ÐÇ¿Õ´«Ã½

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended March 31, 2007

OR

For the transition period from                      to                     .

Commission File Number: 1-8944

CLEVELAND-CLIFFS INC

(Exact Name of Registrant as Specified in Its Charter)

1100 Superior Avenue, Cleveland, Ohio 44114-2544

(Address of Principal Executive Offices) (Zip Code)

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

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 is a large accelerated filer, an accelerated filer, or a non-accelerated filer. (See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act).

Large accelerated filer  x            Accelerated filer  ¨            Non-accelerated filer  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES  ¨    NO  x

As of June 7, 2007, there were 41,020,105 Common Shares (par value $.25 per share) outstanding.

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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 ÐÇ¿Õ´«Ã½ Inc and subsidiaries, collectively. References to “A$” refer to Australian currency, “C$” to Canadian currency and “$” to United States currency.

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Explanatory Note

On May 25, 2007, the Company filed its annual report on SEC Form 10-K for the year ended December 31, 2006. The report was delayed until the completion of a comprehensive review of the Company’s application of SFAS 133, Accounting for Derivative Instruments and Hedging Activities, in relation to its long-term North American pellet supply agreements. The Company’s filing of its SEC Form 10-Q for the period ended March 31, 2007 was delayed until after the SEC Form 10-K was filed.

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PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

CLEVELAND-CLIFFS INC AND CONSOLIDATED SUBSIDIARIES

STATEMENTS OF UNAUDITED CONDENSED CONSOLIDATED OPERATIONS

See notes to unaudited condensed consolidated financial statements.

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CLEVELAND-CLIFFS INC AND CONSOLIDATED SUBSIDIARIES

STATEMENTS OF CONDENSED CONSOLIDATED FINANCIAL POSITION

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CLEVELAND-CLIFFS INC AND CONSOLIDATED SUBSIDIARIES

STATEMENTS OF CONDENSED CONSOLIDATED FINANCIAL POSITION—(Continued)

See notes to unaudited condensed consolidated financial statements.

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CLEVELAND-CLIFFS INC AND CONSOLIDATED SUBSIDIARIES

STATEMENTS OF UNAUDITED CONDENSED CONSOLIDATED CASH FLOWS

See notes to unaudited condensed consolidated financial statements.

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CLEVELAND-CLIFFS INC AND CONSOLIDATED SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2007

NOTE 1 – BASIS OF PRESENTATION

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly, the financial position, results of operations and cash flows for the periods presented. The interim results are not necessarily indicative of results for the full year. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes included in ÐÇ¿Õ´«Ã½’ Annual Report on Form 10-K for the year ended December 31, 2006.

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

All material intercompany accounts are eliminated in consolidation.

Investments in ventures on the Statements of Unaudited Condensed Consolidated Financial Position include our 30 percent equity investment in Amapa (see NOTE 4 – SEGMENT REPORTING), our 26.83 percent equity interest in Wabush and related entities that we do not control, which are carried at the lower of cost or market. Our 23 percent equity interest in Hibbing, an unincorporated joint venture in Minnesota, is a net liability and accordingly is classified as Other liabilities. Portman’s 50 percent non-controlling interest in Cockatoo Island, which is also recorded as a net liability, is classified as Other current liabilities.

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Investments in joint ventures 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 (if any) 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 non-consolidated ventures.

On May 9, 2006, the Company’s Board of Directors approved a two-for-one stock split of its common shares with a corresponding decrease in par value from $.50 to $.25 per common share. The record date for the stock split was June 15, 2006 with a distribution date of June 30, 2006. Accordingly, all common shares, per share amounts, stock compensation plans and preferred stock conversion rates have been adjusted retroactively to reflect the stock split.

First quarter North American sales revenue is not indicative of our full-year revenues due to winter shipping constraints on the Great Lakes.

NOTE 2 – ACCOUNTING POLICIES

Revenue Recognition

Revenue is recognized on the sale of products when title to the product has transferred to the customer in accordance with the specified terms of each term supply agreement and all applicable criteria for revenue recognition have been satisfied. Most of our North American term supply agreements provide that title transfers to the customer when payment is received. Under some term supply agreements, we ship the product to ports on the lower Great Lakes and/or to the customer’s facilities prior to the transfer of title. Certain supply agreements with one customer 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 record this provision at fair value until the product is consumed and the amounts are settled as an adjustment to revenue. Revenue in the first quarter of 2007 included $1.3 million of unfavorable mark-to-fair value adjustments to derivative instruments related to 2006 sales. Revenue in the first quarter of 2006 included $5.3 million of favorable mark-to-fair value adjustments related to 2005 sales. Revenue from product sales in the first quarter includes reimbursement for freight charges ($12.2 million in 2007 and $17.5 million in 2006) paid on behalf of customers and cost reimbursements ($47.1 million in 2007 and $44.4 million in 2006) from venture partners for their share of North American mine costs.

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Deferred Revenue

Two of our North American customers purchased and paid for a total of 1.2 million tons of pellets in December 2006 under terms of take-or-pay contracts. The inventory was stored at our facilities in upper lakes stockpiles as a result of the customers limited on-site storage availability. At the request of the customers, the ore was not delivered until the spring shipping season when they could accommodate the inventory at their facilities. First-quarter 2007 revenues included $13.6 million related to the shipment of .3 million tons of pellets from the stockpiles.

Additionally, one of our North American pellet supply agreements includes bi-monthly installments equaling 1/24th of the total purchase value of the calendar-year nomination. Revenue on this contract is recognized when title has transferred upon shipment of pellets. Installment amounts received in excess of shipments at March 31, 2007 totaled $35.3 million, which was recorded as Deferred revenue on the Statements of Condensed Consolidated Financial Position.

Derivative Financial Instruments

Portman receives funds in United States currency for its iron ore sales. Portman uses forward exchange contracts, call options, collar options and convertible collar options, designated as cash flow hedges, to hedge its foreign currency exposure for a portion of its sales receipts denominated in United States currency. United States currency is converted to Australian dollars at the currency exchange rate in effect at the time of the transaction. At March 31, 2007, Portman had outstanding $308.2 million in the form of call options, collar options, convertible collars and forward exchange contracts with varying maturity dates ranging from April 2007 to September 2009, and a fair value loss of $12.5 million based on the March 31, 2007 exchange rate. We had $7.8 million and $6.3 million of hedge contracts recorded as Derivative assets on the March 31, 2007 and December 31, 2006 Statements of Condensed Consolidated Financial Position, respectively. We also had $8.2 million and $3.6 million of hedge contracts recorded as long-term assets as Deposits and miscellaneous on the Statements of Condensed Consolidated Financial Position at March 31, 2007 and December 31, 2006, respectively. Hedge contracts payable totaling $3.4 million were included in Accounts payable at March 31, 2007 on the Statements of Condensed Consolidated Financial Position. Changes in fair value for highly effective hedges are recorded as a component of Accumulated other comprehensive loss on the Statements of Condensed Consolidated Financial Position. In the first quarter of 2007 and 2006, ineffectiveness resulting in losses of $1.8 million and $1.3 million, respectively, were charged to Miscellaneous-net on the Statements of Unaudited Condensed Consolidated Operations.

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Certain supply agreements with one 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 instrument 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 $9.6 million and $16.0 million in the first quarter 2007 and 2006 respectively as Iron Ore revenues in the Statements of Unaudited Condensed Consolidated Operations related to changes in fair value. Derivative assets, representing the fair value of the pricing provision, were $29.2 million and $26.6 million on the March 31, 2007 and December 31, 2006 Statements of Condensed Consolidated Financial Position, respectively.

Recent Accounting Pronouncements

In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Liabilities Including an Amendment of FASB Statement No. 115, (SFAS 159). This Statement permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The Statement also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different

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measurement attributes for similar types of assets and liabilities. The Statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted. We are evaluating the impact, if any, of the adoption of this Statement on our consolidated financial statements.

In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109 (FIN 48), which clarifies the accounting for uncertainty in tax positions. This Interpretation requires that we recognize the impact of a tax position in our financial statements, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. The application of this Interpretation reduced our retained earnings on January 1, 2007 by $7.7 million to increase reserves for uncertain tax positions.

In September 2006, FASB issued FSP No. AUG AIR-1, Accounting for Planned Major Maintenance Activities, which prohibits the use of the accrue-in-advance method of accounting for planned major maintenance activities in annual and interim periods. This FSP is effective for fiscal years beginning after December 15, 2006. Retrospective application is required unless it is impracticable. We have evaluated the provisions of this Staff Position and have determined that adoption of this standard did not have a material impact on our consolidated financial statements.

NOTE 3 – DEBT AND REVOLVING CREDIT FACILITY

On June 23, 2006, we entered into a five-year unsecured credit agreement with a syndicate of 16 financial institutions. The facility provides $500 million in borrowing capacity under a revolving credit line, with no specific maturities; borrowings are drawn with a choice of interest rates and maturities, subject to the term of the agreement. As of March 31, 2007, borrowings under the facility totaled $50 million. The facility has financial covenants based on earnings, debt and fixed cost coverage. Interest rates are either (1) a range from LIBOR plus .75 percent to LIBOR plus 1.50 percent based on debt and earnings, or (2) the prime rate. Per the terms of the credit agreement, we are required to deliver the quarterly financial statements to the lenders within 60 days of fiscal quarter-end. On May 23, 2007, we received a waiver extending the reporting requirement for our first quarter 2007 financial statements to June 30, 2007.

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During the fourth quarter of 2006, Portman reduced its A$40 million multi-option credit facility to A$11.8 million, which represented the outstanding commitments under performance bonds. At March 31, 2007, the outstanding commitments were A$13.3 million. In April 2007, Portman negotiated a new A$40 million multi-option credit facility. The new facility has two covenants: (1) debt to earnings ratio and (2) interest coverage ratio. The floating interest rate is 20 basis points over the 90-day bank bill swap rate in Australia.

NOTE 4 – SEGMENT REPORTING

We are organized into operating and reporting segments based upon geographic location: North America, Australia (primarily consisting of Portman) and Latin America. The North America segment, comprised of our mining interests in the United States and Canada, represented approximately 69 percent, and 80 percent of our consolidated revenues for the three-month periods ended March 31, 2007 and March 31, 2006 respectively. The Australia segment, comprised primarily of Portman in Western Australia, represented approximately 31 percent and 20 percent of our consolidated revenues for the respective periods. The Latin America segment is comprised of our 30 percent Amapa interest in Brazil, which is in the development stage. There are no intersegment revenues.

The North America segment is comprised of our interests in six iron ore mining operations in Michigan, Minnesota and Eastern Canada. We manufacture 13 grades of iron ore pellets, including standard, fluxed and high manganese, for use in our customers’ blast furnaces as part of the steelmaking process. Each of the mines has crushing, concentrating and pelletizing facilities used in the production process. We sell the majority of our pellets to integrated steel companies in the United States and Canada, using a single sales force.

The Australia segment includes Portman’s production facilities at the Koolyanobbing operations and its 50 percent equity interest in a joint venture at Cockatoo Island producing lump ore and direct shipping fines for our customers in China and Japan. The Koolyanobbing operation has crushing and screening facilities used in the production process. Production is fully committed to steel companies in China and Japan through 2009.

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The Latin America segment includes our interest in Amapa which we acquired on March 5, 2007. Our investment represents a 30 percent interest in Amapa, a Brazilian company developing an iron ore project (Amapa Project), through the acquisition of 100 percent of the shares of Centennial Amapa. The remaining 70 percent of the Amapa Project is owned by MMX Mineracao e Metallicos S.A., which is providing corporate and institutional support, while we will supply technical support for construction and operations. The purchase price for our 30 percent interest was $133.3 million, paid with cash on hand. Total capital expenditures are estimated to be $357 million, approximately $268 million will be funded with project debt, of which we guarantee our 30 percent share until the project meets certain performance criteria. Capital contributions of $89.3 million were paid by Cliffs and MMX in April 2007 to fund the project; Cliffs’ 30 percent share was $26.8 million. We may be responsible for 30 percent of any additional capital contributions.

The Amapa Project consists of a significant iron ore deposit, a 192-kilometer 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. The Amapa Project is currently under construction and is expected to produce 6.5 million tonnes of iron ore concentrate annually once fully operational. Iron ore concentrate is expected to be sold, pursuant to a long-term supply agreement, to an operator of an iron oxide pelletizing plant in the Kingdom of Bahrain. Production is expected to begin in late 2007.

We primarily evaluate performance based on segment operating income, defined as revenues less expenses identifiable to each segment. We have classified certain administrative expenses as unallocated corporate expenses.

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The following table presents a summary of our segments for the three-month periods ended March 31, 2007 and 2006 based on the current reporting structure.

A summary of assets by segment is as follows:

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NOTE 5 – COMPREHENSIVE INCOME

Following are the components of comprehensive income for the three-month periods ended March 31, 2007 and 2006:

NOTE 6 – PENSIONS AND OTHER POSTRETIREMENT BENEFITS

The components of defined benefit pension and OPEB expense for the three-month periods ended March 31, 2007 and 2006 were as follows:

Components of Net Periodic Benefit Cost

NOTE 7 – ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS

We had environmental and mine closure liabilities of $104.8 million and $103.9 million at March 31, 2007 and December 31, 2006, respectively, of which $8.2 million was classified as current. Payments in the first three months of 2007 were $1.0 million (2006 - $4.6 million). Following is a summary of the obligations:

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Environmental

Our mining and exploration activities are subject to various laws and regulations governing the protection of the environment. We conduct our operations so as 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 $12.5 million and $13.0 million at March 31, 2007, and December 31, 2006, respectively, 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 most likely, the minimum of the range is accrued in accordance with SFAS No. 5, Accounting for Contingencies. 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 environmental liability includes our obligations related to four sites that are independent of our iron mining operations, two former iron ore-related sites, two leased land sites where we are lessor and miscellaneous remediation obligations at our operating units. Three of these sites are Federal and State sites where we are named as a PRP: the Rio Tinto mine site in Nevada and the Kipling and Deer Lake sites in Michigan.

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Rio Tinto

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.

During 2006, the focus of the RTWG was on development of alternatives for remediation of the mine site. A draft of an alternatives study was reviewed with NDEP, EPA and the Rio Tinto Trustees and as of December 31, 2006, the alternatives have essentially been reduced to two: (1) tailings stabilization and long-term water treatment; and (2) removal of the tailings. The estimated costs range from approximately $10 million to $27 million. In recognition of the potential for an NRD claim, the parties are actively pursuing a global settlement that would encompass both the remedial action and the NRD issues and thereby avoid the lengthy litigation typically associated with NRD and any settlement would include the EPA. We increased our reserve by $4.1 million in the third quarter of 2006 to reflect our estimated costs for completing the work under the existing Consent Order and our share of the eventual remediation costs based on a consideration of the various remedial measures and related cost estimates, which are currently under review. The expense was included in Miscellaneous-net in the Statements of Consolidated Operations. During the fourth quarter of 2006, the RTWG retained a team of geochemical consultants to assist with the assessment of remediation alternatives and also initiated a mediation process to determine an equitable allocation of costs for the remediation.

Portman

On May 14, 2007, the AEPA published a study in which they recommended the establishment of “A class reserves” for the protection of certain allegedly environmentally sensitive areas of Western Australia. Some of the proposed A class reserves overlap with mining tenements granted to Portman (the “Overlapping Areas”). The AEPA study has been submitted to the Minister for the Environment and Heritage.

Portman originally received governmental approval to mine in the Overlapping Areas in June 2003. Since that time, Portman has met all applicable environmental requirements. Although we are currently reviewing the study and the effects of the designation of

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the Overlapping Areas as A class reserves, such categorization would be likely to have a material effect on Portman’s operations. It is unknown at this time whether the Minister for the Environment and Heritage will accept the recommendations of the AEPA. If the recommendations of the AEPA are accepted, Portman will challenge any such decision.

Mine Closure

The mine closure obligation of $92.3 million and $90.9 million includes the accrued obligations at March 31, 2007 and December 31, 2006, respectively, for a closed operation formerly known as LTVSMC, for our four consolidated North American operating mines and for Portman. The LTVSMC closure obligation results from an October 2001 transaction where subsidiaries of the Company received a net payment of $50 million and certain other assets and assumed environmental and certain facility closure obligations of $50 million, which obligations have declined to $27.8 million at March 31, 2007, as a result of expenditures totaling $22.2 million since 2001 ($.4 million in the first three months of 2007).

The accrued closure obligation for our active mining operations of $64.5 million and $62.7 million at March 31, 2007 and December 31, 2006, respectively, provides for contractual and legal obligations associated with the eventual closure of the mining operations. The following summarizes our asset retirement obligation liability:

NOTE 8 – INCOME TAXES

Our total tax provision from continuing operations for the first quarter of 2007 of $13.5 million is comprised of $6.8 million related to North American operations, primarily the United States and $6.7 million related to Australian operations. Our expected effective tax rate for 2007 reflects United States benefits from deductions for percentage depletion in excess of cost depletion.

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At March 31, 2007, cumulative undistributed earnings of our Australian subsidiaries included in consolidated retained earnings continue to be 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 determine the amount of this liability.

On January 1, 2007, we adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken (or expected to be taken in a tax return). This interpretation also provides guidance on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods and income tax disclosures.

The effects of applying this interpretation resulted in a decrease of $7.7 million to retained earnings as of January 1, 2007. At January 1, 2007, we had $15.6 million of unrecognized tax benefits recorded in Other Liabilities on the Statements of Condensed Consolidated Financial Position, of which $15.5 million, if recognized, would impact the effective tax rate. We recognize potential accrued interest and penalties related to unrecognized tax benefits in income tax expense. As of January 1, 2007, we had $7.2 million of accrued interest relating to the unrecognized tax benefits. During the three months ended March 31, 2007, there were no significant changes in unrecognized tax benefits, nor do we anticipate any significant changes within the next twelve months.

Tax years that remain subject to examination are years 2003 and forward for the United States, 1993 and forward for Canada and 1994 and forward for Australia.

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NOTE 9 – EARNINGS PER SHARE

A summary of the calculation of earnings per common share on a basic and diluted basis follows:

NOTE 10 – 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. Future minimum payments under capital leases and non-cancellable operating leases at March 31, 2007, are expected to be:

Total minimum lease payments of $77.3 million include $32.6 million for capital leases and $2.4 million for operating leases associated with our Australia segment.

NOTE 11 – SUBSEQUENT EVENT

On June 6, 2007, we entered into an agreement providing for the sale of our 26.8 percent interest in the Wabush Mines Joint Venture. Under the agreement, Consolidated Thompson Iron Mines Ltd. (traded on the Toronto Stock Exchange-venture under the symbol CLM) would acquire the 71.4 percent of Wabush owned directly or indirectly by the Company (26.8 percent) and Stelco (44.6 percent) for cash plus warrants for the purchase of CLM common shares and the assumption by CLM of employee and asset retirement obligations. Our share of the proceeds would be $24.1 million in cash and approximately 1.1 million warrants entitling us to purchase CLM shares at CAD$5.10 per share for a two-year period.

As part of the transaction, we would enter into an agreement whereby CLM would sell approximately .7 million tons of pellets to us annually from 4.8 million tons of expected annual Wabush production from the date of the closing through December 31, 2009. In 2006, Wabush produced 4.1 million tons of pellets with our share totaling 1.1 million tons.

Dofasco, a subsidiary of Mittal Steel Company N.V., holds the remaining 28.6 percent of Wabush. The acceptance of CLM’s offer by the Company and Stelco triggers a 90-day right of first refusal option by Dofasco under terms of the joint venture agreement.

Completion of the transaction is subject to a number of other conditions, including receipt of requisite regulatory approval and the execution of definitive agreements. Closing would occur shortly after a Dofasco waiver is executed or expiration of its 90-day purchase option. We expect to record a gain upon completion of the transaction.

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Management’s Discussion and Analysis of Financial Condition and results of Operations (“MD&A”) is designed to provide a reader of our financial statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity and other factors that may affect our future results. We believe it is important to read our MD&A in conjunction with our Annual Report on SEC Form 10-K for the year ended December 31, 2006 as well as other publicly available information.

OVERVIEW

ÐÇ¿Õ´«Ã½ Inc is the largest producer of iron ore pellets in North America. We sell substantially all of our pellets 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 a rated capacity of 37.0 million tons of iron ore pellet production annually, representing approximately 46 percent of the current total North American pellet production capacity. The other iron ore mines in the U.S. and Canada have an aggregate rated capacity of 44.1 million tons. Based on our percentage ownership in the mines we operate, our share of the rated pellet production capacity is currently 22.9 million tons annually, representing approximately 28 percent of total North American annual pellet capacity. We are organized into operating segments based upon geographic location: North America , Australia (primarily consisting of Portman) and Latin America. See NOTE 4 – SEGMENT REPORTING for a further discussion of the nature of our operations and related financial disclosures for the reportable segments.

Growth Strategy

The Portman acquisition represented a significant milestone in our long-term strategy to pursue investment and management opportunities to broaden our scope as a supplier of iron ore or other raw materials to the integrated steel industry through the acquisition of additional mining interests to strengthen our market position. We are particularly focused on expanding our investments to capitalize on global demand for steel, iron ore and coal. Future acquisitions or joint-venture opportunities will be funded from operating cash flow, our revolving credit facility, or other sources of funding.

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Amapa

On March 5, 2007, we acquired a 30 percent interest in Amapa, a Brazilian company developing an iron ore project (Amapa Project), through the acquisition of 100 percent of the shares of Centennial Amapa. The remaining 70 percent of the Amapa Project is owned by MMX Mineracao e Metallicos S.A., which is providing corporate and institutional support, while we will supply technical support for construction and operations. The purchase price for our 30 percent interest was $133.3 million, paid with cash on hand. Total capital expenditures are estimated to be $357 million, of which approximately $268 million will be funded with project debt. Capital contributions of $89.3 million were paid by Cliffs and MMX in April 2007 to fund the project; Cliffs’ 30 percent share was $26.8 million. We may be responsible for 30 percent of additional capital contributions.

The Amapa Project consists of a significant iron ore deposit, a 192-kilometer 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. The Amapa Project is currently under construction and is expected to produce 6.5 million tonnes of iron ore concentrate annually once fully operational. Iron ore concentrate is expected to be sold, pursuant to a long-term supply agreement, to an owner-operator of an iron oxide pelletizing plant in the Kingdom of Bahrain. Production is expected to begin in late 2007.

Sonoma

On April 18, 2007, we completed the acquisition of an effective 45 percent interest in Sonoma, a Queensland, Australia joint venture, for the development of a coal mine and washplant. As of May 3, 2007, we invested $15.6 million toward the purchase of mining tenements and $19.4 million toward the construction of a washplant. We will operate and own 100 percent of the washplant and 8.3 percent of the mining leases, resulting in a 45 percent economic interest in Sonoma.

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Sonoma is expected to initially produce two million tonnes of marketable coal annually, beginning in late 2007. Production from Sonoma will include an approximately equal mix of hard coking coal and thermal coal. Plans call for annual production of between three million and four million tonnes during 2008. Sonoma has a current resource estimate of 107 million tonnes.

RESULTS OF OPERATIONS

Summary

Revenues from product sales and services for the first quarter of 2007 increased $19.1 million, to a first-quarter record of $325.5 million, approximately six percent higher than the same period last year.

Net income for the first quarter of 2007 was $32.5 million, or $.62 per diluted share, compared with $37.9 million, or $.69 per diluted share for the same period last year.

The $5.4 million decrease in net income reflects higher income taxes, $3.6 million, and increased income allocable to minority interest, $2.1 million, partially offset by a $.5 million increase in income from continuing operations before income taxes and minority interest. The increase in income taxes and minority interest income were largely due to the improved results from our 80.4 percent interest in Portman, which is subject to a higher effective tax rate than North America. In addition, the first quarter 2006 included a $2.3 million prior period tax credit related to 2005. The $.5 million increase in pre-tax earnings primarily reflected higher Portman sales margins, $14.7 million, partially offset by lower North American sales margin, $8.3 million, and higher administrative selling and general expenses, $4.4 million.

Sales Margin

North American Iron Ore

First quarter 2007 North American sales margin, $37.3 million, decreased $8.3 million compared with the first quarter of 2006. The decrease in sales margin was primarily due to decreased pellet sales volume, partially offset by higher sales price realizations. A summary is as follows:

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Sales revenue (excluding freight and venture partners’ cost reimbursements) of $165.9 million on 2.5 million tons in the first quarter of 2007, was $18.4 million lower than the same period in 2006, due primarily to the effect of a .5 million ton sales volume decrease. First quarter North American sales revenue is not indicative of our full-year revenues due to winter shipping constraints on the Great Lakes. First-quarter shipments in 2007 included .3 million tons of the 1.2 million tons of pellets purchased in upper Great Lakes stockpiles and paid for by customers in December 2006. Sales prices increased six percent in the first quarter 2007 versus first-quarter 2006, primarily reflecting changes in customer mix and the net impact from several contractual price-adjustment factors. Included in first quarter 2007 revenues were 1.5 million tons of 2007 sales at 2006 contract prices. We recorded $2.5 million of unfavorable revenue adjustments related to 2006 sales in the first quarter of 2007, including $1.3 million of mark-to-fair value adjustments of derivative instruments.

Cost of goods sold and operating expenses (excluding freight and venture partners’ costs) of $128.6 million in the first quarter of 2007, decreased $10.1 million compared to the same quarter in 2006, primarily reflecting lower sales volume, $21.2 million partially offset by higher production costs, $11.1 million. On a per-ton basis, cost of goods sold and operating expenses increased approximately 10 percent for the quarter, principally due to higher energy and supply usage and higher maintenance costs.

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Australian Iron Ore

First quarter 2007 Australia sales margin of $24.5 million increased $14.7 million compared with the first quarter of 2006. The increase in sales margin was due to higher sales prices and volume, partially offset by higher production costs. A summary is as follows:

Sales revenue of $100.3 million on 1.9 million tonnes in the first quarter of 2007, was $40.1 million higher than the same period in 2006, due primarily to higher sales prices, $21.2 million and the effect of a .4 million ton sales volume increase, $18.9 million. Sales revenue in the first quarter of 2007 increased 27 percent, reflecting the impact of the 9.5 percent increase in 2007 iron ore prices versus the 2006 price settlement of 19 percent, which did not occur until the second quarter and therefore was not reflected in our 2006 first quarter results.

Cost of goods sold and operating expenses of $75.8 in the first quarter of 2007, increased $25.4 million compared to the same quarter in 2006, primarily reflecting the effects of higher volume, $15.8 million and increased unit production costs, $9.6 million.

Other operating income (expense)

The pre-tax earnings changes for the first quarter of 2007 versus the comparable 2006 period also included:

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Other income (expense)

Income Taxes

Our total tax provision from continuing operations for the first quarter of 2007 of $13.5 million is comprised of $6.8 million related to North American operations, primarily the United States, and $6.7 million related to Australian operations. Our effective tax rate for 2007 related to continuing operations is approximately 27 percent. The effective rate primarily reflected the combination of the statutory 30 percent rate on Australian earnings and reductions from the United States statutory rates primarily due to deductions for percentage depletion in excess of cost depletion.

PRODUCTION AND SALES VOLUME

Following is a summary of production tonnage for 2007 and 2006:

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North America

Production at Tilden during the first quarter was lower as a result of scheduled equipment repairs. In late February 2007, Hibbing was forced to shut down production operations due to severe weather conditions that caused significant buildup of ice in the basin supplying water to the processing facility. The operation resumed limited production in late March, with full production in early April. The production loss totaled approximately ..8 million tons (Company share .2 million tons), requiring us to reduce our 2007 Hibbing production estimates. We recorded $1.5 million of idle costs related to the plant shutdown in Cost of Goods Sold and Operating Expenses in the Statements of Condensed Consolidated Operations in the first quarter 2007. During the plant shutdown numerous maintenance and plant clean-up activities were performed to minimize any production interruptions for the balance of the year. Production at Wabush was higher than the same period in 2006 as a result of pit design improvements to mitigate dewatering issues. We reinitiated construction activity to restart an idled pellet furnace at the Northshore facility that will increase capacity by approximately .8 million tons of pellets annually, beginning in the first quarter of 2008.

North American pellet sales in the first quarter were 2.5 million tons in 2007 compared with 2.9 million tons in 2006. First quarter shipments are not indicative of full-year sales volume due to winter shipping constraints on the Great Lakes. Also included in first quarter 2007 sales were .3 million tons of shipments from the 1.2 million tons of pellets that were purchased in upper Great Lakes stockpiles and paid for by customers in December 2006.

Australia

Portman’s first quarter production was 1.9 million tonnes in 2007 compared with 1.3 million tonnes last year. Sales of fines and lump ore were 1.9 million tonnes in the first quarter of 2007 compared with 1.5 million tonnes in 2006. The increase in sales and production primarily reflected the completion of the two-million-tonne per annum expansion project at Koolyanobbing in late 2006.

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CASH FLOW, LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2007, we had cash and cash equivalents of $118.8 million, primarily consisting of $107.1 million at Portman. In addition, we had $450 million of availability under the unsecured credit agreement.

Following is a summary of cash activity for the first three months of 2007: