $25 million for the period ended December 31, 2010.

Under the business combination guidance in ASC 805, prior periods, beginning with the period of acquisition, are required to be revised to reflect changes to the original purchase price allocation. In accordance with this guidance, we have retrospectively recorded the adjustments to the fair value of the acquired assets and assumed liabilities and the resulting Goodwill and Gain on acquisition of controlling interests, made during the second half of 2010, back to the date of acquisition. Accordingly, such amounts are reflected in the Statements of Consolidated Operations for the year ended December 31, 2010, but have been excluded from the three months ended September 30, 2010 and December 31, 2010, respectively. We finalized the purchase price allocation for the acquisition of Wabush during the fourth quarter of 2010. A comparison of the initial and final purchase price allocation has been provided in the following table.


	(In Millions)
	Initial Allocation			Final Allocation			Change
Consideration
Cash	$	88.0		$	88.0		$	—
Working capital adjustments		15.0			15.0			—

Fair value of total consideration transferred		103.0			103.0			—
Fair value of Cliffs’ equity interest in Wabush held prior to acquisition of remaining interest		39.7			38.0			(1.7	)

	$	142.7		$	141.0		$	(1.7	)

Recognized amounts of identifiable assets acquired and liabilities assumed
ASSETS:
In-process inventories	$	21.8		$	21.8		$	—
Supplies and other inventories		43.6			43.6			—
Other current assets		13.2			13.2			—
Mineral rights		85.1			84.4			(0.7	)
Plant and equipment		146.3			147.8			1.5
Intangible assets		66.4			66.4			—
Other assets		16.3			19.3			3.0

Total identifiable assets acquired		392.7			396.5			3.8
LIABILITIES:
Current liabilities		(48.1	)		(48.1	)		—
Pension and OPEB obligations		(80.6	)		(80.6	)		—
Mine closure obligations		(39.6	)		(53.4	)		(13.8	)
Below-market sales contracts		(67.7	)		(67.7	)		—
Deferred taxes		(20.5	)		—			20.5
Other liabilities		(8.9	)		(8.8	)		0.1

Total identifiable liabilities assumed		(265.4	)		(258.6	)		6.8

Total identifiable net assets acquired		127.3			137.9			10.6
Goodwill		15.4			3.1			(12.3	)

Total net assets acquired	$	142.7		$	141.0		$	(1.7	)

118

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

The significant changes to the final purchase price allocation from the initial allocation were due primarily to the allocation of deferred taxes between the existing equity interest in Wabush and the acquired portion, and additional asset retirement obligations noted related to the Wabush operations.

Of the $66.4 million of acquired intangible assets, $54.7 million was assigned to the value of a utility contract that provides favorable rates compared with prevailing market rates and will be amortized on a straight-line basis over the five-year remaining life of the contract. The remaining $11.7 million was assigned to the value of an easement agreement that is anticipated to provide a fee to Wabush for rail traffic moving over Wabush lands and will be amortized over a 30-year period.

The $3.1 million of goodwill resulting from the acquisition was assigned to our North American Iron Ore business segment. The goodwill recognized is primarily attributable to the mine’s port access and proximity to the seaborne iron ore markets. None of the goodwill is expected to be deductible for income tax purposes.

Refer to NOTE 6 — GOODWILL AND OTHER INTANGIBLE ASSETS AND LIABILITIES for further information.

Freewest

During 2009, we acquired 29 million shares, or 12.4 percent, of Freewest, a Canadian-based mineral exploration company focused on acquiring, exploring and developing high-quality chromite, gold and base-metal properties in Canada. On January 27, 2010, we acquired all of the remaining outstanding shares of Freewest for C$1.00 per share, including its interest in the Ring of Fire properties in Northern Ontario Canada, which comprise three premier chromite deposits. As a result of the transaction, our ownership interest in Freewest increased from 12.4 percent as of December 31, 2009 to 100 percent as of the acquisition date. Our full ownership of Freewest has been included in the consolidated financial statements since the acquisition date. The acquisition of Freewest is consistent with our strategy to broaden our geographic and mineral diversification and allows us to apply our expertise in open-pit mining and mineral processing to a chromite ore resource base that could form the foundation of North America’s only ferrochrome production operation. The planned mine is expected to produce 1 million to 2 million metric tons of high-grade chromite ore annually, which would be further processed into 400 thousand to 800 thousand metric tons of ferrochrome. Total purchase consideration for the acquisition was approximately $185.9 million, comprised of the issuance of 0.0201 of our common shares for each Freewest share, representing a total of 4.2 million common shares or $173.1 million, and $12.8 million in cash. The acquisition date fair value of the consideration transferred was determined based upon the closing market price of our common shares on the acquisition date.

Prior to the acquisition date, we accounted for our 12.4 percent interest in Freewest as an available-for-sale equity security. The acquisition date fair value of the previous equity interest was $27.4 million, which was determined based upon the closing market price of the 29 million previously owned shares on the acquisition date. We recognized a gain of $13.6 million in the first quarter of 2010 as a result of remeasuring our ownership interest in Freewest held prior to the business acquisition. The gain is included in Gain on acquisition of controlling interests in the Statements of Consolidated Operations for the year ended December 31, 2010.

119

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

The following table summarizes the consideration paid for Freewest and the fair values of the assets acquired and liabilities assumed at the acquisition date. We finalized the purchase price allocation in the fourth quarter of 2010. Under the business combination guidance in ASC 805, prior periods, beginning with the period of acquisition, are required to be revised to reflect changes to the original purchase price allocation. In accordance with this guidance, we have retrospectively recorded the adjustments to the fair value of the acquired assets and assumed liabilities and the resulting Goodwill, made during the fourth quarter of 2010, back to the date of acquisition. We adjusted the initial purchase price allocation for the acquisition of Freewest in the fourth quarter of 2010 as follows:


	(In Millions)
	Initial Allocation			Final Allocation			Change
Consideration
Equity instruments (4.2 million Cliffs common shares)	$	173.1		$	173.1		$	—
Cash		12.8			12.8			—

Fair value of total consideration transferred		185.9			185.9			—
Fair value of Cliffs’ ownership interest in Freewest held prior to acquisition of remaining interest		27.4			27.4			—

	$	213.3		$	213.3		$	—

Recognized amounts of identifiable assets acquired and liabilities assumed
ASSETS:
Cash	$	7.7		$	7.7		$	—
Other current assets		1.4			1.4			—
Mineral rights		252.8			244.0			(8.8	)
Marketable securities		12.1			12.1			—

Total identifiable assets acquired		274.0			265.2			(8.8	)
LIABILITIES:
Accounts payable		(3.3	)		(3.3	)		—
Long-term deferred tax liabilities		(57.4	)		(54.3	)		3.1

Total identifiable liabilities assumed		(60.7	)		(57.6	)		3.1

Total identifiable net assets acquired		213.3			207.6			(5.7	)
Goodwill		—			5.7			5.7

Total net assets acquired	$	213.3		$	213.3		$	—

The significant changes to the final purchase price allocation from the initial allocation were primarily due to changes to the fair value adjustment for mineral rights that resulted from the finalization of certain assumptions used in the valuation models utilized to determine the fair values.

The $5.7 million of goodwill resulting from the finalization of the purchase price allocation was assigned to our Ferroalloys business segment. The goodwill recognized is primarily attributable to obtaining a controlling interest in Freewest. None of the goodwill is expected to be deductible for income tax purposes. Refer to NOTE 6 — GOODWILL AND OTHER INTANGIBLE ASSETS AND LIABILITIES for further information.

120

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Spider

During the second quarter of 2010, we commenced a formal cash offer to acquire all of the outstanding common shares of Spider, a Canadian-based mineral exploration company, for C$0.19 per share. As of June 30, 2010, we held 27.4 million shares of Spider, representing approximately four percent of its issued and outstanding shares. On July 6, 2010, all of the conditions to acquire the remaining common shares of Spider had been satisfied or waived, and we consequently acquired all of the common shares that were validly tendered as of that date. When combined with our prior ownership interest, the additional shares acquired increased our ownership percentage to 52 percent on the date of acquisition, representing a majority of the common shares outstanding on a fully-diluted basis. Our 52 percent ownership of Spider was included in the consolidated financial statements since the July 6, 2010 acquisition date, and Spider was included as a component of our Ferroalloys operating segment. The acquisition date fair value of the consideration transferred totaled a cash purchase price of $56.9 million. Subsequent to the acquisition date, we extended the cash offer to permit additional shares to be tendered and taken up, thereby increasing our ownership percentage in Spider to 85 percent as of July 26, 2010. Effective October 6, 2010, we completed the acquisition of the remaining shares of Spider through an amalgamation, bringing our ownership percentage to 100 percent as of December 31, 2010. As noted above, through our acquisition of Freewest during the first quarter of 2010, we acquired an interest in the Ring of Fire properties in Northern Ontario, which comprise three premier chromite deposits. The Spider acquisition allowed us to obtain majority ownership of the “Big Daddy” chromite deposit, based on Spider’s ownership percentage in this deposit of 26.5 percent.

Prior to the July 6, 2010 acquisition date, we accounted for our four percent interest in Spider as an available-for-sale equity security. The acquisition date fair value of the previous equity interest was $4.9 million, which was determined based upon the closing market price of the 27.4 million previously owned shares on the acquisition date.

The acquisition date fair value of the 48 percent noncontrolling interest in Spider was estimated to be $51.9 million, which was determined based upon the closing market price of the 290.5 million shares of noncontrolling interest on the acquisition date.

121

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

The following table summarizes the consideration paid for Spider and the fair values of the assets acquired and liabilities assumed at the acquisition date. We finalized the purchase price allocation in the fourth quarter of 2010. Under the business combination guidance in ASC 805, prior periods, beginning with the period of acquisition, are required to be revised to reflect changes to the original purchase price allocation. In accordance with this guidance, we have retrospectively recorded the adjustments to the fair value of the acquired assets and assumed liabilities and the resulting Goodwill, made during the fourth quarter of 2010, back to the date of acquisition. We adjusted the initial purchase price allocation for the acquisition of Spider in the fourth quarter of 2010 as follows:


	(In Millions)
	Initial Allocation			Final Allocation			Change
Consideration
Cash	$	56.9		$	56.9		$	—

Fair value of total consideration transferred		56.9			56.9			—
Fair value of Cliffs’ ownership interest in Spider held prior to acquisition of remaining interest		4.9			4.9			—

	$	61.8		$	61.8		$	—

Recognized amounts of identifiable assets acquired and liabilities assumed
ASSETS:
Cash	$	9.0		$	9.0		$	—
Other current assets		4.5			4.5			—
Mineral rights		31.0			35.3			4.3

Total identifiable assets acquired		44.5			48.8			4.3
LIABILITIES:
Other current liabilities		(5.2	)		(5.2	)		—
Long-term deferred tax liabilities		(2.7	)		(5.1	)		(2.4	)

Total identifiable liabilities assumed		(7.9	)		(10.3	)		(2.4	)

Total identifiable net assets acquired		36.6			38.5			1.9
Goodwill		77.1			75.2			(1.9	)
Noncontrolling interest in Spider		(51.9	)		(51.9	)		—

Total net assets acquired	$	61.8		$	61.8		$	—

The $75.2 million of goodwill resulting from the acquisition was assigned to our Ferroalloys business segment. The goodwill recognized is primarily attributable to obtaining majority ownership of the “Big Daddy” chromite deposit. When combined with the interest we acquired in the Ring of Fire properties through our acquisition of Freewest, we now control three premier chromite deposits in Northern Ontario, Canada. None of the goodwill is expected to be deductible for income tax purposes. Refer to NOTE 6 — GOODWILL AND OTHER INTANGIBLE ASSETS AND LIABILITIES for further information.

CLCC

On July 30, 2010, we acquired the coal operations of privately-owned INR, and since that date, the operations acquired from INR have been conducted through our wholly-owned subsidiary known as CLCC. Our

122

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

full ownership of CLCC has been included in the consolidated financial statements since the acquisition date, and the subsidiary is reported as a component of our North American Coal segment. The acquisition date fair value of the consideration transferred totaled $775.9 million, which consisted of a cash purchase price of $757 million and a working capital adjustment of $18.9 million.

CLCC is a producer of high-volatile metallurgical and thermal coal located in southern West Virginia. CLCC’s operations include two underground continuous mining method metallurgical coal mines and one open surface thermal coal mine. The acquisition includes a metallurgical and thermal coal mining complex with a coal preparation and processing facility as well as a large, long-life reserve base with an estimated 59 million tons of metallurgical coal and 62 million tons of thermal coal. This reserve base increases our total global reserve base to over 166 million tons of metallurgical coal and over 67 million tons of thermal coal. This acquisition represents an opportunity for us to add complementary high-quality coal products and provides certain advantages, including among other things, long-life mine assets, operational flexibility, and new equipment. When combined with our current coal production in West Virginia, Alabama and Queensland, Australia, we estimate 2011 global equity production capacity of approximately 9 million tons at a split of approximately 7 million tons of metallurgical coal and 2 million tons of thermal coal.

The following table summarizes the consideration paid for CLCC and the estimated fair values of the assets acquired and liabilities assumed at the acquisition date. We are in the process of completing certain valuations of the assets acquired and liabilities assumed related to the acquisition, most notably, tangible assets, deferred taxes and goodwill, and the final allocation will be made when completed. Accordingly, the provisional measurements noted below are preliminary and subject to modification in the future.


	(In Millions)
	Initial Allocation			Revised Allocation			Change
Consideration
Cash	$	757.0		$	757.0		$	—
Working capital adjustments		17.5			18.9			(1.4	)

Fair value of total consideration transferred	$	774.5		$	775.9		$	(1.4	)

Recognized amounts of identifiable assets acquired and liabilities assumed
ASSETS:
Product inventories	$	20.0		$	20.0		$	—
Other current assets		11.8			11.8			—
Land and mineral rights		640.3			640.3			—
Plant and equipment		111.1			111.1			—
Deferred taxes		16.5			16.0			0.5
Intangible assets		7.5			7.5			—
Other non-current assets		0.8			0.8			—

Total identifiable assets acquired		808.0			807.5			0.5
LIABILITIES:
Current liabilities		(22.8	)		(24.1	)		1.3
Mine closure obligations		(2.8	)		(2.8	)		—
Below-market sales contracts		(32.6	)		(32.6	)		—

Total identifiable liabilities assumed		(58.2	)		(59.5	)		1.3

Total identifiable net assets acquired		749.8			748.0			1.8
Preliminary goodwill		24.7			27.9			(3.2	)

Total net assets acquired	$	774.5		$	775.9		$	(1.4	)

123

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Of the $7.5 million of acquired intangible assets, $5.4 million was assigned to the value of in-place permits and will be amortized on a straight-line basis over the life of the mine. The remaining $2.1 million was assigned to the value of favorable mineral leases and will be amortized over the corresponding mine life.

The $27.9 million of preliminary goodwill resulting from the acquisition was assigned to our North American Coal business segment. The preliminary goodwill recognized is primarily attributable to the addition of complementary high-quality coal products to our existing operations and operational flexibility. None of the preliminary goodwill is expected to be deductible for income tax purposes. Refer to NOTE 6 — GOODWILL AND OTHER INTANGIBLE ASSETS AND LIABILITIES for further information.

As our fair value estimates remain materially unchanged from the third quarter of 2010, there were no significant changes to the purchase price allocation from the initial allocation reported for the period ended September 30, 2010. We expect to finalize the purchase price allocation for the acquisition of CLCC in the first half of 2011.

With regard to each of the acquisitions discussed above, pro forma results of operations have not been presented because the effects of these business combinations, individually and in the aggregate, were not material to our consolidated results of operations.

NOTE 6 — GOODWILL AND OTHER INTANGIBLE ASSETS AND LIABILITIES

Goodwill

The following table summarizes changes in the carrying amount of goodwill allocated by reporting unit during 2010 and 2009:


	(In Millions)
	December 31, 2010										December 31, 2009
	North American Iron Ore		North American Coal		Asia Pacific Iron Ore		Other		Total		North American Iron Ore		Asia Pacific Iron Ore		Total
Beginning Balance	$	2.0	$	—	$	72.6	$	—	$	74.6	$	2.0	$	—	$	2.0
Arising in business combinations		3.1		27.9		—		80.9		111.9		—		68.3		68.3
Impact of foreign currency translation		—		—		10.0		—		10.0		—		4.3		4.3

Ending Balance	$	5.1	$	27.9	$	82.6	$	80.9	$	196.5	$	2.0	$	72.6	$	74.6

The increase in the balance of goodwill as of December 31, 2010 includes the assignment to goodwill of $80.9 million related to the finalization of the purchase price allocation for the acquisition of a controlling interest in Freewest and Spider and the assignment to preliminary goodwill of $27.9 million related to the acquisition of CLCC. In addition, the goodwill balance as December 31, 2010 includes the assignment of $3.1 million to goodwill based on the finalization of the purchase price allocation for the acquisition of the remaining interest in Wabush. The balance of $196.5 million and $74.6 million as of December 31, 2010 and 2009, respectively, is presented as Goodwill on the Statements of Consolidated Financial Position. Refer to NOTE 5 — ACQUISITIONS AND OTHER INVESTMENTS for additional information.

Goodwill is not subject to amortization and is tested for impairment annually or when events or circumstances indicate that impairment may have occurred.

124

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Other Intangible Assets and Liabilities

Following is a summary of intangible assets and liabilities at December 31, 2010 and 2009:


		(In Millions)
		December 31, 2010									December 31, 2009
	Classification	Gross Carrying Amount			Accumulated Amortization			Net Carrying Amount			Gross Carrying Amount			Accumulated Amortization			Net Carrying Amount
Definite lived intangible assets:
Permits	Intangible assets, net	$	132.4		$	(16.3	)	$	116.1		$	120.3		$	(8.2	)	$	112.1
Utility contracts	Intangible assets, net		54.7			(10.2	)		44.5			—			—			—
Easements	Intangible assets, net		11.7			(0.4	)		11.3			—			—			—
Leases	Intangible assets, net		5.2			(2.9	)		2.3			3.1			(2.8	)		0.3
Unpatented technology	Intangible assets, net		4.0			(2.4	)		1.6			4.0			(1.6	)		2.4

Total intangible assets		$	208.0		$	(32.2	)	$	175.8		$	127.4		$	(12.6	)	$	114.8

Below-market sales contracts	Below-market sales contracts - current	$	(77.0	)	$	19.9		$	(57.1	)	$	(30.3	)	$	—		$	(30.3	)
Below-market sales contracts	Below-Market Sales Contracts		(252.3	)		87.9			(164.4	)		(198.7	)		45.4			(153.3	)

Total below-market sales contracts		$	(329.3	)	$	107.8		$	(221.5	)	$	(229.0	)	$	45.4		$	(183.6	)

The intangible assets are subject to periodic amortization on a straight-line basis over their estimated useful lives as follows:


Intangible Asset		Useful Life (years)
Permits		15 - 28
Utility contracts		5
Easements		30
Leases		1.5 - 4.5
Unpatented technology		5

Amortization expense relating to intangible assets was $19.6 million, $9.8 million and $2.8 million, respectively, for the years ended December 31, 2010, 2009 and 2008, and is recognized in Cost of goods sold and operating expenses on the Statements of Consolidated Operations. The estimated amortization expense relating to intangible assets for each of the five succeeding fiscal years is as follows:


	(In Millions)
	Amount
Year Ending December 31
2011	$	18.2
2012		18.2
2013		17.3
2014		17.3
2015		6.2

Total	$	77.2

125

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

The below-market sales contracts are classified as a liability and recognized over the terms of the underlying contracts, which range from 3.5 to 8.5 years. For the years ended December 31, 2010, 2009 and 2008, we recognized $62.4 million, $30.3 million and $15.1 million, respectively, in Product revenues related to the below-market sales contracts. The following amounts will be recognized in Product revenues for each of the five succeeding fiscal years:


	(In Millions)
	Amount
Year Ending December 31
2011	$	58.3
2012		48.8
2013		45.3
2014		23.0
2015		23.0

Total	$	198.4

NOTE 7 — FAIR VALUE OF FINANCIAL INSTRUMENTS

The following represents the assets and liabilities of the Company measured at fair value at December 31, 2010 and 2009:

(In Millions)

December 31, 2010

Description

Quoted Prices in Active
Markets for Identical
Assets/Liabilities
(Level 1)

Significant Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Total

Assets:

Cash equivalents

1,307.2

—

1,307.2

Derivative assets

—

45.6

U.S. marketable securities

22.0

—

22.0

International marketable securities

63.9

—

63.9

Foreign exchange contracts

—

39.0

—

39.0

Total

1,393.1

39.0

45.6

1,477.7


	(In Millions)
	December 31, 2009
Description	Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Cash equivalents	$	376.0	$	—	$	—	$	376.0
Derivative assets		—		—		63.2		63.2
U.S. marketable securities		28.2		—		—		28.2
International marketable securities		52.8		—		—		52.8
Foreign exchange contracts		—		4.2		—		4.2

Total	$	457.0	$	4.2	$	63.2	$	524.4

There were no financial instruments measured at fair value that were in a liability position at December 31, 2010 and 2009.

126

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Financial assets classified in Level 1 at December 31, 2010 and 2009 include money market funds and available-for-sale marketable securities. The valuation of these instruments is determined using a market approach, taking into account current interest rates, creditworthiness, and liquidity risks in relation to current market conditions, and is based upon unadjusted quoted prices for identical assets in active markets.

The valuation of financial assets and liabilities classified in Level 2 is determined using a market approach based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for substantially the full term of the financial instrument. Level 2 securities primarily include derivative financial instruments valued using financial models that use as their basis readily observable market parameters. At December 31, 2010 and 2009, such derivative financial instruments include substantially all of our foreign exchange hedge contracts. The fair value of the foreign exchange hedge contracts is based on forward market prices and represents the estimated amount we would receive or pay to terminate these agreements at the reporting date, taking into account creditworthiness, nonperformance risk, and liquidity risks associated with current market conditions.

The Level 2 derivative assets in 2010 also consisted of freestanding derivatives related to certain supply agreements with our North American Iron Ore customers. As a result of a recent shift in the industry toward shorter-term pricing arrangements that are linked to the spot market and elimination of the annual benchmark system, we have been negotiating the terms of certain of our customer supply agreements and recorded certain shipments made during 2010 on a provisional basis until final settlement was reached with some of our customers through the fourth quarter of 2010. The pricing provisions were characterized as freestanding derivatives and were required to be accounted for separately once the product was shipped. The derivative instrument, which was settled and billed once final pricing settlements were reached, was marked to fair value as a revenue adjustment each reporting period. During the third quarter of 2010, we revised the inputs used to determine the fair value of these derivatives to include 2010 published pricing settlements realized by other companies in the industry. Prior to this change, the fair value was primarily determined based on significant unobservable inputs to develop the forward price expectation of the final price settlement for 2010. Based on these changes to the determination of the fair value, we transferred $161.8 million of derivative assets from a Level 3 classification to a Level 2 classification within the fair value hierarchy during the third quarter of 2010. The fair value of our derivatives was determined using a market approach and takes into account current market conditions and other risks, including nonperformance risk. The derivative instrument was settled in the fourth quarter of 2010, upon settlement of the pricing provisions with some of our North American Iron Ore customers, and is therefore not reflected in the Statement of Consolidated Financial Position at December 31, 2010. With respect to the North American Iron Ore customers for which final pricing for the 2010 contract year has not yet been settled as of December 31, 2010, we did not record shipments on a provisional basis due pending arbitrations.

The derivative financial asset classified within Level 3 at December 31, 2010 and 2009 is an embedded derivative instrument included in certain supply agreements with one of our North American Iron Ore customers. The agreements include provisions for supplemental revenue or refunds based on the customer’s annual steel pricing at the time the product is consumed in the customer’s blast furnaces. We account for this provision as a derivative instrument at the time of sale and mark this provision to fair value as a revenue adjustment each reporting period until the product is consumed and the amounts are settled. The fair value of the instrument is determined using a market approach based on an estimate of the annual realized price of hot rolled steel at the steelmaker’s facilities, and takes into consideration current market conditions and nonperformance risk.

Substantially all of the financial assets and liabilities are carried at fair value or contracted amounts that approximate fair value. We had no financial assets and liabilities measured at fair value on a non-recurring basis at December 31, 2010 and 2009.

127

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

We recognize any transfers between levels as of the beginning of the reporting period, including both transfers into and out of levels. There were no transfers between Level 1 and Level 2 of the fair value hierarchy as of December 31, 2010. As noted above, there was a transfer from Level 3 to Level 2 during the third quarter of 2010, as reflected in the table below. The following represents a reconciliation of the changes in fair value of financial instruments measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31, 2010 and 2009.


	(In Millions)
	Derivative Assets (Level 3)
	Year Ended December 31,
	2010			2009
Beginning balance — January 1	$	63.2		$	76.6
Total gains (losses)
Included in earnings		851.7			22.2
Included in other comprehensive income		—			—
Settlements		(707.5	)		(35.6	)
Transfers out of Level 3		(161.8	)		—

Ending balance — December 31	$	45.6		$	63.2

Total gains (losses) for the period included in earnings attributable to the change in unrealized gains or losses on assets and liabilities still held at the reporting date	$	120.2		$	22.2

Gains and losses included in earnings are reported in Product revenue on the Statements of Consolidated Operations for the years ended December 31, 2010 and 2009.

The carrying amount and fair value of our long-term receivables and long-term debt at December 31, 2010 and 2009 were as follows:


	(In Millions)
	December 31, 2010				December 31, 2009
	Carrying Value		Fair Value		Carrying Value		Fair Value
Long-term receivables:
Customer supplemental payments	$	22.3	$	19.5	$	21.4	$	17.5
ArcelorMittal USA — Ispat receivable		32.8		38.9		38.3		45.7
Other		8.1		8.1		—		—

Total long-term receivables (1)	$	63.2	$	66.5	$	59.7	$	63.2

Long-term debt:
Senior notes — $1 billion	$	990.3	$	972.5	$	—	$	—
Senior notes — $400 million		397.8		422.8		—		—
Senior notes — $325 million		325.0		355.6		325.0		332.9
Term loan		—		—		200.0		200.0
Customer borrowings		4.0		4.0		4.6		4.6

Total long-term debt	$	1,717.1	$	1,754.9	$	529.6	$	537.5

(1)	Includes current portion.

128

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

2013. Interest is payable by the customer quarterly and began in September 2009 at the higher of 9 percent or the prime rate plus 350 basis points. As of December 31, 2010, we have a receivable of $22.3 million recorded in Long-term receivables on the Statement of Consolidated Financial Position reflecting the terms of this deferred payment arrangement. This compares with a receivable of $21.4 million recorded as of December 31, 2009. The fair value of the receivable of $19.5 million and $17.5 million at December 31, 2010 and 2009, respectively, is based on a discount rate of 4.4 percent, which represents the estimated credit-adjusted risk-free interest rate for the period the receivable is outstanding.

In 2002, we entered into an agreement with Ispat that restructured the ownership of the Empire mine and increased our ownership from 46.7 percent to 79 percent in exchange for the assumption of all mine liabilities. Under the terms of the agreement, we indemnified Ispat from obligations of Empire in exchange for certain future payments to Empire and to us by Ispat of $120 million, recorded at a present value of $32.8 million and $38.3 million at December 31, 2010 and 2009, respectively. The fair value of the receivable of $38.9 million and $45.7 million at December 31, 2010 and 2009, respectively, is based on a discount rate of 3.7 percent, which represents the estimated credit-adjusted risk-free interest rate for the period the receivable is outstanding.

The fair value of long-term debt was determined using quoted market prices or discounted cash flows based upon current borrowing rates. The term loan and revolving loan are variable rate interest and approximate fair value. See NOTE 8 — DEBT AND CREDIT FACILITIES for further information.

NOTE 8 — DEBT AND CREDIT FACILITIES

The following represents a summary of our long-term debt as of December 31, 2010 and 2009:


	($ in Millions)
	December 31, 2010
Debt Instrument	Type	Average Annual Interest Rate			Final Maturity		Face Amount		Total Long-Term Debt
$1 Billion Senior Notes:
$500 Million 4.80% 2020 Senior Notes	Fixed		4.80	%		2020	$	500.0	$	499.0	(4)
$500 Million 6.25% 2040 Senior Notes	Fixed		6.25	%		2040		500.0		491.3	(4)
$400 Million Senior Notes	Fixed		5.90	%		2020		400.0		397.8	(3)
$325 Million Private Placement Senior Notes:
Series 2008A — Tranche A	Fixed		6.31	%		2013		270.0		270.0
Series 2008A — Tranche B	Fixed		6.59	%		2015		55.0		55.0
$600 Million Credit Facility: (1)
Revolving loan	Variable		—	%		2012		600.0		—	(2)

Total							$	2,325.0	$	1,713.1


	December 31, 2009
Debt Instrument	Type	Average Annual Interest Rate			Final Maturity		Face Amount		Total Long-Term Debt
$325 Million Private Placement Senior Notes:
Series 2008A — Tranche A	Fixed		6.31	%		2013	$	270.0	$	270.0
Series 2008A — Tranche B	Fixed		6.59	%		2015		55.0		55.0
$800 Million Credit Facility:
Term loan	Variable		1.43	%		2012		200.0		200.0
Revolving loan	Variable		—	%		2012		600.0		—	(2)

Total							$	1,125.0	$	525.0

129

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

(1)	The $200 million term loan was repaid in full on March 31, 2010.

(2)	As of December 31, 2010 and 2009, no revolving loans were drawn under the credit facility; however, the principal amount of letter of credit obligations totaled $64.7 million and $31.4 million, respectively, reducing available borrowing capacity to $535.3 million and $568.6 million, respectively.

(3)	As of December 31, 2010, the $400 million senior notes were recorded at par value of $400 million less unamortized discounts of $2.2 million, based on an imputed interest rate of 5.98 percent.

(4)

As of December 31, 2010, the $500 million 4.80 percent 2020 senior notes and the $500 million 6.25 percent 2040 senior notes were recorded at par values of $500 million less unamortized discounts of $1.0 million and $8.7 million, respectively, based on imputed interest rates of 4.83 percent and 6.38 percent, respectively.

$1 Billion Senior Notes Offering

On September 20, 2010, we completed a $1 billion public offering of senior notes consisting of two tranches: a 10-year tranche of $500 million aggregate principal amount at 4.80 percent due October 1, 2020, and a 30-year tranche of $500 million aggregate principal amount at 6.25 percent due October 1, 2040. Interest is fixed and is payable on April 1 and October 1 of each year, beginning on April 1, 2011, for both series of senior notes until maturity. The senior notes are unsecured obligations and rank equally with all of our other existing and future senior unsecured and unsubordinated indebtedness. There are no subsidiary guarantees of the interest and principal amounts.

A portion of the net proceeds from the senior notes offering was used for the repayment of the $350 million borrowings outstanding under our credit facility, which we repaid on September 22, 2010. Other uses of the net proceeds may include general corporate purposes, including funding of capital expenditures and acquisitions. Pending other uses, we may also invest the net proceeds from the offering in short-term marketable securities.

The senior notes may be redeemed any time at our option after 30 days but within no more than 60 days of notice to the holders of the applicable series of notes. The senior notes are redeemable at a redemption price equal to the greater of (1) 100 percent of the principal amount of the notes to be redeemed or (2) the sum of the present values of the remaining scheduled payments of principal and interest on the notes to be redeemed, discounted to the redemption date on a semi-annual basis at the treasury rate plus 35 basis points with respect to the 2020 senior notes and 40 basis points with respect to the 2040 senior notes, plus, in each case, accrued and unpaid interest to the date of redemption. In addition, if a change of control triggering event occurs with respect to the notes, we will be required to offer to purchase the notes at a purchase price equal to 101 percent of the principal amount, plus accrued and unpaid interest to the date of purchase.

The terms of the senior notes contain certain customary covenants; however, there are no financial covenants.

$400 Million Senior Notes Offering

On March 17, 2010, we completed a $400 million public offering of senior notes due March 15, 2020. Interest at a fixed rate of 5.90 percent is payable on March 15 and September 15 of each year, beginning on September 15, 2010, until maturity on March 15, 2020. The senior notes are unsecured obligations and rank equally with all of our other existing and future senior unsecured and unsubordinated indebtedness. There are no subsidiary guarantees of the interest and principal amounts.

A portion of the net proceeds from the senior notes offering was used for the repayment of our $200 million term loan under our credit facility, which we repaid on March 31, 2010, as well as the repayment of our share of Amapá’s remaining debt outstanding of $100.8 million on May 27, 2010. In addition, we used the remainder of the net proceeds to help fund the acquisitions of Spider and CLCC during the third quarter of 2010.

130

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

The senior notes may be redeemed any time at our option after 30 days but within no more than 60 days of notice to the note holders. The senior notes are redeemable at a redemption price equal to the greater of (1) 100 percent of the principal amount of the notes to be redeemed or (2) the sum of the present values of the remaining scheduled payments of principal and interest on the notes to be redeemed, discounted to the redemption date on a semi-annual basis, plus accrued and unpaid interest to the date of redemption. In addition, if a change of control triggering event occurs, we will be required to offer to purchase the notes at a purchase price equal to 101 percent of the principal amount, plus accrued and unpaid interest to the date of purchase.

The terms of the senior notes contain certain customary covenants; however, there are no financial covenants.

$325 Million Private Placement Senior Notes

On June 25, 2008, we entered into a $325 million private placement consisting of $270 million of 6.31 percent Five-Year Senior Notes due June 15, 2013, and $55 million of 6.59 percent Seven-Year Senior Notes due June 15, 2015. Interest is paid on the notes for both tranches on June 15 and December 15 until their respective maturities. The notes are unsecured obligations with interest and principal amounts guaranteed by certain of our domestic subsidiaries. The notes and guarantees were not required to be registered under the Securities Act of 1933, as amended, and were placed with qualified institutional investors. We used the proceeds to repay senior unsecured indebtedness and for general corporate purposes.

The terms of the private placement senior notes contain customary covenants that require compliance with certain financial covenants based on: (1) debt to earnings ratio (Total Funded Debt to Consolidated EBITDA, as those terms are defined in the agreement, for the preceding four quarters cannot exceed 3.25 to 1.0 on the last day of any fiscal quarter) and (2) interest coverage ratio (Consolidated EBITDA to Interest Expense, as those terms are defined in the agreement, for the preceding four quarters must not be less than 2.5 to 1.0 on the last day of any fiscal quarter). As of December 31, 2010 and 2009, we were in compliance with the financial covenants in the note purchase agreement.

Credit Facility

On August 17, 2007, we entered into a five-year unsecured credit facility with a syndicate of 13 financial institutions. Effective October 29, 2009, we amended the terms of our $800 million credit facility. The amendment resulted in, among other things, an increase in the sub-limit for letters of credit from $50 million to $150 million, the addition of multi-currency letters of credit, and more liberally defined financial covenants and debt restrictions. An increase of 50 basis points to the annual LIBOR margin resulted from this amendment. The $200 million term loan was repaid in full on March 31, 2010. As of December 31, 2010, the facility provides $600 million in borrowing capacity, comprised of revolving loans, swing loans and letters of credit.

Loans are drawn with a choice of interest rates and maturities, subject to the terms of the agreement. Pursuant to the amendment described above, interest rates are either (1) a range from LIBOR plus 0.95 percent to LIBOR plus 1.625 percent based on debt and earnings levels, or (2) the highest of the Federal Funds Rate plus 0.50 percent, the prime rate plus a range of 0 to 0.625 percent, or the one-month LIBOR rate plus 1.0 percent based on debt and earnings levels.

The credit facility has two financial covenants based on: (1) debt to earnings ratio (Total Funded Debt to Consolidated EBITDA, as those terms are defined in the agreement, for the preceding four quarters cannot exceed 3.25 to 1.0 on the last day of any fiscal quarter) and (2) interest coverage ratio (Consolidated EBITDA to Interest Expense, as those terms are defined in the agreement, for the preceding four quarters must not be less than 2.5 to 1.0 on the last day of any fiscal quarter). Prior to the October 29, 2009 credit facility amendment the interest coverage ratio was calculated based on Consolidated EBIT to Interest Expense for the preceding four quarters and could not be less than 3.0 to 1.0 on the last day of any fiscal quarter. The amendment provides more liberally defined financial covenants. As of December 31, 2010 and 2009, we were in compliance with the financial covenants in the credit agreement.

131

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Short-term Facilities

On March 31, 2010, Asia Pacific Iron Ore entered into a new A$40 million ($40.7 million) bank contingent instrument facility and cash advance facility to replace the existing A$40 million multi-option facility, which was extended through June 30, 2010 and subsequently renewed until June 30, 2011. The facility, which is renewable annually at the bank’s discretion, provides A$40 million in credit for contingent instruments, such as performance bonds and the ability to request a cash advance facility to be provided at the discretion of the bank. As of December 31, 2010, the outstanding bank guarantees under this facility totaled A$24 million ($24.4 million), thereby reducing borrowing capacity to A$16 million ($16.3 million). We have provided a guarantee of the facility, along with certain of our Australian subsidiaries. The facility agreement contains customary covenants that require compliance with certain financial covenants: (1) debt to earnings ratio and (2) interest coverage ratio, both based on the financial performance of the Company. As of December 31, 2010, we were in compliance with these financial covenants.

Latin America

At December 31, 2009, Amapá had total project debt outstanding of approximately $530 million, for which we provided a several guarantee on our 30 percent share. During 2010, Amapá repaid its total project debt outstanding. Repayment of our share of the total project debt outstanding consisted of $54.2 million and $100.8 million repaid on February 17, 2010 and May 27, 2010, respectively. Upon repayment, our estimate of the aggregate fair value of the outstanding guarantee of $6.7 million was reversed through Equity income (loss) from ventures in the Statements of Consolidated Operations for the year ended December 31, 2010. The fair value was estimated using a discounted cash flow model based upon the spread between guaranteed and non-guaranteed debt over the period the debt was expected to be outstanding.

Debt Maturities

Maturities of long-term debt instruments based on the principal amounts outstanding at December 31, 2010, total $270 million in 2013, $55 million in 2015 and $1.4 billion thereafter.

Refer to NOTE 7 — FAIR VALUE OF FINANCIAL INSTRUMENTS for further information.

NOTE 9 — LEASE OBLIGATIONS

We lease certain mining, production and other equipment under operating and capital leases. The leases are for varying lengths, generally at market interest rates and contain purchase and/or renewal options at the end of the terms. Our operating lease expense was $24.2 million, $25.5 million and $20.8 million in 2010, 2009 and 2008, respectively. Capital lease assets were $283.2 million and $167.1 million at December 31, 2010 and 2009, respectively. Corresponding accumulated amortization of capital leases included in respective allowances for depreciation were $92.7 million and $41.5 million at December 31, 2010 and 2009, respectively.

In December 2010, our North American Coal segment entered into a sale-leaseback arrangement. Under the arrangement, we sold the new longwall plow system at our Pinnacle mine in West Virginia and leased it back for a period of five years. The sale-leaseback arrangement was specific to the assets at the time of the agreement and does not include the longwall plow system assets pending delivery. The leaseback has been accounted for as a capital lease. We recorded assets and liabilities under the capital lease of $57.3 million, reflecting the lower of the present value of the minimum lease payments or the fair value of the asset.

132

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Future minimum payments under capital leases and non-cancellable operating leases at December 31, 2010 are as follows:


	(In Millions)
	Capital Leases			Operating Leases
2011	$	46.5		$	21.3
2012		43.5			17.1
2013		37.6			17.0
2014		37.1			12.4
2015		41.3			5.7
2016 and thereafter		47.7			8.0

Total minimum lease payments		253.7		$	81.5

Amounts representing interest		51.8

Present value of net minimum lease payments	$	201.9	(1)

(1)	The total is comprised of $33.7 million and $168.2 million classified as Other current liabilities and Other liabilities, respectively, on the Statements of Consolidated Financial Position at December 31, 2010.

Total minimum capital lease payments of $253.7 million include $166.4 million for our Asia Pacific Iron Ore segment, $64.1 million for our North American Coal segment, $21.9 million for our North American Iron Ore segment and $1.3 million for our Corporate segment, respectively. Total minimum operating lease payments of $81.5 million include $52.3 million for our North American Iron Ore segment, $18.4 million for our Corporate segment, and $10.8 million for our Asia Pacific Iron Ore, North American Coal and Other segments.

NOTE 10 — ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS

We had environmental and mine closure liabilities of $199.1 million and $132.3 million at December 31, 2010 and 2009, respectively. Payments in 2010 were $10.6 million compared with $1.6 million in 2009. The following is a summary of the obligations at December 31, 2010 and 2009:


	(In Millions)
	December 31,
	2010		2009
Environmental	$	13.7	$	14.5
Mine closure
LTVSMC		17.1		13.9
Operating mines:
North American Iron Ore		112.0		56.9
North American Coal		34.7		30.3
Asia Pacific Iron Ore		15.4		11.4
Other		6.2		5.3

Total mine closure		185.4		117.8

Total environmental and mine closure obligations		199.1		132.3
Less current portion		14.2		8.0

Long term environmental and mine closure obligations	$	184.9	$	124.3

133

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Environmental

Our mining and exploration activities are subject to various laws and regulations governing the protection of the environment. We conduct our operations to protect the public health and environment and believe our operations are in compliance with applicable laws and regulations in all material respects. Our environmental liabilities of $13.7 million and $14.5 million at December 31, 2010 and 2009, respectively, including obligations for known environmental remediation exposures at various active and closed mining operations and other sites, have been recognized based on the estimated cost of investigation and remediation at each site. If the cost can only be estimated as a range of possible amounts with no specific amount being more likely, the minimum of the range is accrued. Future expenditures are not discounted unless the amount and timing of the cash disbursements are readily known. Potential insurance recoveries have not been reflected. Additional environmental obligations could be incurred, the extent of which cannot be assessed.

As discussed in further detail below, the environmental liability recorded at December 31, 2010 and 2009 is primarily comprised of remediation obligations related to the Rio Tinto mine site in Nevada where we are named as a PRP.

The Rio Tinto Mine Site

The Rio Tinto Mine Site is a historic underground copper mine located near Mountain City, Nevada, where tailings were placed in Mill Creek, a tributary to the Owyhee River. Site investigation and remediation work is being conducted in accordance with a Consent Order between the Nevada DEP and the RTWG composed of Cliffs, Atlantic Richfield Company, Teck Cominco American Incorporated, and E. I. du Pont de Nemours and Company. The Consent Order provides for technical review by the U.S. Department of the Interior Bureau of Indian Affairs, the U.S. Fish & Wildlife Service, U.S. Department of Agriculture Forest Service, the NDEP and the Shoshone-Paiute Tribes of the Duck Valley Reservation (collectively, “Rio Tinto Trustees”). The Consent Order is currently projected to continue with the objective of supporting the selection of the final remedy for the site. Costs are shared pursuant to the terms of a Participation Agreement between the parties of the RTWG, who have reserved the right to renegotiate any future participation or cost sharing following the completion of the Consent Order.

The Rio Tinto Trustees have made available for public comment their plans for the assessment of NRD. The RTWG commented on the plans and also are in discussions with the Rio Tinto Trustees informally about those plans. The notice of plan availability is a step in the damage assessment process. The studies presented in the plan may lead to a NRD claim under CERCLA. There is no monetized NRD claim at this time.

The focus of the RTWG has been on development of alternatives for remediation of the mine site. A draft of the alternative studies was reviewed with NDEP, the EPA and the Rio Tinto Trustees, and such alternatives have been reduced to the following: (1) tailings stabilization and long-term water treatment; and (2) removal of the tailings. As of December 31, 2010, the estimated costs of the available remediation alternatives currently range from approximately $10.0 million to $30.5 million in total for all potentially responsible parties. In recognition of the potential for an NRD claim, the parties are actively pursuing a global settlement that would include the EPA and encompass both the remedial action and the NRD issues.

On May 29, 2009, the RTWG entered into a Rio Tinto Mine Site Work and Cost Allocation Agreement (the “Allocation Agreement”) to resolve differences over the allocation of any negotiated remedy. The Allocation Agreement contemplates that the RTWG will enter into an insured fixed-price cleanup or IFC, pursuant to which a contractor would assume responsibility for the implementation and funding of the remedy in exchange for a fixed price. We are obligated to fund 32.5 percent of the IFC. In the event an IFC is not implemented, the RTWG has agreed on allocation percentages in the Allocation Agreement, with Cliffs being committed to fund 32.5 percent of any remedy. We have an environmental liability of $9.2 million and $9.5 million on the Statements of Consolidated Financial Position as of December 31, 2010 and 2009, respectively, related to this issue. We

134

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

believe our current reserve is adequate to fund our anticipated portion of the IFC. While a global settlement with the EPA has not been finalized, we expect an agreement will be reached in 2011.

Mine Closure

Our mine closure obligation of $185.4 million and $117.8 million at December 31, 2010 and 2009, respectively, includes our five consolidated North American operating iron ore mines, our six operating North American coal mines, our Asia Pacific operating iron ore mines, the coal mine at Sonoma and a closed operation formerly known as LTVSMC.

Management periodically performs an assessment of the obligation to determine the adequacy of the liability in relation to the closure activities still required at the LTVSMC site. The LTVSMC closure liability was $17.1 million and $13.9 million at December 31, 2010 and 2009, respectively.

The accrued closure obligation for our active mining operations provides for contractual and legal obligations associated with the eventual closure of the mining operations. We performed a detailed assessment of our asset retirement obligations related to our active mining locations most recently in 2008 in accordance with our Company’s accounting policy, which requires us to perform an in-depth evaluation of the liability every three years in addition to routine annual assessments. We determined the obligations based on detailed estimates adjusted for factors that a market participant would consider (i.e., inflation, overhead and profit), escalated at an assumed 3.5 percent rate of inflation to the estimated closure dates, and then discounted using the current credit-adjusted risk-free interest rate based on the corresponding life of mine. The estimate also incorporates incremental increases in the closure cost estimates and changes in estimates of mine lives. The closure date for each location was determined based on the exhaustion date of the remaining iron ore reserves. The accretion of the liability and amortization of the related asset is recognized over the estimated mine lives for each location. The following represents a rollforward of our asset retirement obligation liability related to our active mining locations for the years ended December 31, 2010 and 2009:


	(In Millions)
	December 31,
	2010			2009
Asset retirement obligation at beginning of period	$	103.9		$	86.8
Accretion expense		13.1			6.8
Exchange rate changes		2.5			3.6
Revision in estimated cash flows		1.0			6.7
Payments		(8.4	)		—
Acquired through business combinations		56.2			—

Asset retirement obligation at end of period	$	168.3		$	103.9

NOTE 11 — PENSIONS AND OTHER POSTRETIREMENT BENEFITS

On October 6, 2008, the USW ratified a four-year labor contract, which replaced the labor agreement that expired on September 1, 2008. The agreement covers approximately 2,300 USW-represented workers at our

135

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Empire and Tilden mines in Michigan, and our United Taconite and Hibbing mines in Minnesota. The changes enhanced the minimum pension formula by increasing the benefit dollar multipliers and renewed the lump sum special payments for certain employees retiring in the near future. The changes also included renewal of payments to surviving spouses of certain retirees.

In addition, we currently provide various levels of retirement health care and OPEB to most full-time employees who meet certain length of service and age requirements (a portion of which are pursuant to collective bargaining agreements). Most plans require retiree contributions and have deductibles, co-pay requirements, and benefit limits. Most bargaining unit plans require retiree contributions and co-pays for major medical and prescription drug coverage. There is an annual limit on our cost for medical coverage under the U.S. salaried plans. The annual limit applies to each covered participant and equals $7,000 for coverage prior to age 65 and $3,000 for coverage after age 65, with the retiree’s participation adjusted based on the age at which retiree’s benefits commence. For participants at our Northshore operation, the annual limit ranges from $4,020 to $4,500 for coverage prior to age 65, and equals $2,000 for coverage after age 65. Covered participants pay an amount for coverage equal to the excess of (i) the average cost of coverage for all covered participants, over (ii) the participant’s individual limit, but in no event will the participant’s cost be less than 15 percent of the average cost of coverage for all covered participants. For Northshore participants, the minimum participant cost is a fixed dollar amount. We do not provide OPEB for most U.S. salaried employees hired after January 1, 1993. OPEB are provided through programs administered by insurance companies whose charges are based on benefits paid.

Our North American Coal segment is required under an agreement with the UMWA to pay amounts into the UMWA pension trusts based principally on hours worked by UMWA-represented employees. This includes employees of PinnOak, who became employees of the Company through the July 2007 acquisition. These multi-employer pension trusts provide benefits to eligible retirees through a defined benefit plan. The UMWA 1993 Benefit Plan is a defined contribution plan that was created as the result of negotiations for the NBCWA of 1993. The plan provides healthcare insurance to orphan UMWA retirees who are not eligible to participate in the UMWA Combined Benefit Fund or the 1992 Benefit Fund (two multi-employer benefit plans created under the Coal Industry Retiree Health Benefit Act of 1992) or whose last employer signed the 1993 or later NBCWA and who subsequently goes out of business. Contributions to the trust were at rates of $6.42 and $5.27 per hour worked in 2010 and 2009, respectively, and amounted to $10.3 million in 2010 and $6.1 million in 2009.

Pursuant to the four-year labor agreements reached with the USW for U.S. employees, effective January 1, 2009, negotiated plan changes removed the cap on our share of future bargaining unit retirees’ healthcare premiums and provided a maximum on the amount retirees will contribute for health care benefits during the term of the agreement. The agreements also provide that we and our partners fund an estimated $90 million into bargaining unit pension plans and VEBAs during the term of the contracts.

In December 2003, The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 was enacted. This act introduced a prescription drug benefit under Medicare Part D as well as a federal subsidy to sponsors of retiree healthcare benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. Our measures of the accumulated postretirement benefit obligation and net periodic postretirement benefit cost as of December 31, 2004, and for periods thereafter reflect amounts associated with the subsidy. As a result, OPEB expense for 2010, 2009 and 2008 reflects estimated cost reductions of $3.7 million, $3.8 million and $2.8 million, respectively. We elected to adopt the retroactive transition method for recognizing the OPEB cost reduction in 2004. The following table summarizes the annual costs related to the retirement plans for 2010, 2009 and 2008:


	(In Millions)
	2010		2009		2008
Defined benefit pension plans	$	45.6	$	50.8	$	20.3
Defined contribution pension plans		4.2		2.1		7.2
Other postretirement benefits		24.2		25.5		8.6

Total	$	74.0	$	78.4	$	36.1

136

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

The following tables and information provide additional disclosures for our consolidated plans.

Obligations and Funded Status

The following tables and information provide additional disclosures for the years ended December 31, 2010 and 2009:


	(In Millions)
	Pension Benefits						Other Benefits
Change in benefit obligations:	2010			2009			2010			2009
Benefit obligations — beginning of year	$	750.8		$	706.6		$	333.0		$	307.4
Service cost (excluding expenses)		18.5			14.3			7.5			5.4
Interest cost		52.9			42.6			22.0			18.9
Plan amendments		3.7			3.0			—			—
Actuarial loss		57.5			38.6			43.6			19.5
Benefits paid		(67.0	)		(54.3	)		(28.2	)		(22.8	)
Participant contributions		—			—			6.2			3.7
Federal subsidy on benefits paid		—			—			0.9			0.9
Exchange rate gain		10.2			—			2.9			—
Acquired through business combinations		195.7			—			52.3			—

Benefit obligations — end of year	$	1,022.3		$	750.8		$	440.2		$	333.0


Change in plan assets:
Fair value of plan assets — beginning of year	$	483.4		$	456.0		$	136.7		$	91.6
Actual return on plan assets		87.1			63.0			20.1			27.8
Participant contributions		—			—			1.6			—
Employer contributions		45.6			18.5			23.7			17.4
Asset transfers		—			0.2			—			—
Benefits paid		(67.0	)		(54.3	)		(7.9	)		(0.1	)
Exchange rate gain		8.9			—			—			—
Acquired through business combinations		176.3			—			—			—

Fair value of plan assets — end of year	$	734.3		$	483.4		$	174.2		$	136.7


Funded status at December 31:
Fair value of plan assets	$	734.3		$	483.4		$	174.2		$	136.7
Benefit obligations		(1,022.3	)		(750.8	)		(440.2	)		(333.0	)

Funded status (plan assets less benefit obligations)	$	(288.0	)	$	(267.4	)	$	(266.0	)	$	(196.3	)

Amount recognized at December 31	$	(288.0	)	$	(267.4	)	$	(266.0	)	$	(196.3	)


Amounts recognized in Statements of Financial Position:
Current liabilities	$	(3.1	)	$	(0.1	)	$	(22.9	)	$	(17.8	)
Noncurrent liabilities		(284.9	)		(267.3	)		(243.1	)		(178.5	)

Net amount recognized	$	(288.0	)	$	(267.4	)	$	(266.0	)	$	(196.3	)


Amounts recognized in accumulated other comprehensive income:
Net actuarial loss	$	269.3		$	313.7		$	152.3		$	120.9
Prior service cost		24.2			23.9			11.8			13.5
Transition asset		—			—			(5.7	)		(9.1	)

Net amount recognized	$	293.5		$	337.6		$	158.4		$	125.3


The estimated amounts that will be amortized from accumulated other comprehensive income into net periodic benefit cost in 2011:
Net actuarial loss	$	19.7					$	9.6
Prior service cost		4.4						3.7
Transition asset		—						(3.0	)

Net amount recognized	$	24.1					$	10.3

137

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)


	(In Millions)
	2010
	Pension Plans															Other Benefits
	Salaried			Hourly			Mining			SERP			Total			Salaried			Hourly			Total
Fair value of plan assets	$	275.3		$	456.7		$	2.3		$	—		$	734.3		$	—		$	174.2		$	174.2
Benefit obligation		(373.8	)		(635.3	)		(4.4	)		(8.8	)		(1,022.3	)		(63.7	)		(376.5	)		(440.2	)
Funded status	$	(98.5	)	$	(178.6	)	$	(2.1	)	$	(8.8	)	$	(288.0	)	$	(63.7	)	$	(202.3	)	$	(266.0	)

	2009
	Pension Plans															Other Benefits
	Salaried			Hourly			Mining			SERP			Total			Salaried			Hourly			Total
Fair value of plan assets	$	177.4		$	305.0		$	1.0		$	—		$	483.4		$	—		$	136.7		$	136.7
Benefit obligation		(261.3	)		(480.1	)		(3.6	)		(5.8	)		(750.8	)		(50.4	)		(282.6	)		(333.0	)
Funded status	$	(83.9	)	$	(175.1	)	$	(2.6	)	$	(5.8	)	$	(267.4	)	$	(50.4	)	$	(145.9	)	$	(196.3	)

The accumulated benefit obligation for all defined benefit pension plans was $997.2 million and $733.1 million at December 31, 2010 and 2009, respectively.

Components of Net Periodic Benefit Cost


	(In Millions)
	Pension Benefits									Other Benefits
	2010			2009			2008			2010			2009			2008
Service cost	$	18.5		$	14.3		$	12.6		$	7.5		$	5.4		$	3.4
Interest cost		52.9			42.6			41.4			22.0			18.9			16.3
Expected return on plan assets		(53.3	)		(37.1	)		(48.3	)		(12.9	)		(9.1	)		(10.4	)
Amortization:
Net asset		—			—			—			(3.0	)		(3.0	)		(3.0	)
Prior service costs (credits)		4.4			4.2			4.0			1.7			1.8			(3.8	)
Net actuarial loss		23.1			26.8			10.6			8.9			11.5			6.1

Net periodic benefit cost	$	45.6		$	50.8		$	20.3		$	24.2		$	25.5		$	8.6
Acquired through business combinations		17.7			—			—			2.4			—			—
Current year actuarial (gain)/loss		(3.1	)		12.1			178.2			34.6			2.2			66.6
Amortization of net loss		(23.1	)		(26.8	)		(10.6	)		(8.9	)		(11.5	)		(6.1	)
Current year prior service cost		3.7			3.0			6.7			—			—			33.7
Amortization of prior service (cost) credit		(4.4	)		(4.2	)		(4.0	)		(1.7	)		(1.8	)		3.8
Amortization of transition asset		—			—			—			3.0			3.0			3.0

Total recognized in other comprehensive income	$	(9.2	)	$	(15.9	)	$	170.3		$	29.4		$	(8.1	)	$	101.0

Total recognized in net periodic cost and other comprehensive income	$	36.4		$	34.9		$	190.6		$	53.6		$	17.4		$	109.6

Additional Information


	Pension Benefits							Other Benefits
	2010		2009		2008			2010		2009		2008
Effect of change in mine ownership & noncontrolling interest	$	49.9	$	50.9	$	50.4		$	10.7	$	10.1	$	8.6
Actual return on plan assets		87.1		63.0		(118.2	)		20.1		27.8		(39.8	)

138

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Assumptions

For our U.S. plans we used a discount rate as of December 31, 2010 of 5.11 percent, compared with a discount rate of 5.66 percent as of December 31, 2009. The U.S. discount rates are determined by matching the projected cash flows used to determine the PBO and APBO to a projected yield curve of over 450 Aa graded bonds in the 10th to 90th percentiles. These bonds are either noncallable or callable with make-whole provisions. The duration matching produced rates ranging from 4.93 percent to 5.29 percent for our plans. Based upon these results, we selected a December 31, 2010 discount rate of 5.11 percent for our plans.

For our Canadian plans we used a discount rate as of December 31, 2010 of 5.00 percent. The Canadian discount rates are determined by calculating the single level discount rate that, when applied to a particular cash flow pattern, produces the same present value as discounting the cash flow pattern using spot rates generated from a high-quality corporate bond yield curve. Based on the cash flow patterns and liability duration for the Canadian pension and postretirement welfare plans, which are dependent on the demographic profile of each plan, we selected a discount rate of 5.00 percent for our plans as of December 31, 2010.

Weighted-average assumptions used to determine benefit obligations at December 31 were:


	Pension Benefits						Other Benefits
	2010			2009			2010			2009
U.S. plan discount rate		5.11	%		5.66	%		5.11	%		5.66	%
Canadian plan discount rate		5.00			(1	)		5.00			(1	)
Rate of compensation increase		4.00			4.00			4.00			4.00

(1)	The Canadian plans were not consolidated into our pension and OPEB obligations prior to the acquisition of the remaining 73.2 percent interest in Wabush in February 2010.

Weighted-average assumptions used to determine net benefit cost for the years 2010, 2009 and 2008 were:


	Pension Benefits									Other Benefits
	2010			2009			2008			2010			2009			2008
U.S. plan discount rate		5.66	%		6.00	%		6.00/7.00	%		5.66	%		6.00	%		6.00	%
Canadian plan discount rate		5.75/5.50	(2)		(1	)		(1	)		6.00/5.75	(3)		(1	)		(1	)
U.S. expected return on plan assets		8.50			8.50			8.50			8.50			8.50			8.50
Canadian expected return on plan assets		7.50			(1	)		(1	)		7.50			(1	)		(1	)
Rate of compensation increase		4.00			4.00			4.13			4.00			4.00			4.50

(1)	The Canadian plans were not consolidated into our pension and OPEB obligations prior to the acquisition of the remaining 73.2 percent interest in Wabush in February 2010.

(2)	5.75% from January 1, 2010 through January 31, 2010, and 5.50% from February 1, 2010 through December 31, 2010.

(3)	6.00% from January 1, 2010 through January 31, 2010, and 5.75% from February 1, 2010 through December 31, 2010.

Assumed health care cost trend rates at December 31 were:


	2010			2009
U.S. plan health care cost trend rate assumed for next year		8.00	%		8.00	%
Canadian plan health care cost trend rate assumed for next year		8.50			(1	)
Ultimate health care cost trend rate		5.00			5.00
U.S. plan year that the ultimate rate is reached		2017			2016
Canadian plan year that the ultimate rate is reached		2018			(1	)

139

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

(1)	The Canadian plans were not consolidated into our pension and OPEB obligations prior to the acquisition of the remaining 73.2 percent interest in Wabush in February 2010.

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A change of one percentage point in assumed health care cost trend rates would have the following effects:


	(In Millions)
	Increase		Decrease
Effect on total of service and interest cost	$	4.5	$	(3.6	)
Effect on postretirement benefit obligation		51.5		(41.8	)

Plan Assets

The Company’s financial objectives with respect to our pension and VEBA plan assets are to fully fund the actuarial accrued liability for each of the plans, to maximize investment returns within reasonable and prudent levels of risk, and to maintain sufficient liquidity to meet benefit obligations on a timely basis.

Our investment objective is to outperform the expected Return on Asset (“ROA”) assumption used in the plans’ actuarial reports over a full market cycle, which is considered a period during which the U.S. economy experiences the effects of both an upturn and a downturn in the level of economic activity. In general, these periods tend to last between three and five years. The expected ROA takes into account historical returns and estimated future long-term returns based on capital market assumptions applied to the asset allocation strategy.

The asset allocation strategy is determined through a detailed analysis of assets and liabilities by plan which defines the overall risk that is acceptable with regard to the expected level and variability of portfolio returns, surplus (assets compared to liabilities), contributions, and pension expense.

The asset allocation process involves simulating the effect of financial market performance for various asset allocation scenarios and factoring in the current funded status and likely future funded status levels by taking into account expected growth or decline in the contributions over time. The modeling is then adjusted by simulating unexpected changes in inflation and interest rates. The process also includes quantifying the effect of investment performance and simulated changes to future levels of contributions, determining the appropriate asset mix with the highest likelihood of meeting financial objectives, and regularly reviewing our asset allocation strategy.

The asset allocation strategy varies by plan. The following table reflects the actual asset allocations for pension and VEBA plan assets as of December 31, 2010 and 2009, as well as the 2011 weighted average target asset allocations as of December 31, 2010. Equity investments include securities in large-cap, mid-cap and small-cap companies located in the U.S. and worldwide. Fixed income investments primarily include corporate bonds and government debt securities. Alternative investments include hedge funds, private equity, structured credit and real estate.


	Pension Assets									VEBA Assets
Asset Category	2011 Target Allocation			Percentage of Plan Assets at December 31,						2011 Target Allocation			Percentage of Plan Assets at December 31,
Asset Category	2011 Target Allocation			2010			2009			2011 Target Allocation			2010			2009
Equity securities		42.0	%		42.0	%		37.5	%		41.0	%		44.4	%		46.4	%
Fixed income		31.0			30.6			29.9			34.8			37.4			38.3
Hedge funds		15.9			14.4			14.8			17.9			13.8			10.7
Private equity		5.2			5.0			6.6			6.3			4.3			4.4
Structured credit		3.7			5.4			8.1			—			—			—
Real estate		2.2			2.1			3.0			—			—			—
Cash		—			0.5			0.1			—			0.1			0.2

Total		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

140

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Pension

The fair values of our pension plan assets at December 31, 2010 and 2009 by asset category are as follows:

(In Millions)

December 31, 2010

Asset Category

Quoted Prices in Active
Markets for Identical
Assets/Liabilities
(Level 1)

Significant Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Total

Equity securities:

U.S. large-cap

122.4

—

122.4

U.S. small/mid-cap

21.7

—

21.7

International

164.5

—

164.5

Fixed income

224.7

—

224.7

Hedge funds

—

105.8

Private equity

11.8

—

25.0

36.8

Structured credit

—

39.7

Real estate

—

15.5

Cash

3.2

—

3.2

Total

548.3

—

186.0

734.3


	(In Millions)
	December 31, 2009
Asset Category	Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Equity securities:
U.S. large-cap	$	88.1	$	—	$	—	$	88.1
U.S. small/mid-cap		35.1		—		—		35.1
International		57.8		—		—		57.8
Fixed income		144.8		—		—		144.8
Hedge funds		—		—		71.4		71.4
Private equity		13.6		—		18.2		31.8
Structured credit		—		—		39.1		39.1
Real estate		—		—		14.4		14.4
Cash		0.9		—		—		0.9

Total	$	340.3	$	—	$	143.1	$	483.4

Following is a description of the inputs and valuation methodologies used to measure the fair value of our plan assets.

Equity Securities

Equity securities classified as Level 1 investments include U.S. large, small and mid-cap investments and international equity. These investments are comprised of securities listed on an exchange, market or automated quotation system for which quotations are readily available. The valuation of these securities is determined using a market approach, and is based upon unadjusted quoted prices for identical assets in active markets.

141

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Fixed Income

Fixed income securities classified as Level 1 investments include bonds and government debt securities. These investments are comprised of securities listed on an exchange, market or automated quotation system for which quotations are readily available. The valuation of these securities is determined using a market approach, and is based upon unadjusted quoted prices for identical assets in active markets.

Hedge Funds

Hedge funds are alternative investments comprised of direct or indirect investment in offshore hedge funds of funds with an investment objective to achieve an attractive risk-adjusted return with moderate volatility and moderate directional market exposure over a full market cycle. The valuation techniques used to measure fair value attempt to maximize the use of observable inputs and minimize the use of unobservable inputs. Considerable judgment is required to interpret the factors used to develop estimates of fair value. Valuations of the underlying investment funds are obtained and reviewed. The securities that are valued by the funds are interests in the investment funds and not the underlying holdings of such investment funds. Thus, the inputs used to value the investments in each of the underlying funds may differ from the inputs used to value the underlying holdings of such funds.

In determining the fair value of a security, the fund managers may consider any information that is deemed relevant, which may include one or more of the following factors regarding the portfolio security, if appropriate: type of security or asset; cost at the date of purchase; size of holding; last trade price; most recent valuation; fundamental analytical data relating to the investment in the security; nature and duration of any restriction on the disposition of the security; evaluation of the factors that influence the market in which the security is purchased or sold; financial statements of the issuer; discount from market value of unrestricted securities of the same class at the time of purchase; special reports prepared by analysts; information as to any transactions or offers with respect to the security; existence of merger proposals or tender offers affecting the security; price and extent of public trading in similar securities of the issuer or compatible companies and other relevant matters; changes in interest rates; observations from financial institutions; domestic or foreign government actions or pronouncements; other recent events; existence of shelf registration for restricted securities; existence of any undertaking to register the security; and other acceptable methods of valuing portfolio securities.

Hedge fund investments are valued monthly and recorded on a one-month lag. For alternative investment values reported on a lag, current market information is reviewed for any material changes in values at the reporting date. Share repurchases for the SEI Opportunity Collective Fund are available quarterly with notice of 65 business days. For the SEI Special Situations Fund, redemption requests are considered quarterly subject to notice of 95 days; however, share repurchases are not permitted for a two-year lock-up period following investment, which will expire in April 2012 for the plans’ initial investments.

Private Equity Funds

Private equity funds are alternative investments that represent direct or indirect investments in partnerships, venture funds or a diversified pool of private investment vehicles (fund of funds).

Investment commitments are made in private equity funds of funds based on an asset allocation strategy, and capital calls are made over the life of the funds to fund the commitments. Until commitments are funded, the committed amount is reserved and invested in a selection of public equity mutual funds, including U.S. large, small and mid-cap investments and international equity, designed to approximate overall equity market returns. As of December 31, 2010, remaining commitments total $18.3 million, of which $14.3 million is reserved for both our pension and other benefits. Refer to the valuation methodologies for equity securities above for further information.

The valuation of investments in private equity funds of funds is initially performed by the underlying fund managers. In determining the fair value, the fund managers may consider any information that is deemed relevant, which may include: type of security or asset; cost at the date of purchase; size of holding; last trade

142

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

price; most recent valuation; fundamental analytical data relating to the investment in the security; nature and duration of any restriction on the disposition of the security; evaluation of the factors that influence the market in which the security is purchased or sold; financial statements of the issuer; discount from market value of unrestricted securities of the same class at the time of purchase; special reports prepared by analysts; information as to any transactions or offers with respect to the security; existence of merger proposals or tender offers affecting the security; price and extent of public trading in similar securities of the issuer or compatible companies and other relevant matters; changes in interest rates; observations from financial institutions; domestic or foreign government actions or pronouncements; other recent events; existence of shelf registration for restricted securities; existence of any undertaking to register the security; and other acceptable methods of valuing portfolio securities.

The valuations are obtained from the underlying fund managers, and the valuation methodology and process is reviewed for consistent application and adherence to policies. Considerable judgment is required to interpret the factors used to develop estimates of fair value.

Private equity investments are valued quarterly and recorded on a one-quarter lag. For alternative investment values reported on a lag, current market information is reviewed for any material changes in values at the reporting date. Capital distributions for the funds do not occur on a regular frequency. Liquidation of these investments would require sale of the partnership interest.

Structured Credit

Structured credit investments are alternative investments comprised of collateralized debt obligations and other structured credit investments that are priced based on valuations provided by independent, third-party pricing agents, if available. Such values generally reflect the last reported sales price if the security is actively traded. The third-party pricing agents may also value structured credit investments at an evaluated bid price by employing methodologies that utilize actual market transactions, broker-supplied valuations, or other methodologies designed to identify the market value of such securities. Such methodologies generally consider such factors as security prices, yields, maturities, call features, ratings and developments relating to specific securities in arriving at valuations. Securities listed on a securities exchange, market or automated quotation system for which quotations are readily available are valued at the last quoted sale price on the primary exchange or market on which they are traded. Debt obligations with remaining maturities of 60 days or less may be valued at amortized cost, which approximates fair value.

Structured credit investments are valued monthly and recorded on a one-month lag. For alternative investment values reported on a lag, current market information is reviewed for any material changes in values at the reporting date. Redemption requests are considered quarterly subject to notice of 90 days.

Real Estate

The real estate portfolio is an alternative investment comprised of three funds with strategic categories of real estate investments. All real estate holdings are externally appraised at least annually, and appraisals are conducted by reputable, independent appraisal firms that are members of the Appraisal Institute. All external appraisals are performed in accordance with the Uniform Standards of Professional Appraisal Practices. The property valuations and assumptions of each property are reviewed quarterly by the investment advisor and values are adjusted if there has been a significant change in circumstances relating to the property since the last external appraisal. The valuation methodology utilized in determining the fair value is consistent with the best practices prevailing within the real estate appraisal and real estate investment management industries, including the Real Estate Information Standards, and standards promulgated by the National Council of Real Estate Investment Fiduciaries, the National Association of Real Estate Investment Fiduciaries, and the National Association of Real Estate Managers. In addition, the investment advisor may cause additional appraisals to be performed. Two of the funds’ fair values are updated monthly, and there is no lag in reported values. Redemption requests for these two funds are considered on a quarterly basis, subject to notice of 45 days.

143

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Effective October 1, 2009, one of the real estate funds began an orderly wind-down over the next three to four years. The decision to wind down the fund was driven primarily by real estate market factors that adversely affected the availability of new investor capital. Third-party appraisals of this fund’s assets will be eliminated; however, internal valuation updates for all assets and liabilities of the fund will be prepared quarterly. The fund’s asset values are recorded on a one-quarter lag, and current market information is reviewed for any material changes in values at the reporting date. Distributions from sales of properties will be made on pro-rata basis. Repurchase requests will not be honored during the wind-down period.

The following represents the effect of fair value measurements using significant unobservable inputs (Level 3) on changes in plan assets for the years ended December 31, 2010 and 2009:

(In Millions)

Year Ended December 31, 2010

Hedge Funds

Private Equity
Funds

Structured
Credit Fund

Real
Estate

Total

Beginning balance — January 1, 2010

71.4

18.2

39.1

14.4

143.1

Acquired through business combination

17.0

—

17.0

Actual return on plan assets:

Relating to assets still held at the reporting date

2.4

3.4

0.5

1.5

7.8

Relating to assets sold during the period

—

0.1

—

0.1

Purchases, sales and settlements

15.0

3.3

0.1

(0.4

)

18.0

Transfers in (out) of Level 3

—

Ending balance — December 31, 2010

105.8

25.0

39.7

15.5

186.0


	(In Millions)
	Year Ended December 31, 2009
	Hedge Funds		Private Equity Funds			Structured Credit Fund		Real Estate			Total
Beginning balance — January 1, 2009	$	69.3	$	21.0		$	15.9	$	23.5		$	129.7
Actual return on plan assets:
Relating to assets still held at the reporting date		2.1		(5.6	)		23.2		(9.5	)		10.2
Relating to assets sold during the period		—		(0.5	)		—		0.6			0.1
Purchases, sales and settlements		—		3.3			—		(0.2	)		3.1
Transfers in (out) of Level 3		—		—			—		—			—

Ending balance — December 31, 2009	$	71.4	$	18.2		$	39.1	$	14.4		$	143.1

The expected return on plan assets takes into account the weighted average of expected returns for each asset category. Expected returns are determined based on historical performance, adjusted for current trends. The expected return is net of investment expenses.

144

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

VEBA

Assets for other benefits include VEBA trusts pursuant to bargaining agreements that are available to fund retired employees’ life insurance obligations and medical benefits. The fair values of our other benefit plan assets at December 31, 2010 and 2009 by asset category are as follows:

(In Millions)

December 31, 2010

Asset Category

Quoted Prices in Active
Markets for Identical
Assets/Liabilities
(Level 1)

Significant Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Total

Equity securities:

U.S. large-cap

38.5

—

38.5

U.S. small/mid-cap

11.7

—

11.7

International

27.2

—

27.2

Fixed income

65.2

—

65.2

Hedge funds

—

24.0

Private equity

2.5

—

4.9

7.4

Cash

0.2

—

0.2

Total

145.3

—

28.9

174.2


	(In Millions)
	December 31, 2009
Asset Category	Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Equity securities:
U.S. large-cap	$	32.8	$	—	$	—	$	32.8
U.S. small/mid-cap		12.6		—		—		12.6
International		18.1		—		—		18.1
Fixed income		52.4		—		—		52.4
Hedge funds		—		—		14.6		14.6
Private equity		2.9		—		3.1		6.0
Cash		0.2		—		—		0.2

Total	$	119.0	$	—	$	17.7	$	136.7

Refer to the pension asset discussion above for further information regarding the inputs and valuation methodologies used to measure the fair value of each respective category of plan assets.

145

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

The following represents the effect of fair value measurements using significant unobservable inputs (Level 3) on changes in plan assets for the year ended December 31, 2010 and 2009:


	(In Millions)
	Year Ended December 31, 2010						Year Ended December 31, 2009
	Hedge Funds		Private Equity Funds		Total		Hedge Funds		Private Equity Funds			Total
Beginning balance — January 1	$	14.6	$	3.1	$	17.7	$	13.6	$	3.0		$	16.6
Actual return on plan assets:
Relating to assets still held at the reporting date		0.1		1.0		1.1		0.5		(0.9	)		(0.4	)
Relating to assets sold during the period		—		—		—		—		—			—
Purchases, sales and settlements		9.3		0.8		10.1		0.5		1.0			1.5
Transfers in (out) of Level 3		—		—		—		—		—			—

Ending balance — December 31	$	24.0	$	4.9	$	28.9	$	14.6	$	3.1		$	17.7

Contributions

Annual contributions to the pension plans are made within income tax deductibility restrictions in accordance with statutory regulations. In the event of plan termination, the plan sponsors could be required to fund additional shutdown and early retirement obligations that are not included in the pension obligations.


	(In Millions)
Company Contributions	Pension Benefits		Other Benefits
Company Contributions	Pension Benefits		VEBA		Direct Payments		Total
2009		18.5		17.4		18.3		35.7
2010		45.6		17.4		21.1		38.5
2011 (Expected)*		72.5		17.4		22.6		40.0

*	Pursuant to the bargaining agreement, benefits can be paid from VEBA trusts that are at least 70 percent funded (no VEBA trusts are 70 percent funded at December 31, 2010).

VEBA plans are not subject to minimum regulatory funding requirements. Amounts contributed are pursuant to bargaining agreements.

Contributions by participants to the other benefit plans were $6.2 million and $3.7 million for years ended December 31, 2010 and 2009, respectively.

Estimated Cost for 2011

For 2011, we estimate net periodic benefit cost as follows:


	(In Millions)
Defined benefit pension plans	$	38.0
Other postretirement benefits		26.1

Total	$	64.1

146

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Estimated Future Benefit Payments


	(In Millions)
	Pension Benefits		Other Benefits
	Pension Benefits		Gross Company Benefits		Less Medicare Subsidy		Net Company Payments
2011	$	69.7	$	23.6	$	1.0	$	22.6
2012		72.7		25.0		1.0		24.0
2013		71.7		26.2		1.2		25.0
2014		73.5		27.7		1.2		26.5
2015		75.6		29.1		1.4		27.7
2016-2020		392.0		156.7		9.4		147.3

Other Potential Benefit Obligations

While the foregoing reflects our obligation, our total exposure in the event of non-performance is potentially greater. Following is a summary comparison of the total obligation:


	(In Millions)
	December 31, 2010
	Defined Benefit Pensions			Other Benefits
Fair value of plan assets	$	734.3		$	174.2
Benefit obligation		1,022.3			440.2

Underfunded status of plan	$	(288.0	)	$	(266.0	)

Additional shutdown and early retirement benefits	$	43.7		$	39.8

NOTE 12 — STOCK COMPENSATION PLANS

At December 31, 2010, we have two share-based compensation plans, which are described below. The compensation cost that has been charged against income for those plans was $15.5 million, $12.2 million, and $22.5 million in 2010, 2009 and 2008, respectively, which was recorded primarily in Selling, general and administrative expenses on the Statements of Consolidated Operations. The total income tax benefit recognized in the Statements of Consolidated Operations for share-based compensation arrangements was $5.4 million, $4.3 million and $7.9 million for 2010, 2009 and 2008, respectively. Cash flows resulting from the tax benefits for tax deductions in excess of the compensation expense are classified as financing cash flows. Accordingly, we classified $3.3 million, $3.5 million and $3.5 million in excess tax benefits as cash from financing activities rather than cash from operating activities on our Statements of Consolidated Cash Flows for the years ended December 31, 2010, 2009 and 2008, respectively.

Employees’ Plans

On May 11, 2010, our shareholders approved and adopted an amendment and restatement of the ICE Plan to increase the authorized number of shares available for issuance under the plan and to provide an annual limitation on the number of shares available to grant to any one participant in any fiscal year of 500,000 common shares. As of December 31, 2010, our ICE Plan authorized up to 11,000,000 of our common shares to be issued as stock options, SARs, restricted shares, restricted share units, retention units, deferred shares, and performance shares or performance units. Any of the foregoing awards may be made subject to attainment of performance goals over a performance period of one or more years. In addition, no participant in any fiscal year can be

147

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

granted in the aggregate a number of shares having a fair market value on the date of grant equal to more than $5 million. Each stock option and SAR will reduce the common shares available under the ICE Plan by one common share. Each other award will reduce the common shares available under the ICE Plan by two common shares. The performance shares are intended to meet the requirements of Internal Revenue Code section 162(m) for deduction while the retention units are not.

For the outstanding plan year agreements, each performance share, if earned, entitles the holder to receive a number of common shares within the range between a threshold and maximum number of shares, with the actual number of common shares earned dependent upon whether the Company achieves certain objectives and performance goals as established by the Compensation and Organization Committee (“Committee”) of the Board of Directors. The restricted share units are subject to continued employment, are retention based, will vest at the end of the performance period for the performance shares, and are payable in shares for the 2008, 2009 and 2010 plan years at a time determined by the Committee at its discretion.

The performance share grants vest over a period of three years and are intended to be paid out in common shares. Performance is measured on the basis of two factors: 1) relative TSR for the period, as measured against a predetermined peer group of mining and metals companies, and 2) three-year cumulative free cash flow. Awards are intended to be paid out in common shares. The final payout for all three plan year agreements vary from zero to 150 percent of the performance shares awarded.

Upon the occurrence of a change in control, all performance shares, restricted share units, restricted stock and retention units granted to a participant will vest and become nonforfeitable and will be paid out in cash.

Following is a summary of our Performance Share Award Agreements currently outstanding:


Performance Share Plan Year	Performance Shares Outstanding			Forfeitures (1)		Grant Date		Performance Period
2010		209,853			23,317		March 8, 2010		1/1/2010-12/31/2012
2010		12,480	(2)		—		March 8, 2010		1/1/2010-12/31/2012
2010		480			—		April 6, 2010		1/1/2010-12/31/2012
2010		590			—		April 12, 2010		1/1/2010-12/31/2012
2010		2,130			—		April 26, 2010		1/1/2010-12/31/2012
2010		12,080			—		May 3, 2010		1/1/2010-12/31/2012
2010		550			—		June 14, 2010		1/1/2010-12/31/2012
2010		670			—		August 16, 2010		1/1/2010-12/31/2012
2009		353,268			40,722		March 9, 2009		1/1/2009-12/31/2011
2009		3,825			—		August 31, 2009		1/1/2009-12/31/2011
2009		44,673	(2)		—		December 17, 2009		1/1/2009-12/31/2011
2008		141,619			11,111		March 10, 2008		1/1/2008-12/31/2010
2008		350			—		August 29, 2008		1/1/2008-12/31/2010

(1)	The 2010 and 2009 awards are based on assumed forfeitures. The 2008 awards reflect actual forfeitures.

(2)

Represents the target payout as of December 31, 2010 related to the 67,009 shares awarded on December 17, 2009 and the 18,720 shares awarded on March 8, 2010 based upon the Committee’s ability to exercise negative discretion. For accounting purposes, a grant date has not yet been determined for this award.

Throughout 2010, the Committee approved grants under our shareholder approved ICE Plan for the performance period 2010-2012. A total of 420,700 shares were granted, consisting of performance shares and units, restricted share units, retention units and restricted stock.

The performance shares awarded under the ICE Plan to the Company’s Chief Executive Officer on December 17, 2009 and March 8, 2010 of 67,009 shares and 18,720 shares, respectively, met the aggregate value

148

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

added performance objective under the award terms as of December 31, 2010. The number of shares paid out under these particular awards at the end of each incentive period will be determined by the Committee based upon the achievement of certain other performance factors evaluated solely at the Committee’s discretion may be reduced from the 67,009 shares and 18,720 shares granted. Based on the Committee’s ability to exercise negative discretion, the targeted payout for the awards was 44,673 shares and 12,480 shares, respectively, as of December 31, 2010. These other performance factors are in addition to the aggregate value added performance objective. As a result of this uncertainty, a grant date has not yet been determined for this award for purposes of measuring and recognizing compensation cost.

Nonemployee Directors

The Directors’ Plan authorizes us to issue up to 800,000 common shares to nonemployee Directors. Under the Share Ownership Guidelines in effect for 2010 (“Guidelines”) a Director is required by the end of a four-year period to own either (i) a total of at least 8,000 common shares, or (ii) hold common shares with a market value of at least $100,000. If, as of December 1, annually, the nonemployee Director does not meet the Guidelines, the nonemployee Director must take a portion of the annual retainer in common shares with a market value of $20,000 (“Required Retainer”) until such time as the nonemployee Director reaches the ownership required by the Guidelines. Once the nonemployee Director meets the Guidelines, the nonemployee Director may elect to receive the Required Retainer in cash.

The Directors’ Plan also provides for an Annual Equity Grant (“Equity Grant”). The Equity Grant is awarded at our Annual Meeting each year to all nonemployee Directors elected or re-elected by the shareholders. The value of the Equity Grant is payable in restricted shares with a three-year vesting period from the date of grant. The closing market price of our common shares on our Annual Meeting Date is divided into the Equity Grant to determine the number of restricted shares awarded. Effective May 1, 2008, nonemployee Directors receive an annual retainer fee of $50,000 and an annual equity award of $75,000. Effective July 1, 2009, the Directors’ annual retainer fee was reduced by 10 percent in conjunction with the Company’s compensation reductions across the organization. Such reductions were reinstated to their previous levels effective January 1, 2010. The Directors’ Plan offers the nonemployee Director the opportunity to defer all or a portion of the Directors’ annual retainer, chair retainers, meeting fees, and the Equity Grant into the Directors’ Plan. A Director who is 69 or older at the Equity Grant date will receive common shares with no restrictions.

For the last three years, Equity Grant shares have been awarded to elected or re-elected Directors as follows:


Year of Grant	Unrestricted Equity Grant Shares		Restricted Equity Grant Shares		Deferred Equity Grant Shares
2008		804		4,824		804
2009		7,788		15,118		2,596
2010		3,963		7,926		1,321

149

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Other Information

We adopted the fair value recognition provisions of ASC 718 effective January 1, 2006 using the modified prospective transition method. Under existing restricted stock plans awarded prior to January 1, 2006, we continue to recognize compensation cost for awards to retiree-eligible employees without substantive forfeiture risk over the nominal vesting period. This recognition method differs from the requirements for immediate recognition for awards granted with similar provisions after the January 1, 2006 adoption. The following table summarizes the share-based compensation expense that we recorded for continuing operations in 2010, 2009 and 2008:


	(In Millions, except EPS)
	2010			2009			2008
Cost of goods sold and operating expenses	$	2.8		$	1.2		$	2.1
Selling, general and administrative expenses		12.7			11.0			20.4
Reduction of operating income from continuing operations before income taxes and equity loss from ventures		15.5			12.2			22.5
Income tax benefit		(5.4	)		(4.3	)		(7.9	)

Reduction of net income attributable to Cliffs shareholders	$	10.1		$	7.9		$	14.6

Reduction of earnings per share attributable to Cliffs shareholders:
Basic	$	0.07		$	0.06		$	0.14

Diluted	$	0.07		$	0.06		$	0.13

Determination of Fair Value

The fair value of each grant is estimated on the date of grant using a Monte Carlo simulation to forecast relative TSR performance. A correlation matrix of historic and projected stock prices was developed for both the Company and its predetermined peer group of mining and metals companies. The fair value assumes that performance goals will be achieved.

The expected term of the grant represents the time from the grant date to the end of the service period for each of the three plan year agreements. We estimated the volatility of our common stock and that of the peer group of mining and metals companies using daily price intervals for all companies. The risk-free interest rate is the rate at the grant date on zero-coupon government bonds, with a term commensurate with the remaining life of the performance plans.

The following assumptions were utilized to estimate the fair value for the 2010 performance share grants:


Period (1)	Grant Date Market Price	Average Expected Term (Years)		Expected Volatility			Risk-Free Interest Rate			Dividend Yield			Fair Value	Fair Value (Percent of Grant Date Market Price)
First Quarter	$60.17		2.82		94.6	%		1.28	%		0.59	%	$36.28		60.30	%
Second Quarter	$56.12 - $74.02		2.82		94.6	%		1.28	%		0.59	%	$33.84 - $44.63		60.30	%
Third Quarter	$60.47		2.82		94.6	%		1.28	%		0.59	%	$36.46		60.30	%

(1)	Performance shares were granted during the first quarter of 2010 on March 8, 2010 and during the second quarter of 2010 on April 6, April 12, April 26, May 3, June 14, and during the third quarter of 2010 on August 16, 2010.

The fair value of the restricted share units is determined based on the closing price of the Company’s shares on the grant date. The restricted share units granted under the ICE Plan vest over a period of three years.

150

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Stock options, restricted stock, deferred stock allocation and performance share activity under our Incentive Equity Plans and Directors’ Plans are as follows:


	2010					2009					2008
	Shares			Weighted- Average Exercise Price		Shares			Weighted- Average Exercise Price		Shares			Weighted- Average Exercise Price
Stock options:
Options outstanding at beginning of year		—			—		2,500		$	5.42		11,800		$	5.42
Granted during the year		—					—					—
Exercised		—			—		(2,500	)		5.42		(9,300	)		6.47
Cancelled or expired		—					—					—

Options outstanding at end of year		—			—		—			—		2,500			5.42
Options exercisable at end of year		—			—		—			—		2,500			5.42
Restricted awards:
Outstanding and restricted at beginning of year		290,702					315,684					514,714
Granted during the year		133,666					184,904					62,672
Vested		(50,156	)				(201,486	)				(261,702	)
Cancelled		(2,500	)				(8,400	)				—

Outstanding and restricted at end of year		371,712					290,702					315,684
Performance shares:
Outstanding at beginning of year		823,393					594,115					723,544
Granted during the year		376,524					555,046					194,881
Vested		(343,321	)				(312,336	)				(236,520	)
Forfeited/cancelled		(13,358	)				(13,432	)				(87,790	)

Outstanding at end of year		843,238					823,393					594,115
Vested or expected to vest at December 31, 2010		782,568
Directors’ retainer and voluntary shares:
Outstanding at beginning of year		4,596					2,183					1,100
Granted during the year		2,075					4,602					2,772
Vested		(4,162	)				(2,189	)				(1,689	)

Outstanding at end of year		2,509					4,596					2,183
Reserved for future grants or awards at end of year:
Employee plans		7,265,391
Directors’ plans		125,943

Total		7,391,334

151

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

A summary of our outstanding share-based awards as of December 31, 2010 is shown below:


	Shares			Weighted Average Grant Date Fair Value
Outstanding, beginning of year		1,118,691		$	13.60
Granted		397,891		$	46.40
Vested		(283,265	)	$	36.46
Forfeited/expired		(15,858	)	$	21.28

Outstanding, end of year		1,217,459		$	26.03

The total compensation cost related to outstanding awards not yet recognized is $18.7 million at December 31, 2010. The weighted average remaining period for the awards outstanding at December 31, 2010 is approximately 1.4 years.

NOTE 13 — INCOME TAXES

Income from continuing operations before income taxes and equity loss from ventures includes the following components:


	(In Millions)
	2010		2009		2008
United States	$	597.3	$	130.7	$	566.6
Foreign		700.9		159.9		149.7

	$	1,298.2	$	290.6	$	716.3

The components of the provision (benefit) for income taxes on continuing operations consist of the following:


	(In Millions)
	2010			2009			2008
Current provision (benefit):
United States federal	$	108.1		$	(46.2	)	$	151.4
United States state & local		2.6			3.4			3.7
Foreign		166.1			2.8			77.6

		276.8			(40.0	)		232.7
Deferred provision (benefit):
United States federal		61.1			13.2			(54.1	)
United States state & local		5.2			(6.1	)		(4.1	)
Foreign		(51.1	)		53.7			(30.3	)

		15.2			60.8			(88.5	)

Total provision on continuing operations	$	292.0		$	20.8		$	144.2

152

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Reconciliation of our income tax attributable to continuing operations computed at the U.S. federal statutory rate is as follows:


	(In Millions)
	2010			2009			2008
Tax at U.S. statutory rate of 35 percent	$	454.3		$	101.7		$	250.6
Increase (decrease) due to:
Impact of tax law change		16.1			—			—
Percentage depletion in excess of cost depletion		(103.1	)		(66.2	)		(101.1	)
Tax effect of foreign operations		(89.1	)		(44.3	)		(6.5	)
Legal entity restructuring		(87.4	)		—			—
State taxes, net		3.1			(2.1	)		(0.7	)
Manufacturer’s deduction		—			(0.1	)		(6.9	)
Valuation allowance		83.3			39.0			(0.8	)
Other items — net		14.8			(7.2	)		9.6

Income tax expense	$	292.0		$	20.8		$	144.2

The components of income taxes for other than continuing operations consisted of the following:


	(In Millions)
	2010			2009			2008
Other comprehensive (income) loss:
Minimum pension/OPEB liability	$	14.0		$	(4.7	)	$	(99.8	)
Mark-to-market adjustments		1.7			(12.3	)		(1.4	)

		15.7			(17.0	)		(101.2	)
Paid in capital — stock based compensation		(4.0	)		3.5			(3.5	)

153

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Significant components of our deferred tax assets and liabilities as of December 31, 2010 and 2009 are as follows:


	(In Millions)
	2010		2009
Deferred tax assets:
Pensions	$	108.5	$	114.7
Postretirement benefits other than pensions		92.0		75.0
Alternative minimum tax credit carryforwards		153.4		74.3
Capital loss carryforwards		1.3		1.2
Development		0.9		0.1
Asset retirement obligations		42.0		27.1
Operating loss carryforwards		134.2		112.4
Product inventories		21.0		22.8
Properties		38.7		16.2
Lease liabilities		36.9		36.2
Other liabilities		85.4		64.4

Total deferred tax assets before valuation allowance		714.3		544.4
Deferred tax asset valuation allowance		172.7		89.4

Net deferred tax assets		541.6		455.0
Deferred tax liabilities:
Properties		222.6		90.1
Investment in ventures		72.7		143.9
Intangible assets		14.8		13.1
Income tax uncertainties		37.5		38.7
Financial derivatives		11.7		—
Deferred revenue		45.3		—
Other assets		58.3		26.8

Total deferred tax liabilities		462.9		312.6

Net deferred tax assets	$	78.7	$	142.4

The deferred tax amounts are classified on the Statements of Consolidated Financial Position as current or long-term in accordance with the asset or liability to which they relate. Following is a summary:


	(In Millions)
	2010		2009
Deferred tax assets:
United States
Current	$	2.1	$	41.1
Long-term		134.5		140.3

Total United States		136.6		181.4
Foreign
Current		—		21.0
Long-term		5.8		10.8

Total deferred tax assets		142.4		213.2
Deferred tax liabilities:
Foreign
Long-term		63.7		70.8

Total deferred tax liabilities		63.7		70.8

Net deferred tax assets	$	78.7	$	142.4

154

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

The PPACA and the Reconciliation Act were signed into law in March 2010. As a result of these two acts, tax benefits available to employers that receive the Medicare Part D subsidy related to qualified postretirement drug benefit are reduced beginning in years ending after December 31, 2012. The income tax effect related to the acts for the year ended December 31, 2010 was a reduction of $16.1 million to deferred tax asset related to the postretirement prescription drug benefits computed after the elimination of the deduction for the Medicare Part D subsidy beginning in taxable years ending after December 31, 2012.

We completed a legal entity restructuring during 2010 that resulted in a change to deferred tax liabilities of $78.0 million on certain foreign investments to a deferred tax asset of $9.4 million for tax basis in excess of book basis on foreign investments as of December 31, 2010. A valuation allowance of $9.4 million was recorded against this asset due to the uncertainty of realization.

At December 31, 2010 and 2009, we had $153.4 million and $74.3 million, respectively, of deferred tax assets related to U.S. alternative minimum tax credits that can be carried forward indefinitely.

We had gross U.S. federal, state and foreign net operating loss carry forwards of $87.6 million, $338.9 million and $234.4 million, respectively, at December 31, 2010. We had U.S. federal, state and foreign net operating loss carry forwards at December 31, 2009 of $149.3 million, $192.9 million and $206.0 million, respectively. The federal net operating losses expire in 2029. State net operating losses will begin to expire in 2022, and the foreign net operating loss can be carried forward indefinitely. We had foreign tax credit carryforwards of $5.8 million at December 31, 2010 and zero at December 31, 2009. The foreign tax credit carryforwards will begin to expire in 2020.

We had a $83.3 million change in the valuation allowance of certain deferred tax assets where management believes that realization of the related deferred tax assets is not more likely than not. Of this amount, $61.5 million increase relates to ordinary losses of certain foreign operations for which future utilization is currently uncertain, $11.0 million decrease relates to the release of valuation allowance on Wabush deferred tax assets, $5.8 million increase relates to foreign tax credits and $27.0 million increase relates to certain foreign assets where tax basis exceeds book basis.

At December 31, 2010, cumulative undistributed earnings of foreign subsidiaries included in consolidated retained earnings amounted to $968.8 million. These earnings are indefinitely reinvested in international operations. Accordingly, no provision has been made for deferred taxes related to a future repatriation of these earnings, nor is it practicable to estimate the amount of income taxes that would have to be provided if we were to conclude that such earnings will be remitted in the foreseeable future.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:


	(In Millions)
	2010		2009			2008
Unrecognized tax benefits balance as of January 1	$	75.2	$	53.7		$	15.2
Increases for tax positions in prior years		1.9		23.8			19.9
Increases for tax positions in current year		—		2.5			24.9
Increase (decrease) due to foreign exchange		0.7		4.7			(1.6	)
Settlements		—		(9.1	)		(4.7	)
Lapses in statutes of limitations		—		(0.4	)		—
Other		2.0		—			—

Unrecognized tax benefits balance as of December 31	$	79.8	$	75.2		$	53.7

At December 31, 2010 and 2009, we had $79.8 million and $75.2 million, respectively, of unrecognized tax benefits recorded in Other liabilities on the Statements of Consolidated Financial Position. If the $79.8 million were recognized, $79.1 million would impact the effective tax rate. It is reasonably possible that unrecognized tax benefits will significantly decrease in the range of $40 million to $50 million within the next 12 months due

155

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

to expected settlements with the taxing authorities or expiration of the statute of limitations. We recognized potential accrued interest and penalties of $2.1 million and $3.4 million related to unrecognized tax benefits in income tax expense in 2010 and 2009, respectively. At December 31, 2010 and 2009, we had $11.6 million and $15.2 million, respectively, of accrued interest and penalties related to the unrecognized tax benefits recorded in Other liabilities on the Statements of Consolidated Financial Position.

Tax years that remain subject to examination are years 2007 and forward for the U.S., 1993 and forward for Canada, and 1994 and forward for Australia.

NOTE 14 — CAPITAL STOCK

Dividends

On May 11, 2010, our Board of Directors increased our quarterly common share dividend from $0.0875 to $0.14 per share. The increased cash dividend was paid on June 1, 2010, September 1, 2010, and December 1, 2010 to shareholders on record as of May 14, 2010, August 13, 2010, and November 19, 2010, respectively.

Shareholder Rights Plan

On October 8, 2008, our Board of Directors adopted a shareholder rights plan. Under the rights plan, the rights initially traded together with the common shares and were not exercisable. In the absence of further action by our Board of Directors, the rights would have become exercisable and allowed the holder to acquire common shares at a discounted price if a person or group acquired 10 percent or more of the outstanding common shares (or any additional common shares in the case of a person or group that already beneficially owned 10 percent or more of our outstanding common shares on October 13, 2008) without the prior approval of our Board of Directors. Rights held by persons who exceeded the applicable threshold would have been void. Under certain circumstances, the rights would have entitled the holder to buy shares in an acquiring entity at a discounted price.

The rights plan also included an exchange option. In general, if the rights would have become exercisable, our Board of Directors could have, at its option, effected an exchange of part or all of the rights (other than rights that would have become void) at a ratio of one common share for each right, subject to adjustment in certain circumstances. The rights were redeemable at any time prior to the time that they would have become exercisable for $0.001 per right, subject to adjustment in certain circumstances. Unless earlier amended, redeemed or exchanged, the rights would have expired on October 29, 2011. On March 9, 2010, our Board of Directors approved the redemption of the rights accompanying our common shares. The redemption of the rights effectively terminated the Shareholders Rights Plan. The redemption price of $0.001 per right was paid as part of the common share dividend on June 1, 2010 to shareholders of record as of May 14, 2010. Accordingly, $0.001 of the $0.14 quarterly dividend was allocated to pay the redemption price of the rights.

The issuance of the rights was not a taxable event, did not affect our reported financial condition or results of operations, including our earnings per share, and did not change the manner in which our common shares were being traded.

156

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

NOTE 15 — ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The components of Accumulated other comprehensive income (loss) within Cliffs shareholders’ equity and related tax effects allocated to each are shown below as of December 31, 2010, 2009 and 2008:


	(In Millions)
	Pre-tax Amount			Tax Benefit (Provision)			After-tax Amount
As of December 31, 2008:
Postretirement benefit liability	$	(480.8	)	$	137.5		$	(343.3	)
Foreign currency translation adjustments		(68.6	)		—			(68.6	)
Unrealized net gain on derivative financial instruments		27.3			(8.2	)		19.1
Unrealized loss on interest rate swap		(2.6	)		0.9			(1.7	)
Unrealized loss on securities		(0.2	)		0.1			(0.1	)

	$	(524.9	)	$	130.3		$	(394.6	)

As of December 31, 2009:
Postretirement benefit liability	$	(451.9	)	$	132.8		$	(319.1	)
Foreign currency translation adjustments		163.1			—			163.1
Unrealized net gain on derivative financial instruments		5.7			(1.7	)		4.0
Unrealized gain on securities		43.1			(13.7	)		29.4

	$	(240.0	)	$	117.4		$	(122.6	)

As of December 31, 2010:
Postretirement benefit liability	$	(452.0	)	$	146.9		$	(305.1	)
Foreign currency translation adjustments		329.9			(15.2	)		314.7
Unrealized net gain on derivative financial instruments		3.9			(1.2	)		2.7
Unrealized gain on securities		46.9			(13.3	)		33.6

	$	(71.3	)	$	117.2		$	45.9

The following table reflects the changes in Accumulated other comprehensive income (loss) related to Cliffs shareholders’ equity for 2010, 2009 and 2008:


	(In Millions)
	Postretirement Benefit Liability			Unrealized Net Gain (Loss) on Securities			Foreign Currency Translation			Unrealized Loss on Interest Rate Swap			Unrealized Net Gain (Loss) on Derivative Financial Instruments			Accumulated Other Comprehensive Income (Loss)
Balance December 31, 2007	$	(154.8	)	$	10.2		$	96.5		$	(0.9	)	$	18.7		$	(30.3	)
Change during 2008		(188.5	)		(10.3	)		(165.1	)		(0.8	)		0.4			(364.3	)

Balance December 31, 2008		(343.3	)		(0.1	)		(68.6	)		(1.7	)		19.1			(394.6	)
Change during 2009		24.2			29.5			231.7			1.7			(15.1	)		272.0

Balance December 31, 2009		(319.1	)		29.4			163.1			—			4.0			(122.6	)
Change during 2010		14.0			4.2			151.6			—			(1.3	)		168.5

Balance December 31, 2010	$	(305.1	)	$	33.6		$	314.7		$	—		$	2.7		$	45.9

157

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

NOTE 16 — EARNINGS PER SHARE

The following table summarizes the computation of basic and diluted earnings per share attributable to Cliffs shareholders:


	(In Millions, Except per Share)
	2010				2009				2008
	Amount		Per Share		Amount		Per Share		Amount			Per Share
	Amount		Per Share		Amount		Per Share		Amount			Per Share
Net Income attributable to Cliffs shareholders	$	1,019.9	$	7.54	$	205.1	$	1.64	$	515.8		$	5.08
Preferred dividends		—		—		—		—		(1.1	)		(.01	)

Income attributable to Cliffs common shareholders — basic		1,019.9	$	7.54		205.1	$	1.64		514.7		$	5.07

Dilutive effect preferred dividend		—				—				1.1

Income attributable to Cliffs common shareholders plus assumed conversions — diluted	$	1,019.9	$	7.49	$	205.1	$	1.63	$	515.8		$	4.76

Average number of shares (in thousands)
Basic		135,301				124,998				101,471
Employee stock plans		837				753				1,485
Convertible preferred stock		—				—				5,332

Diluted		136,138				125,751				108,288

NOTE 17 — COMMITMENTS AND CONTINGENCIES

We have total contractual obligations and binding commitments of approximately $5.7 billion as of December 31, 2010 compared with $2.7 billion as of December 31, 2009, primarily related to purchase commitments, principal and interest payments on long-term debt, lease obligations, pension and OPEB funding minimums, and mine closure obligations. Such future commitments total approximately $1.0 billion in 2011, $0.4 billion in 2012, $0.6 billion in 2013, $0.3 billion in 2014, $0.3 billion in 2015 and $3.1 billion thereafter.

Purchase Commitments

During the third quarter of 2010, our Board of Directors approved a capital project at our Koolyanobbing Operation in Western Australia. The project is expected to increase the production capacity at the Koolyanobbing Operation to approximately 11 million metric tons annually. The improvements consist of enhancements to the existing rail infrastructure and upgrades to various other existing operational constraints. The expansion project requires a capital investment of approximately $254 million, of which approximately $122 million has been committed, that will be required to meet the timing of the proposed expansion. As of December 31, 2010, $22 million in capital expenditures had been expended related to this commitment. Of the committed capital, expenditures of approximately $90 million and $10 million are scheduled to be made in both 2011 and 2012, respectively.

In the third quarter of 2010, we incurred capital commitments related to an expansion project at our Empire and Tilden mines in Michigan’s Upper Peninsula. As of December 31, 2010, the project has been approved for capital investments on equipment of approximately $111 million, of which $110 million has been committed, and is expected to allow the Empire mine to produce at three million tons annually through 2014 and increase Tilden mine production by an additional two million tons annually. As of December 31, 2010, capital expenditures related to this purchase were approximately $9 million. Of the committed capital, expenditures of approximately $96 million and $5 million are scheduled to be made in 2011 and 2012, respectively.

158

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

In 2010, we incurred a capital commitment for the construction of a new portal closer to the coal face at our Oak Grove mine in Alabama. The portal requires a capital investment of approximately $29 million, of which $25 million has been committed, and will significantly decrease transit time to and from the coal face, resulting in among other things, improved safety, greater operational efficiency, increased productivity, lower employment costs and improved employee morale. As of December 31, 2010, capital expenditures related to this purchase were approximately $9 million. Remaining expenditures of approximately $16 million are scheduled to be made in 2011.

In 2008, we incurred a capital commitment for the purchase of a new longwall plow system for our Pinnacle mine in West Virginia. The system, which requires a capital investment of approximately $90 million, will replace the current longwall plow system in an effort to reduce maintenance costs and increase production at the mine. As of December 31, 2010, capital expenditures related to this purchase were approximately $76 million. Remaining expenditures of approximately $14 million are scheduled to be made in 2011. The remaining expenditures are related to the longwall plow system assets pending delivery.

Contingencies

Litigation

We are currently a party to various claims and legal proceedings incidental to our operations. If management believes that a loss arising from these matters is probable and can reasonably be estimated, we record the amount of the loss, or the minimum estimated liability when the loss is estimated using a range, and no point within the range is more probable than another. As additional information becomes available, any potential liability related to these matters is assessed and the estimates are revised, if necessary. Based on currently available information, management believes that the ultimate outcome of these matters, individually and in the aggregate, will not have a material adverse effect on our financial position or results of operations. However, litigation is subject to inherent uncertainties, and unfavorable rulings could occur. An unfavorable ruling could include monetary damages or an injunction. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact on the financial position and results of operations of the period in which the ruling occurs, or future periods. However, we believe that any pending litigation will not result in a material liability in relation to our consolidated financial statements.

Environmental Matters

We had environmental liabilities of $13.7 million and $14.5 million at December 31, 2010 and 2009 respectively, including obligations for known environmental remediation exposures at active and closed mining operations and other sites. These amounts have been recognized based on the estimated cost of investigation and remediation at each site, and include site studies, design and implementation of remediation plans, legal and consulting fees, and post-remediation monitoring and related activities. If the cost can only be estimated as a range of possible amounts with no specific amount being more likely, the minimum of the range is accrued. Future expenditures are not discounted unless the amount and timing of the cash disbursements are readily known. Potential insurance recoveries have not been reflected. Additional environmental obligations could be incurred, the extent of which cannot be assessed. The amount of our ultimate liability with respect to these matters may be affected by several uncertainties, primarily the ultimate cost of required remediation and the extent to which other responsible parties contribute. Refer to NOTE 10 – ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS for further information.

Tax Matters

The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize liabilities for anticipated tax audit issues based on our estimate of whether, and the extent to which, additional taxes will be due. If we ultimately determine that payment of these amounts is

159

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

unnecessary, we reverse the liability and recognize a tax benefit during the period in which we determine that the liability is no longer necessary. We also recognize tax benefits to the extent that it is more likely than not that our positions will be sustained when challenged by the taxing authorities. To the extent we prevail in matters for which liabilities have been established, or are required to pay amounts in excess of our liabilities, our effective tax rate in a given period could be materially affected. An unfavorable tax settlement would require use of our cash and result in an increase in our effective tax rate in the year of resolution. A favorable tax settlement would be recognized as a reduction in our effective tax rate in the year of resolution. Refer to NOTE 13 – INCOME TAXES for further information.

NOTE 18 — CASH FLOW INFORMATION

A reconciliation of capital additions to cash paid for capital expenditures for the years ended December 31, 2010, 2009 and 2008 is as follows:


	(In Millions)
	2010		2009		2008
Capital additions	$	275.8	$	168.2	$	232.6
Cash paid for capital expenditures (1)		209.6		116.3		182.5

Difference	$	66.2	$	51.9	$	50.1

Non-cash accruals	$	8.9	$	3.0	$	25.7
Capital leases		57.3		48.9		24.4

Total	$	66.2	$	51.9	$	50.1

(1)	Cash paid for capital expenditures for 2010 has been shown net of cash proceeds of $57.3 million from the Pinnacle longwall sale-leaseback that was completed in December of 2010. The adjustment was necessary in 2010 due to the timing of the cash payments related to the longwall.

Cash payments for interest and income taxes in 2010, 2009 and 2008 are as follows:


	(In Millions)
	2010		2009		2008
Taxes paid on income	$	208.3	$	64.8	$	175.5
Interest paid on debt obligations		34.2		25.3		26.3

Non-cash investing activities as of December 31, 2010 include the issuance of 4.2 million of our common shares valued at $173.1 million as part of the purchase consideration for the acquisition of the remaining interest in Freewest. Non-cash items as of December 31, 2010 also include gains of $38.6 million primarily related to the remeasurement of our previous ownership interest in Freewest and Wabush held prior to each business acquisition. Refer to NOTE 5 – ACQUISITIONS AND OTHER INVESTMENTS for further information.

NOTE 19 — RELATED PARTIES

We co-own three of our six North American iron ore mines with various joint venture partners that are integrated steel producers or their subsidiaries. We are the manager of each of the mines we co-own and rely on our joint venture partners to make their required capital contributions and to pay for their share of the iron ore pellets that we produce. The joint venture partners are also our customers. The following is a summary of the mine ownership of these three North American iron ore mines at December 31, 2010:


Mine	Percent ownership
Mine	Cliffs Natural Resources		ArcelorMittal		U. S. Steel Canada
Empire		79.0		21.0		0.0
Tilden		85.0		0.0		15.0
Hibbing		23.0		62.3		14.7

160

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

ArcelorMittal has a unilateral right to put its interest in the Empire Mine to us, but has not exercised this right to date.

Product revenues to related parties were as follows:


	(In Millions)
	2010			2009			2008
Product revenues to related parties	$	1,165.5		$	593.8		$	1,020.5
Total product revenues		4,416.8			2,216.2			3,294.8
Related party product revenue as a percent of total product revenue		26.4	%		26.8	%		31.0	%

Accounts receivable from related parties were $6.8 million and $1.8 million at December 31, 2010 and 2009, respectively.

In 2002, we entered into an agreement with Ispat that restructured the ownership of the Empire mine and increased our ownership from 46.7 percent to 79 percent in exchange for assumption of all mine liabilities. Under the terms of the agreement, we indemnified Ispat from obligations of Empire in exchange for certain future payments to Empire and to us by Ispat of $120.0 million, recorded at a present value of $32.8 million and $38.3 million at December 31, 2010 and 2009, respectively. Of these amounts, $22.8 million and $28.3 million were classified as Long-term receivable at December 31, 2010 and 2009, respectively, with the balances current, over the 12-year life of the supply agreement.

Supply agreements with one of our customers include provisions for supplemental revenue or refunds based on the customer’s annual steel pricing for the year the product is consumed in the customer’s blast furnace. The supplemental pricing is characterized as an embedded derivative. Refer to NOTE 3 — DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES for further information.

NOTE 20 — SUBSEQUENT EVENTS

Algoma Payment

On January 6, 2011, we obtained a $129 million payment from Algoma to true-up the portion of revenue from 2010 pellet sales that was previously disputed throughout 2010. On December 17, 2010, we prevailed in the previously disclosed arbitration with Algoma. The binding decision by the American Arbitration Association redefined world prices for blast furnace pellets, a factor used in determining annual price increases or decreases under the supply agreement. The revised definition entitled us to use an increase in excess of 95 percent over 2009 prices for seaborne blast furnace pellets in the agreement’s pricing formula. Despite this cash payment, Algoma is maintaining a court application to vacate the arbitration award which we are vigorously contesting.

Consolidated Thompson Acquisition

On January 11, 2011, we entered into a definitive arrangement agreement with Consolidated Thompson to acquire all of its common shares in an all-cash transaction including net debt, valued at approximately C$4.9 billion, or C$17.25 per share. The proposed acquisition reflects our strategy to build scale by owning expandable and exportable steelmaking raw material assets serving international markets. We have currently entered into a $3.7 billion bridge financing commitment to provide for the financing of the arrangement and we have hedged a portion of the purchase price on the open market by entering into exchange rate contracts and options. The hedge contracts are considered economic hedges which do not qualify for hedge accounting. Completion of the transaction is subject to customary closing conditions, including approval by Consolidated Thompson shareholders and government and regulatory approvals.

We have evaluated subsequent events through the date of financial statement issuance.

161

Cliffs Natural Resources Inc. and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

NOTE 21 — QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The sum of quarterly EPS may not equal EPS for the year due to discrete quarterly calculations.

(In Millions, Except Per Common Share)

2010

Quarters

First

Second

Third

Fourth

Year

Revenues from product sales and services

727.7

1,184.3

1,346.0

1,424.2

4,682.2

Sales margin

150.0

414.7

476.5

482.3

1,523.5

Net income attributable to Cliffs shareholders

77.4

260.7

297.4

384.4

1,019.9

Earnings per common share attributable to Cliffs shareholders:

Basic

0.57

1.93

2.20

2.84

7.54

Diluted

0.57

1.92

2.18

2.82

7.49


	2009
	Quarters
	First			Second			Third		Fourth		Year
Revenues from product sales and services	$	464.8		$	390.3		$	666.4	$	820.5	$	2,342.0
Sales margin		42.4			(11.7	)		103.2		175.0		308.9
Net income (loss) attributable to Cliffs shareholders		(7.4	)		45.5			58.8		108.2		205.1
Earnings (loss) per common share attributable to Cliffs shareholders:
Basic	$	(0.07	)	$	0.36		$	0.45	$	0.83	$	1.64
Diluted		(0.07	)		0.36			0.45		0.82		1.63

As a result of acquiring the remaining ownership interests in Freewest and Wabush during the first quarter of 2010, our first quarter results were impacted by realized gains of $38.6 million primarily related to the increase in fair value of our previous ownership interest in each investment held prior to the business acquisitions. The fair value of our previous 12.4 percent interest in Freewest was $27.4 million on January 27, 2010, the date of acquisition, resulting in a gain of $13.6 million being recognized in 2010. The fair value of our previous 26.8 percent equity interest in Wabush was $38 million on February 1, 2010, resulting in a gain of $25.0 million also being recognized in 2010.

In the months subsequent to the initial purchase price allocation for Wabush, we further refined the fair values of the assets acquired and liabilities assumed. Additionally, we continued to ensure our existing interest in Wabush was incorporating all of the book basis, including amounts recorded in Accumulated other comprehensive income (loss). Based on this process the acquisition date fair value of the previous equity interest was adjusted to $38 million in the final purchase price allocation. The gain resulting from the remeasurement of our prior equity interest, net of amounts previously recorded in Accumulated other comprehensive income (loss) of $20.3 million, was adjusted to $25 million. Under the business combination guidance in ASC 805, prior periods, beginning with the period of acquisition, are required to be revised to reflect changes to the original purchase price allocation. In accordance with this guidance, we retrospectively recorded the adjustments to the fair value of the acquired assets and assumed liabilities and the resulting Goodwill and Gain on acquisition of controlling interests back to the date of acquisition. Accordingly, such amounts were excluded from the fourth quarter results and have been retrospectively adjusted back to the first quarter results in the table above. Refer to NOTE 5 – ACQUISITIONS AND OTHER INVESTMENTS for further information.

162

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

Cliffs Natural Resources Inc.

Cleveland, Ohio

We have audited the internal control over financial reporting of Cliffs Natural Resources Inc. and subsidiaries (the “Company”) as of December 31, 2010 based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As described in Management’s Report on Internal Controls Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Cliffs Logan County Coal, which was acquired on July 30, 2010 and whose financial statements constitute 11 percent of total assets and 2 percent of revenues from product sales and services of the consolidated financial statement amounts as of and for the year ended December 31, 2010. Accordingly, our audit did not include the internal control over financial reporting at Cliffs Logan County Coal. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Controls Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2010 of the Company and our report dated February 17, 2011 expressed an unqualified opinion on those financial statements and financial statement schedule.

/s/ DELOITTE & TOUCHE LLP

Cleveland, Ohio

February 17, 2011

163

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Cliffs Natural Resources Inc.

Cleveland, Ohio

We have audited the accompanying consolidated financial position of Cliffs Natural Resources Inc. and subsidiaries (the “Company”) as of December 31, 2010 and 2009, and the related statements of consolidated operations, cash flows, and changes in equity for each of the three years in the period ended December 31, 2010. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Cliffs Natural Resources Inc. and subsidiaries as of December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2010, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 17, 2011 expressed an unqualified opinion on the Company’s internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

Cleveland, Ohio

February 17, 2011

164

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A.

Controls and Procedures.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based solely on the definition of “disclosure controls and procedures” in Rule 13a-15(e) promulgated under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As of the end of the period covered by this report, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

165

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined under Rule 13a-15(f) promulgated under the Exchange Act.

Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s consolidated financial statements for external purposes in accordance with generally accepted accounting principles.

Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit the preparation of the consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with appropriate authorizations of management and directors of the Company, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the consolidated financial statements.

On July 30, 2010, we completed our acquisition of 100 percent of the coal operations of privately-owned INR, and have been consolidating operations through our wholly-owned subsidiary known as CLCC. As permitted by SEC guidance, we excluded CLCC from management’s assessment of internal control over financial reporting as of December 31, 2010. CLCC constituted approximately 11 percent of total assets, and 2 percent of revenues from product sales and services as of December 31, 2010. CLCC will be included in management’s assessment of the internal control over financial reporting for the Company as of December 31, 2011.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management conducted an assessment of the Company’s internal control over financial reporting as of December 31, 2010 using the framework specified in Internal Control — Integrated Framework, published by the Committee of Sponsoring Organizations of the Treadway Commission. Based on such assessment, management has concluded that the Company’s internal control over financial reporting was effective as of December 31, 2010.

The effectiveness of the Company’s internal control over financial reporting as of December 31, 2010 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report that appears herein.

February 17, 2011

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act during the year ended December 31, 2010 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.

Other Information.

Mine Safety and Health Administration Safety Data

We are committed to protecting the occupational health and well-being of each of our employees. Safety is one of our company’s core values, and we strive to ensure that safe production is the first priority for all employees. Our internal objective is to achieve zero injuries and incidents across the company, by focusing on proactively identifying needed prevention activities, establishing standards, and evaluating performance to

166

mitigate any potential loss to people, equipment, production, and the environment. We have implemented intensive employee training that is geared toward maintaining a high level of awareness and knowledge of safety and health issues in the work environment through the development and coordination of requisite information, skills, and attitudes. We believe that through these policies, our company has developed an effective safety management system.

The operation of our mines is subject to regulation by MSHA under the FMSH Act. MSHA inspects our mines on a regular basis and issues various citations and orders when it believes a violation has occurred under the FMSH Act. We present information below regarding certain mining safety and health citations which MSHA has issued with respect to our mining operations. In evaluating this information, consideration should be given to factors such as: (i) the number of citations and orders will vary depending on the size of the mine, (ii) the number of citations issued will vary from inspector to inspector and mine to mine, and (iii) citations and orders can be contested and appealed, and in that process, are often reduced in severity and amount, and are sometimes dismissed.

Under the recently enacted Dodd-Frank Act, each operator of a coal or other mine is required to include certain mine safety results within its periodic reports filed with the SEC. As required by the reporting requirements included in §1503(a) of the Dodd-Frank Act, we present the following items regarding certain mining safety and health matters for each of our mine locations that are covered under the scope of the Dodd-Frank Act.

(A)

The total number of violations of mandatory health or safety standards that could significantly and substantially contribute to the cause and effect of a coal or other mine safety or health hazard under section 104 of the FMSH Act (30 U.S.C. 814) for which the operator received a citation from MSHA;

(B)

The total number of orders issued under section 104(b) of the FMSH Act (30 U.S.C. 814(b));

(C)

The total number of citations and orders for unwarrantable failure of the mine operator to comply with mandatory health or safety standards under section 104(d) of the FMSH Act (30 U.S.C. 814(d));

(D)

The total number of imminent danger orders issued under section 107(a) of the FMSH Act (30 U.S.C. 817(a));

(E)

The total dollar value of proposed assessments from MSHA under the FMSH Act (30 U.S.C. 801 et seq.); and

(F)

Any pending legal action currently before the Federal Mine Safety and Health Review Commission involving such coal or other mine.

Our mine locations did not receive any flagrant violations under Section 110(b)(2) of the FMSH Act and no written notices of a pattern of violations, or the potential to have a pattern of such violations, under section 104(e) of the FMSH Act were received during the year ended December 31, 2010. In addition, there were no mining-related fatalities at any of our mine locations during these same periods.

167

Following is a summary of the information listed above for the three months and year ended December 31, 2010.


Mine Location	Operation	Three months ended December 31, 2010
		(A)		(B)		(C)		(D)			(E)		(F)
		Section 104		Section 104(b)		Section 104(d)		Section 107(a)			Proposed Assessments (2)		Pending Legal Action
Pinnacle	Coal		37		4		7		0		$	40,893	None
Green Ridge	Coal		0		0		0		0			100	None
Oak Grove	Coal		38		0		6		1	(3)		26,682	1
Dingess-Chilton (1)	Coal		12		0		0		0			6,228	None
Powellton (1)	Coal		21		0		1		0			30,510	None
Saunders Prep (1)	Coal		3		0		0		0			1,194	None
Tony Fork (1)	Coal		0		0		0		0			—	None
Elk Lick Tipple (1)	Coal		1		0		0		0			324	None
Lower War Eagle (1)	Coal		0		0		0		0			—	None
Elk Lick Chilton (1)	Coal		0		0		0		0			—	None
Tilden	Iron Ore		23		0		0		0			39,579	None
Empire	Iron Ore		16		1		2		0			34,290	None
NorthShore	Iron Ore		10		0		0		0			—	None
Hibbing Taconite	Iron Ore		6		0		0		0			—	None
United Taconite	Iron Ore		12		0		0		0			—	None


Mine Location	Operation	Year ended December 31, 2010
		(A)		(B)		(C)		(D)			(E)		(F)
		Section 104		Section 104(b)		Section 104(d)		Section 107(a)			Proposed Assessments (2)		Pending Legal Action
Pinnacle	Coal		147		4		14		4		$	221,545	None
Green Ridge	Coal		2		0		0		0			1,856	None
Oak Grove	Coal		187		5		24		2	(3)		844,916	1
Dingess-Chilton (1)	Coal		21		0		0		0			11,898	None
Powellton (1)	Coal		31		0		2		0			49,381	None
Saunders Prep (1)	Coal		3		0		0		0			1,194	None
Tony Fork (1)	Coal		15		0		0		0			11,348	None
Elk Lick Tipple (1)	Coal		1		0		0		0			424	None
Lower War Eagle (1)	Coal		0		0		0		0			100	None
Elk Lick Chilton (1)	Coal		0		0		0		0			—	None
Tilden	Iron Ore		69		1		0		0			223,432	None
Empire	Iron Ore		65		1		2		0			221,164	None
NorthShore	Iron Ore		130		1		3		0			250,731	None
Hibbing Taconite	Iron Ore		29		0		0		0			122,100	None
United Taconite	Iron Ore		67		0		0		1			383,796	1

(1)	All information related to Cliffs Logan County Coal is presented as of the acquisition date of July 30, 2010.

(2)	Amounts included under the heading “Proposed Assessments” are the total dollar amounts for proposed assessments received from MSHA on or before December 31, 2010.

(3)

On December 11, 2010, we received an imminent danger order from MSHA stating that oxygen levels in a portion of the bleeder system at our Oak Grove mine were below acceptable levels. We have completed work to address the issue and oxygen levels in the affected area returned to acceptable levels, resulting in the termination of the imminent danger order on December 12, 2010. The conditions cited in the imminent danger order did not result in an accident or injury and had no material adverse impact on our operations at the Oak Grove mine.

168

PART III

Item 10.

Directors, Executive Officers and Corporate Governance.

The information required to be furnished by this Item will be set forth in our definitive Proxy Statement to Security Holders under the headings “Information Concerning Directors and Nominees”, “Section 16(a) Beneficial Ownership Reporting and Compliance”, “Business Ethics Policy”, “Board of Directors and Board Committees — Audit Committee”, and “Agreements and Transactions” and is incorporated herein by reference and made a part hereof from the Proxy Statement. The information regarding executive officers required by this Item is set forth in Part I hereof under the heading “Executive Officers of the Registrant”, which information is incorporated herein by reference and made a part hereof.

Item 11.

Executive Compensation.

The information required to be furnished by this Item will be set forth in our definitive Proxy Statement to Security Holders under the headings “Executive Compensation”, “Directors’ Compensation”, “Compensation Committee Interlocks and Insider Participation” and “Compensation Committee Report” and is incorporated herein by reference and made a part hereof from the Proxy Statement.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

EQUITY COMPENSATION PLAN INFORMATION

The table below sets forth certain information regarding the following equity compensation plans as of December 31, 2010: ICE Plan, the Management Performance Incentive Plan (MPI Plan), the Executive Management Performance Incentive Plan (EMPI Plan), the Operations Performance Incentive Plan (OPIP Plan), the VNQDC Plan and the Directors’ Plan. Only the ICE Plan, the Directors’ Plan and the EMPI Plan have been approved by shareholders.

Plan category

Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights

Weighted-
average exercise
price of
outstanding
options, warrants
and rights

Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column(a))

(a)

(b)

(c)

Equity compensation plans approved by security holders

1,124,667

(1)

N/A

7,391,334

(2)

Equity compensation plans not approved by security holders

—

N/A

)

(1)	Includes 843,238 performance share awards for which issuance is dependent upon meeting certain performance targets, and 281,429 restricted awards for which issuance is based upon a three-year vesting period.

(2)

Includes 7,265,391 common shares remaining available under the ICE Plan, which authorizes the Compensation Committee to make awards of option rights, restricted shares, deferred shares, performance shares and performance units; and 125,943 common shares remaining available under the Directors’ Plan, which authorizes the award of restricted shares, which we refer to as the annual equity grant, to Directors upon their election or re-election to the Board at the annual meeting and provides (i) that the Directors are required to take $20,000 of the annual retainer in common shares unless they meet the Director share ownership guidelines, and (ii) may take up to 100 percent of their retainer and other fees in common shares.

(3)	The MPI Plan, the OPIP Plan, and the VNQDC Plan provide for the issuance of common shares, but do not provide for a specific amount available under the plans. Descriptions of those plans are set forth below.

169

EMPI and MPI Plan

The MPI Plan provides an opportunity for elected officers and other salaried employees in designated positions to earn annual cash bonuses. At the discretion of the Compensation Committee, bonus payments may be made in cash or shares of company stock or a combination thereof, and restrictions may be placed on the vesting of any stock award. Certain participants in the MPI Plan may elect to defer all or a portion of such bonus into the VNQDC Plan. Each year the participants under the MPI Plan must make their cash bonus deferral election by December 31^st of the year prior to the year in which the bonus is earned. The participants can elect to defer their cash bonus in shares and the amount deferred in shares is eligible for a matching contribution equal to 25 percent. We refer to these exchanged shares as the Management Share Acquisition Program (“MSAP”) or bonus exchange and match. At this time, these participants may also elect to have dividends credited with respect to the bonus exchange shares in a one-time, irrevocable election. The dividends can be credited in additional deferred common shares, deferred in cash or paid out in cash in an in-service compensation distribution. At our discretion, matching contributions may be made in matching shares or restricted shares, and are subject to a five-year vesting schedule. These participants must comply with the employment and non-distribution requirements for the bonus match shares to become vested and nonforfeitable.

The EMPI Plan is intended to provide a competitive annual incentive compensation opportunity to selected senior executive officers based on achievement against key corporate objectives and thereby align actual pay results with the short-term business performance of the company. The Compensation Committee selects the individual participants for participation in the plan, for each plan year, no later than 90 days after the beginning of the plan year. Awards made under the plan are intended to qualify as performance-based compensation. Payment of the award is based on continued employment through the date on which the awards are paid, following certification by the Compensation Committee. If a participant dies, becomes disabled, retires, or is terminated without cause after the start of a plan year, the participant will be entitled to a pro-rata award based on the number of days as an active employee before the change in status.

OPIP Plan

The OPIP Plan provides an opportunity for senior mine managers and salaried employees to earn cash bonuses. The purpose of the plan is to encourage improvements in areas, such as energy utilization, labor productivity, controllable costs and safety by providing incentive compensation for improvements in these areas. Bonuses earned under the OPIP Plan are determined and paid monthly and annually to the participants. The OPIP Plan recognizes both team and individually based performance by leaving monthly OPIP bonus calculations entirely team based, but incorporating individual performance results into annual bonus calculations. Certain participants may elect to defer all or part of their cash bonuses under the VNQDC Plan. Participants in the OPIP Plan eligible for the VNQDC Plan may further elect to have his or her deferred cash bonus credited to an account with deferred common shares. Each year participants under the OPIP Plan must make their bonus exchange shares election, for the four quarters of that year, by December 31^st of the year prior to the year in which the monthly bonuses are earned. As with the participants electing bonus exchange shares under the MPI Plan, participants under the OPIP Plan electing bonus exchange shares will receive or be credited with restricted bonus match shares in an amount of 25 percent of the bonus exchange shares with the same five-year vesting period.

VNQDC

The VNQDC Plan was originally adopted by the Board of Directors to provide certain management and highly compensated employees of ours or our selected affiliates with the option to defer receipt of a portion of their regular base salary compensation, bonuses under the MPI Plan, the EMPI Plan and the OPIP Plan or performance and restricted shares awarded under the ICE Plan in order to defer taxation of these amounts. Each year the participants must make their deferral election by December 31^st of the year prior to the year in which base salary compensation is earned; bonuses before the beginning of the year in which the bonus is earned; and long-term incentives, performance and restricted shares, before the beginning of the final year in which the incentive is earned. In addition, the VNQDC Plan contains the MSAP or bonus exchange and match. The MSAP provides designated management employees with the opportunity to acquire deferred interests in common shares through deferral of their bonuses. The VNQDC Plan also contains the Officer Share Acquisition Program, or

170

(“OSAP”), which permits elected officers who have not met the requirements of the Company’s Share Ownership Guidelines, to invest a specified dollar amount or percentage of their share deferral account in common shares with compensation previously deferred in cash under the VNQDC Plan. However, no participant may elect to invest any such amount or percentage in excess of that needed to enable the participant to satisfy the Company’s Share Ownership Guidelines. When participants in the MPI Plan, OPIP Plan, MSAP or OSAP elect to have accounts credited with deferred common shares under the VNQDC Plan, they receive a match equal to 25 percent of the value of the deferred common shares. The matching shares are subject to the same five-year vesting period and employment and non-distribution requirements.

Item 13.

Certain Relationships and Related Transactions, and Director Independence.

The information required to be furnished by this Item will be set forth in our definitive Proxy Statement to Security Holders under the heading “Director Independence” and is incorporated herein by reference and made a part hereof from the Proxy Statement.

Item 14.

Principal Accountant Fees and Services.

The information required to be furnished by this Item will be set forth in our definitive Proxy Statement to Security Holders under the heading “Ratification of Independent Registered Public Accounting Firm” and is incorporated herein by reference and made a part hereof from the Proxy Statement.

171

PART IV

Item 15.

Exhibits, Financial Statement Schedules.

(a)(1) and (2) — List of Financial Statements and Financial Statement Schedules.

The following consolidated financial statements of Cliffs Natural Resources Inc. are included at Item 8 above:

Statements of Consolidated Financial Position — December 31, 2010 and 2009

Statements of Consolidated Operations — Years ended December 31, 2010, 2009 and 2008

Statements of Consolidated Cash Flows — Years ended December 31, 2010, 2009 and 2008

Statements of Consolidated Changes in Equity — Years ended December 31, 2010, 2009 and 2008

Notes to Consolidated Financial Statements

The following consolidated financial statement schedule of Cliffs Natural Resources Inc. is included herein in Item 15(d) and attached as Exhibit 99(a):

Schedule II — Valuation and Qualifying Accounts

All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.

(3) List of Exhibits — Refer to Exhibit Index on pages 184-193, which is incorporated herein by reference.

(d) The schedule listed above in Item 15(a)(1) and (2) is attached as Exhibit 99(a) and incorporated herein by reference.

172

SIGNATURES

Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


CLIFFS NATURAL RESOURCES INC.

By:	/s/ TERRANCE M. PARADIE
	Name:	Terrance M. Paradie
	Title:	Senior Vice President, Corporate Controller and Chief Accounting Officer

Date: February 17, 2011

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.


Signatures	Title	Date

/s/ J. CARRABBA J. Carrabba	Chairman, President and Chief Executive Officer and Director (Principal Executive Officer)	February 17, 2011

/s/ L. BRLAS L. Brlas	Executive Vice President, Finance and Administration and Chief Financial Officer (Principal Financial Officer)	February 17, 2011

/s/ T. M. PARADIE T. M. Paradie	Senior Vice President, Corporate Controller and Chief Accounting Officer	February 17, 2011

* R. C. Cambre	Director	February 17, 2011

* S. M. Cunningham	Director	February 17, 2011

* B. J. Eldridge	Director	February 17, 2011

* A. R. Gluski	Director	February 17, 2011

* S. M. Green	Director	February 17, 2011

* J. K. Henry	Director	February 17, 2011

* J. F. Kirsch	Director	February 17, 2011

173


Signatures	Title	Date

* F. R. McAllister	Director	February 17, 2011

* R. Phillips	Director	February 17, 2011

* R. K. Riederer	Director	February 17, 2011

* R. Ross	Director	February 17, 2011

* A. Schwartz	Director	February 17, 2011

*	The undersigned, by signing her name hereto, does sign and execute this Annual Report on Form 10-K pursuant to a Power of Attorney executed on behalf of the above-indicated officers and directors of the registrant and filed herewith as Exhibit 24 on behalf of the registrant.


By:		/s/ L. Brlas
		(L. Brlas, as Attorney-in-Fact)

174

EXHIBIT INDEX

All documents referenced below were filed pursuant to the Securities Exchange Act of 1934 by Cliffs Natural Resources Inc., file number 1-09844, unless otherwise indicated.


Exhibit Number		Pagination by Sequential Numbering System

	Plan of acquisition, reorganization, arrangement, liquidation or succession

2(a)	# Membership Interest Purchase Agreement among Cliffs Natural Resources Inc., INR Energy, LLC and INR-1 Holdings LLC dated July 2, 2010 (filed as Exhibit 2(a) to Form 8-K of Cliffs on July 7, 2010 and incorporated by reference)		Not Applicable

2(b)	# Arrangement Agreement Between Cliffs Natural Resources Inc. and Consolidated Thompson Iron Mines Limited dated January 11, 2011 (filed as Exhibit 2.1 to Form 8-K of Cliffs on January 18, 2010 and incorporated by reference)		Not Applicable

	Articles of Incorporation and By-Laws of Cliffs Natural Resources Inc.

3(a)	Regulations of Cleveland-Cliffs Inc. (filed as Exhibit 3(b) to Form 10-K of Cliffs filed on February 2, 2001 and incorporated by reference)		Not Applicable

3(b)	Second Amended Articles of Incorporation of Cliffs Natural Resources Inc. as filed with the Secretary of State of the State of Ohio on July 13, 2010 (filed as Exhibit 3(a) to Form 8-K of Cliffs on July 15, 2010 and incorporated by reference)		Not Applicable

	Instruments defining rights of security holders, including indentures

4(a)	Multicurrency Credit Agreement among Cleveland-Cliffs Inc, Bank of America, N.A., as Administrative Agent, Swing Line Lender and Letter of Credit Issuer, JP Morgan Chase Bank, N.A., as Syndication Agent, and 11 other financial institutions dated August 17, 2007 (filed as Exhibit 4(a) to Form 8-K of Cliffs on August 20, 2007 and incorporated by reference)		Not Applicable

4(b)	First Amendment to Multicurrency Credit Agreement among Cleveland-Cliffs Inc, Bank of America, N.A. as Administrative Agent, Swing Line Lender and Letter of Credit Issuer and certain other financial institutions dated May 15, 2008 (filed as Exhibit 4(a) to Form 8-K of Cliffs on May 21, 2008 and incorporated by reference)		Not Applicable

4(c)	Second Amendment to Multicurrency Credit Agreement among Cliffs Natural Resources Inc. (f/k/a Cleveland-Cliffs Inc), Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, and certain other financial institutions dated October 29, 2009 (filed as Exhibit 4(c) to Form 10-K of Cliffs on February 18, 2010 and incorporated by reference)		Not Applicable

4(d)	Note Purchase Agreement dated June 25, 2008 by and among Cleveland-Cliffs Inc and the institutional investors party thereto (filed as Exhibit 4(a) to Form 8-K of Cliffs Inc on June 30, 2008 and incorporated by reference)		Not Applicable

4(e)	Form of Indenture between Cliffs Natural Resources Inc. and U.S. Bank National Association, as trustee, dated March 17, 2010 (filed as Exhibit 4.1 to Form S-3 No. 333-165376 of Cliffs on March 10, 2010 and incorporated by reference)		Not Applicable

4(f)	Form of 5.90% Notes due 2020 First Supplemental Indenture between Cliffs Natural Resources Inc. and U.S. Bank National Association, as trustee, dated March 17, 2010 (filed as Exhibit 4.2 to Form 8-K of Cliffs on March 16, 2010 and incorporated by reference)		Not Applicable

#	The Company agrees to furnish supplementally a copy of any omitted exhibits or schedules to the Securities and Exchange Commission upon request.

175


Exhibit Number		Pagination by Sequential Numbering System

4(g)	Form of 4.80% Notes due 2020 Second Supplemental Indenture between Cliffs Natural Resources Inc. and U.S. Bank National Association, as trustee, dated September 20, 2010 (filed as Exhibit 4.3 to Form 8-K of Cliffs on September 17, 2010 and incorporated by reference)		Not Applicable

4(h)	Form of 6.25% Notes due 2040 Third Supplemental Indenture between Cliffs Natural Resources Inc. and U.S. Bank National Association, as trustee, dated September 20, 2010 (filed as Exhibit 4.4 to Form 8-K of Cliffs on September 17, 2010 and incorporated by reference)		Not Applicable

4(i)	Form of Common Share Certificate		Filed Herewith

	Material Contracts

10(a)	* Cleveland-Cliffs Inc Change in Control Severance Pay Plan, effective as of January 1, 2000 (filed as Exhibit 10(jj) to Form 10-K of Cliffs on March 16, 2000 and incorporated by reference)		Not Applicable

10(b)	* Cleveland-Cliffs Inc Voluntary Non-Qualified Deferred Compensation Plan (Amended and Restated as of January 1, 2000) (filed as Exhibit 10(a) to Form 10-Q of Cleveland-Cliffs Inc on July 27, 2000 and incorporated by reference)		Not Applicable

10(c)	* Form of Indemnification Agreement between Cleveland-Cliffs Inc and Directors (filed as Exhibit 10(f) to Form 10-K of Cliffs on February 2, 2001 and incorporated by reference)		Not Applicable

10(d)	* Amended and Restated Cleveland-Cliffs Inc Retirement Plan for Non-Employee Directors effective on July 1, 1995 (filed as Exhibit 10(l) to Form 10-K of Cliffs on February 2, 2001 and incorporated by reference)		Not Applicable

10(e)	* Amendment to Amended and Restated Cleveland-Cliffs Inc Retirement Plan for Non-Employee Directors dated as of January 1, 2001 (filed as Exhibit 10(d) to Form 10-Q of Cliffs on July 27, 2001 and incorporated by reference)		Not Applicable

10(f)	* Second Amendment to the Amended and Restated Cleveland-Cliffs Inc Retirement Plan for Non-Employee Directors dated and effective January 14, 2003 (filed as Exhibit 10(a) to Form 10-Q of Cliffs on April 24, 2003 and incorporated by reference)		Not Applicable

10(g)	* Cleveland-Cliffs Inc and Subsidiaries Management Performance Incentive Plan, effective January 1, 2004 (filed as Exhibit 10(c) to Form 10-Q of Cliffs on July 29, 2004 and incorporated by reference)		Not Applicable

10(h)	* Form of the 2006 Restricted Shares Agreement for the Non-Retirement Eligible Employee (filed as Exhibit 99(b) to Form 8-K of Cliffs on March 17, 2006 and incorporated by reference)		Not Applicable

10(i)	* Form of letter to Participants of the 2006-2008 and 2007-2009 Performance Share Periods amending the payment calculation method to be used for 2006 and 2007 Performance Share Grants, dated May 27, 2008 (filed as Exhibit 10(a) to Form 10-Q of Cliffs on July 31, 2008 and incorporated by reference)		Not Applicable

10(j)	* Trust Agreement No. 1 (Amended and Restated effective June 1, 1997), dated June 12, 1997, by and between Cleveland-Cliffs Inc and KeyBank National Association, Trustee, with respect to the Cleveland-Cliffs Inc Supplemental Retirement Benefit Plan, Severance Pay Plan for Key Employees and certain executive agreements (filed as Exhibit 10(o) to Form 10-K of Cliffs on February 5, 2002 and incorporated by reference)		Not Applicable

*	Reflects management contract or other compensatory arrangement required to be filed as an Exhibit pursuant to Item 15(c) of this Report.

176


Exhibit Number		Pagination by Sequential Numbering System

10(k)	* Trust Agreement No. 1 Amendments to Exhibits, effective as of January 1, 2000, by and between Cleveland-Cliffs Inc and KeyBank National Association, as Trustee (filed as Exhibit 10(n) to Form 10-K of Cliffs on March 16, 2000 and incorporated by reference)		Not Applicable

10(l)	* First Amendment to Trust Agreement No. 1, effective September 10, 2002, by and between Cleveland-Cliffs Inc and KeyBank National Association, as Trustee (filed as Exhibit 10(p) to Form 10-K of Cliffs on February 5, 2003 and incorporated by reference)		Not Applicable

10(m)	* Second Amendment to Trust Agreement No. 1 between Cliffs Natural Resources Inc. (f/k/a Cleveland-Cliffs Inc) and KeyBank, N.A. entered into and effective as of December 31, 2008 (filed as Exhibit 10(y) to Form 10-K of Cliffs on February 26, 2009 and incorporated by reference)		Not Applicable

10(n)	* Amended and Restated Trust Agreement No. 2, effective as of October 15, 2002, by and between Cleveland-Cliffs Inc and KeyBank National Association, Trustee, with respect to Executive Agreements and Indemnification Agreements with the Company’s Directors and certain Officers, the Company’s Severance Pay Plan for Key Employees, and the Retention Plan for Salaried Employees (filed as Exhibit 10(q) to Form 10-K of Cliffs on February 5, 2003 and incorporated by reference)		Not Applicable

10(o)	* Second Amendment to Amended and Restated Trust Agreement No. 2 between Cliffs Natural Resources Inc. (f/k/a Cleveland-Cliffs Inc) and KeyBank, N.A. entered into and effective as of December 31, 2008 (filed as Exhibit 10(aa) to Form 10-K of Cliffs on February 26, 2009 and incorporated by reference)		Not Applicable

10(p)	* Trust Agreement No. 5, dated as of October 28, 1987, by and between Cleveland-Cliffs Inc and KeyBank National Association, Trustee, with respect to the Cleveland-Cliffs Inc Voluntary Non-Qualified Deferred Compensation Plan (filed as Exhibit 10(v) to Form 10-K of Cliffs on February 2, 2001 and incorporated by reference)		Not Applicable

10(q)	* First Amendment to Trust Agreement No. 5, dated as of May 12, 1989, by and between Cleveland-Cliffs Inc and KeyBank National Association, Trustee (filed as Exhibit 10(x) to Form 10-K of Cliffs on February 2, 2001 and incorporated by reference)		Not Applicable

10(r)	* Second Amendment to Trust Agreement No. 5, dated as of April 9, 1991, by and between Cleveland-Cliffs Inc and KeyBank National Association, Trustee (filed as Exhibit 10(y) to Form 10-K of Cliffs on February 2, 2001 and incorporated by reference)		Not Applicable

10(s)	* Third Amendment to Trust Agreement No. 5, dated as of March 9, 1992, by and between Cleveland-Cliffs Inc and KeyBank National Association, Trustee (filed as Exhibit 10(z) to Form 10-K of Cliffs on February 2, 2001 and incorporated by reference)		Not Applicable

10(t)	* Fourth Amendment to Trust Agreement No. 5, dated November 18, 1994, by and between Cleveland-Cliffs Inc and KeyBank National Association, Trustee (filed as Exhibit 10(w) to Form 10-K of Cliffs on March 16, 2000 and incorporated by reference)		Not Applicable

*	Reflects management contract or other compensatory arrangement required to be filed as an Exhibit pursuant to Item 15(c) of this Report.

177


Exhibit Number		Pagination by Sequential Numbering System

10(u)	* Fifth Amendment to Trust Agreement No. 5, dated May 23, 1997, by and between Cleveland-Cliffs Inc and KeyBank National Association, Trustee (filed as Exhibit 10(cc) to Form 10-K of Cliffs on February 5, 2002 and incorporated by reference)		Not Applicable

10(v)	* Sixth Amendment to Trust Agreement No. 5 between Cliffs Natural Resources Inc. (f/k/a Cleveland-Cliffs Inc) and KeyBank, N.A. entered into and effective as of December 31, 2008 (filed as Exhibit 10(hh) to Form 10-K of Cliffs on February 26, 2009 and incorporated by reference)		Not Applicable

10(w)	* Trust Agreement No. 7, dated as of April 9, 1991, by and between Cleveland-Cliffs Inc and KeyBank National Association, Trustee, with respect to the Cleveland-Cliffs Inc Supplemental Retirement Benefit Plan (filed as Exhibit 10(ee) to Form 10-K of Cliffs on February 2, 2001 and incorporated by reference)		Not Applicable

10(x)	* First Amendment to Trust Agreement No. 7, by and between Cleveland-Cliffs Inc and KeyBank National Association, Trustee, dated as of March 9, 1992 (filed as Exhibit 10(ff) to Form 10-K of Cliffs on February 2, 2001 and incorporated by reference)		Not Applicable

10(y)	* Second Amendment to Trust Agreement No. 7, dated November 18, 1994, by and between Cleveland-Cliffs Inc and KeyBank National Association, Trustee (filed as Exhibit 10(bb) to Form 10-K of Cliffs on March 16, 2000 and incorporated by reference)		Not Applicable

10(z)	* Third Amendment to Trust Agreement No. 7, dated May 23, 1997, by and between Cleveland-Cliffs Inc and KeyBank National Association, Trustee (filed as Exhibit 10(ii) to Form 10-K of Cliffs on February 5, 2002 and incorporated by reference)		Not Applicable

10(aa)	* Fourth Amendment to Trust Agreement No. 7, dated July 15, 1997, by and between Cleveland-Cliffs Inc and KeyBank National Association, Trustee (filed as Exhibit 10(jj) to Form 10-K of Cliffs on February 5, 2002 and incorporated by reference)		Not Applicable

10(bb)	* Amendment to Exhibits to Trust Agreement No. 7, effective as of January 1, 2000, by and between Cleveland-Cliffs Inc and KeyBank National Association, Trustee (filed as Exhibit 10(ee) to Form 10-K of Cliffs on March 16, 2000 and incorporated by reference)		Not Applicable

10(cc)	* Sixth Amendment to Trust Agreement No. 7 between Cliffs Natural Resources Inc. (f/k/a Cleveland-Cliffs Inc) and KeyBank, N.A. entered into and effective as of December 31, 2008 (filed as Exhibit 10(oo) to Form 10-K of Cliffs on February 26, 2009 and incorporated by reference)		Not Applicable

10(dd)	* Trust Agreement No. 8, dated as of April 9, 1991, by and between Cleveland-Cliffs Inc and KeyBank National Association, Trustee, with respect to the Cleveland-Cliffs Inc Retirement Plan for Non-Employee Directors (filed as Exhibit 10(kk) to Form 10-K of Cliffs on February 2, 2001 and incorporated by reference)		Not Applicable

10(ee)	* First Amendment to Trust Agreement No. 8, dated as of March 9, 1992, by and between Cleveland-Cliffs Inc and KeyBank National Association, Trustee (filed as Exhibit 10(ll) to Form 10-K of Cliffs on February 2, 2001 and incorporated by reference)		Not Applicable

*	Reflects management contract or other compensatory arrangement required to be filed as an Exhibit pursuant to Item 15(c) of this Report.

178


Exhibit Number		Pagination by Sequential Numbering System

10(ff)	* Second Amendment to Trust Agreement No. 8, dated June 12, 1997, by and between Cleveland-Cliffs Inc and KeyBank National Association, Trustee (filed as Exhibit 10(nn) to Form 10-K of Cliffs on February 5, 2002 and incorporated by reference)		Not Applicable

10(gg)	* Third Amendment to Trust Agreement No. 8 between Cliffs Natural Resources Inc. (f/k/a Cleveland-Cliffs Inc) and KeyBank, N.A. entered into and effective as of December 31, 2008 (filed as Exhibit 10(ss) to Form 10-K of Cliffs on February 26, 2009 and incorporated by reference)		Not Applicable

10(hh)	* Trust Agreement No. 9, dated as of November 20, 1996, by and between Cleveland-Cliffs Inc and KeyBank National Association, Trustee, with respect to the Cleveland-Cliffs Inc Nonemployee Directors’ Supplemental Compensation Plan (filed as Exhibit 10(oo) to Form 10-K of Cliffs on February 5, 2002 and incorporated by reference)		Not Applicable

10(ii)	* First Amendment to Trust Agreement No. 9 between Cliffs Natural Resources Inc. (f/k/a Cleveland-Cliffs Inc) and KeyBank, N.A. entered into and effective as of December 31, 2008 (filed as Exhibit 10(uu) to Form 10-K of Cliffs on February 26, 2009 and incorporated by reference)		Not Applicable

10(jj)	* Trust Agreement No. 10, dated as of November 20, 1996, by and between Cleveland-Cliffs Inc and KeyBank National Association, Trustee, with respect to the Cleveland-Cliffs Inc Nonemployee Directors’ Compensation Plan (filed as Exhibit 10(pp) to Form 10-K of Cliffs on February 5, 2002 and incorporated by reference)		Not Applicable

10(kk)	* First Amendment to Trust Agreement No. 10 between Cliffs Natural Resources Inc. (f/k/a Cleveland-Cliffs Inc) and KeyBank, N.A. entered into and effective as of December 31, 2008 (filed as Exhibit 10(ww) to Form 10-K of Cliffs on February 26, 2009 and incorporated by reference)		Not Applicable

10(ll)	* Letter Agreement of Employment by and between Cleveland-Cliffs Inc and Joseph A. Carrabba dated April 29, 2005 (filed as Exhibit 10(b) to Form 10-Q of Cliffs on July 28, 2005 and incorporated by reference)		Not Applicable

10(mm)	* Letter Agreement of Employment by and between Cleveland-Cliffs Inc and Laurie Brlas dated November 22, 2006 (filed as Exhibit 10(a) to Form 8-K of Cliffs on November 28, 2006 and incorporated by reference)		Not Applicable

10(nn)	* Letter Agreement of Employment by and between Cleveland-Cliffs Inc and William Brake dated April 4, 2007 (filed as Exhibit 10(a) to Form 8-K of Cliffs on April 10, 2007 and incorporated by reference)		Not Applicable

10(oo)	* Cleveland-Cliffs Inc Executive Management Performance Incentive Plan adopted July 27, 2007 and effective as of January 1, 2007 (filed as Annex C to the proxy statement of Cliffs on June 15, 2007 and incorporated by reference)		Not Applicable

10(pp)	* First Amendment to Executive Management Performance Incentive Plan dated December 31, 2008 (filed as Exhibit 10(bbb) to Form 10-K of Cliffs on February 26, 2009 and incorporated by reference)		Not Applicable

10(qq)	* Amended and Restated Cliffs 2007 Incentive Equity Plan adopted July 27, 2007 and effective as of May 11, 2010 (filed as Exhibit 10(a) to the Form 8-K of Cliffs on May 14, 2010 and incorporated by reference)		Not Applicable

*	Reflects management contract or other compensatory arrangement required to be filed as an Exhibit pursuant to Item 15(c) of this Report.

179


Exhibit Number		Pagination by Sequential Numbering System

10(rr)	* First Amendment to Amended and Restated Cliffs 2007 Incentive Equity Plan dated January 11, 2011		Filed Herewith

10(ss)	* Form of 2007 Participant Grant and Agreement effective March 13, 2007 from the Cleveland-Cliffs Inc 2007 Incentive Equity Plan (filed as Exhibit 10(d) to Form 10-Q of Cliffs on August 3, 2007 and incorporated by reference)		Not Applicable

10(tt)	* Form of 2008 Participant Grant and Agreement Under the 2007 Incentive Equity Plan for performance grant period January 1, 2008 through December 31, 2009, effective March 10, 2008 (filed as Exhibit 10(b) to Form 10-Q of Cliffs on July 31, 2008 and incorporated by reference)		Not Applicable

10(uu)	* Omnibus Amendment to Outstanding Grants Under Cleveland-Cliffs Inc 2007 Incentive Equity Plan dated January 13, 2009 between Cliffs Natural Resources Inc. and Plan participants (filed as Exhibit 10(jjj) to Form 10-K of Cliffs on February 26, 2009 and incorporated by reference)		Not Applicable

10(vv)	* Form of Amendment and Restatement of Severance Agreement entered into between Cliffs Natural Resources Inc. and elected officers and certain mine managers (filed as Exhibit 10(b) to Form 8-K of Cliffs on November 14, 2008 and incorporated by reference)		Not Applicable

10(ww)	* Cliffs Natural Resources Inc. 2005 Voluntary Non-Qualified Deferred Compensation Plan (Effective as of January 1, 2005) dated November 11, 2008 (filed as Exhibit 10(a) to Form 8-K of Cliffs on November 14, 2008 and incorporated by reference)		Not Applicable

10(xx)	* First Amendment to Cliffs Natural Resources Inc. 2005 Voluntary Non-Qualified Deferred Compensation Plan dated September 2, 2009 and effective as of January 1, 2009 (filed as Exhibit 10(a) to Form 10-Q of Cliffs on October 30, 2009 and incorporated by reference)		Not Applicable

10(yy)	* Cliffs Natural Resources Inc. Supplemental Retirement Benefit Plan (as Amended and Restated effective December 1, 2006) dated December 31, 2008 (filed as Exhibit 10(mmm) to Form 10-K of Cliffs on February 26, 2009 and incorporated by reference)		Not Applicable

10(zz)	* Cliffs Natural Resources Inc. Nonemployee Directors’ Compensation Plan (Amended and Restated as of December 31, 2008) (filed as Exhibit 10(nnn) to Form 10-K of Cliffs on February 26, 2009 and incorporated by reference)		Not Applicable

10(aaa)	* 2009 Participant Grant Under the 2007 Incentive Equity Plan by and between Cliffs and Joseph A. Carrabba effective December 17, 2009 subject to Terms and Conditions of the 2009 Participant Grant to Joseph A. Carrabba Under the 2007 Incentive Equity Plan adopted February 16, 2010, and effective December 17, 2009 (filed as Exhibit 10(qqq) to Form 10-K of Cliffs on February 18, 2010 and incorporated by reference)		Not Applicable

10(bbb)	Support Agreement among Cliffs Natural Resources Inc. and Wuhan Iron and Steel (Group) Corporation dated January 11, 2011 (filed as Exhibit 10.1 to Form 8-K of Cliffs on January 18, 2011 and incorporated by reference)		Not Applicable

10(ccc)	* Form of Cliffs Natural Resources Restricted Shares Agreement pursuant to the Amended and Restated Cliffs 2007 Incentive Equity Plan between the employee participant and the Company or its Subsidiary		Filed Herewith

*	Reflects management contract or other compensatory arrangement required to be filed as an Exhibit pursuant to Item 15(c) of this Report.

180


Exhibit Number		Pagination by Sequential Numbering System

10(ddd)	** Pellet Sale and Purchase Agreement, dated and effective as of January 31, 2002, by and among The Cleveland-Cliffs Iron Company, Cliffs Mining Company, Northshore Mining Company and Algoma Steel Inc. (filed as Exhibit 10(a) to Form 10-Q of Cliffs on April 25, 2002 and incorporated by reference)		Not Applicable

10(eee)	** Pellet Sale and Purchase Agreement, dated and effective as of April 10, 2002, by and among The Cleveland-Cliffs Iron Company, Cliffs Mining Company, Northshore Mining Company, Northshore Sales Company, International Steel Group Inc., ISG Cleveland Inc., and ISG Indiana Harbor Inc. (filed as Exhibit 10(a) to Form 10-Q of Cliffs on July 25, 2002 and incorporated by reference)		Not Applicable

10(fff)	** First Amendment to Pellet Sale and Purchase Agreement, dated and effective December 16, 2004 by and among The Cleveland-Cliffs Iron Company, Cliffs Mining Company, Northshore Mining Company, Cliffs Sales Company (formerly known as Northshore Sales Company), International Steel Group Inc., ISG Cleveland Inc., and ISG Indiana Harbor (filed as Exhibit 10(a) to Form 8-K of Cliffs on December 29, 2004, and incorporated by reference)		Not Applicable

10(ggg)	** Pellet Sale and Purchase Agreement, dated and effective as of December 31, 2002 by and among The Cleveland-Cliffs Iron Company, Cliffs Mining Company, and Ispat Inland Inc. (filed as Exhibit 10(vv) to Form 10-K of Cliffs filed on February 5, 2003, and incorporated by reference)		Not Applicable

10(hhh)	** Amended and Restated Pellet Sale and Purchase Agreement, dated and effective as of May 17, 2004, by and among The Cleveland-Cliffs Iron Company, Cliffs Mining Company, Northshore Mining Company, Cliffs Sales Company, International Steel Group Inc., and ISG Weirton Inc. (filed as Exhibit 10(a) of Form 8-K of Cliffs on September 20, 2004, and incorporated by reference)		Not Applicable

10(iii)	** Umbrella Agreement between Mittal Steel USA and Cleveland-Cliffs Inc, The Cleveland-Cliffs Iron Company, Cliffs Mining Company, Northshore Mining Company, and Cliffs Sales Company amending three existing pellet sales contracts for Mittal Steel USA-Indiana Harbor West (Exhibit 10(eee) and 10(fff) above in this index), Mittal Steel USA-Indiana Harbor East (Exhibit 10(ggg) above in this index), and Mittal Steel USA-Weirton (Exhibit 10(hhh) above in this index), dated as of March 1, 2007 and effective as of April 12, 2006 (filed as Exhibit 10(www) for Form 10-K of Cliffs on May 25, 2007 and incorporated by reference)		Not Applicable

10(jjj)	** Amended and Restated Pellet Sale and Purchase Agreement, dated and effective January 1, 2006 by and among Cliffs Sales Company, The Cleveland-Cliffs Iron Company, Cliffs Mining Company, and Severstal North America, Inc. (filed as Exhibit 10(fff) of Form 10-K of Cliffs on February 21, 2006 and incorporated by reference)		Not Applicable

10(kkk)	** Term Sheet for Amendment and Extension of the Amended and Restated Pellet Sale and Purchase Agreement among Cliffs Sales Company, The Cleveland-Cliffs Iron Company, Cliffs Mining Company, and Severstal North America, Inc. (filed as Exhibit 10(d) to Form 10-Q of Cliffs on July 31, 2008 and incorporated by reference)		Not Applicable

**	Confidential treatment requested and/or approved as to certain portions, which portions have been omitted and filed separately with the Securities and Exchange Commission.

181


Exhibit Number		Pagination by Sequential Numbering System

10(lll)	** Term Sheet for Modification of Certain Terms of the Pellet Sale and Purchase Agreement by and between Cliffs and Severstal dated and effective December 15, 2008 (filed as Exhibit 10(a) to Form 10-Q of Cliffs on July 30, 2009 and incorporated by reference)		Not Applicable

10(mmm)	** Term Sheet for Modification of Certain Terms of the Pellet Sale and Purchase Agreement by and between Cliffs and Severstal dated and effective June 19, 2009 (filed as Exhibit 10(b) to Form 10-Q of Cliffs on July 30, 2009 and incorporated by reference)		Not Applicable

10(nnn)	** Pellet Sale and Purchase Agreement by and among The Cleveland-Cliffs Iron Company, Cliffs Sales Company, and AK Steel Corporation dated November 10, 2006 and effective January 1, 2007 through December 31, 2013 (filed as Exhibit 10(a) to Form 8-K of Cliffs on November 15, 2006 and incorporated by reference)		Not Applicable

12	Ratio of Earnings To Combined Fixed Charges And Preferred Stock Dividend Requirements		Filed Herewith

21	Subsidiaries of the registrant		Filed Herewith

23	Consent of independent auditors		Filed Herewith

24	Power of Attorney		Filed Herewith

31(a)	Certification Pursuant to 15 U.S.C. Section 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed and dated by Joseph A. Carrabba as of February 17, 2011		Filed Herewith

31(b)	Certification Pursuant to 15 U.S.C. Section 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed and dated by Laurie Brlas as of February 17, 2011		Filed Herewith

32(a)	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed and dated by Joseph A. Carrabba, President and Chief Executive Officer of Cliffs Natural Resources Inc., as of February 17, 2011		Filed Herewith

32(b)	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed and dated by Laurie Brlas, Executive Vice President, Finance and Administration and Chief Financial Officer of Cliffs Natural Resources Inc., as of February 17, 2011		Filed Herewith

99(a)	Schedule II — Valuation and Qualifying Accounts		Filed Herewith

101.INS	XBRL Instance Document

101.SCH	XBRL Taxonomy Extension Schema Document

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

101.LAB	XBRL Taxonomy Extension Label Linkbase Document

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

**	Confidential treatment requested and/or approved as to certain portions, which portions have been omitted and filed separately with the Securities and Exchange Commission.

182