UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

FOR ANNUAL AND TRANSITION REPORTS

PURSUANT TO SECTIONS 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 1-8944

Cleveland-Cliffs Inc

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (216) 694-5700

Securities Registered Pursuant to Section 12(b) of the Act:

Securities Registered Pursuant to Section 12(g) of the Act:

NONE

      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 þ          No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of the Regulation S-K 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.     þ

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).     Yes þ          No o

      As of June 30, 2004, the aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant, based on the closing price of $28.20 per share (adjusted for the stock split of the registrant’s Common Shares effective as of December 31, 2004) as reported on the New York Stock Exchange — Composite Index was $577,616,980 (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 $.50 per share, was 21,641,999 as of February 16, 2005.

DOCUMENTS INCORPORATED BY REFERENCE

      Portions of registrant’s Proxy Statement for the Annual Meeting of Shareholders scheduled to be held on May 10, 2005 are incorporated by reference into Part III.

PART I

Introduction

      Founded in 1847, we are the largest producer of iron ore pellets in North America and sell the majority of our pellets to integrated steel companies in the United States and Canada. Our headquarters are located at 1100 Superior Avenue, Cleveland, Ohio 44114-2589, and our telephone number is (216) 694-5700. Our website address is www.cleveland-cliffs.com. We make available, free of charge through our website, our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, as well as amendments to those reports, as soon as reasonably practicable after we file such reports with, or furnish such reports to, the Securities and Exchange Commission (the “SEC”). As used in this report, “Cleveland-Cliffs,” “we” and “our” refer to Cleveland-Cliffs Inc and its subsidiaries, except where the context otherwise requires.

      We manage and operate six iron ore mines located in Michigan, Minnesota and Eastern Canada that currently have a rated capacity of 37.7 million tons of iron ore pellet production annually, representing approximately 46.1 percent of the current total North American pellet production capacity. Based on our percentage ownership of the mines we operate, our share of the rated pellet production capacity is currently 23.1 million tons annually, representing approximately 28 percent of total North American annual pellet capacity.

      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, 2004:

North American Iron Ore Pellet

Annual Rated Capacity Tonnage

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

      We manufacture 13 grades of iron ore pellets, including standard, fluxed and high manganese, for use in our customer’s blast furnaces as part of the steel making process. The variation in grades results from the specific chemical and metallurgical properties of the ores at each mine. Although the grade or grades of pellets

currently delivered to each customer is based on that customer’s preferences, which depend in part on the characteristics of the customer’s blast furnace, in general our iron ore pellets can be used interchangeably. Industry demand for the various grades of iron ore pellets depends on each customer’s demand 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 generally require less processing, are normally the least costly pellets to produce and are called “standard” because no ground fluxstone (i.e., limestone, dolomite, etc.) is added to the iron ore concentrate before turning the concentrates into pellets. In the case of fluxed pellets, a fluxstone is added to the concentrate, which produces a pellet that will 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 by Wabush Mines, where there is more natural manganese in the crude ore compound 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 Mines produces pellets with two levels of manganese, with the lower manganese content being preferred by our customers.

      It is not possible to produce the 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 preference.

      For the year ended December 31, 2004, we produced a total of 34.4 million tons of iron ore, including 21.7 million tons for our account and 12.7 million tons on behalf of the steel company owners in the mines.

Strategy

      The North American integrated steel industry has undergone and continues to undergo a restructuring process. This process is, in our view, producing a stronger, more productive industry principally through consolidation and some rationalization of less efficient capacity. The iron ore industry also has been restructuring to meet the changing needs of its customers. It has been our strategy to lead this consolidation process and to continue to improve the competitiveness of our operations.

      We have repositioned ourselves from a manager of iron ore mines on behalf of steel company owners to primarily a merchant of iron ore to steel company customers. For example, in December 2003, together with Laiwu Steel Group, Ltd. (“Laiwu”) of China, we (through our newly formed joint venture, United Taconite LLC (“United Taconite”)) purchased the assets of Eveleth Mines LLC (“Eveleth Mines”) out of bankruptcy, which had previously been owned by AK Steel Corporation, Rouge Industries and Stelco Inc. (“Stelco”). In 2004, we initiated expansion projects at United Taconite and Northshore mines to expand annual capacity by approximately 1.0 million and .8 million tons, respectively. We continue to seek additional investment opportunities in iron ore mines.

      In addition to our own restructuring efforts, in 2003, U.S. Steel Corporation (“U.S. Steel”) acquired all of the assets of National Steel Pellet Company, which was renamed Keewatin Taconite. Furthermore, since the closure in 1998 of the Algoma Iron Ore Division near Wawa, Ontario, nearly all of Canada’s iron ore production has been at three mining operations: Iron Ore Company of Canada, Quebec Cartier Mining Co. and our Wabush Mines.

      During the steel industry restructuring dating back to the early 1980s, there have been intermittent periods of excess production capacity of iron ore and shrinking demand for iron ore from the North American steel industry. During those periods, many steel companies sought to limit their fixed capital commitments by reducing their direct interests in iron ore mines or entering into stand-alone long-term supply agreements for their iron ore needs. The steel companies that filed for bankruptcy protection were permitted to reject their ownership interests in their mines and to negotiate long-term supply agreements with iron ore producers to satisfy their iron ore requirements. As the North American iron ore industry restructured and consolidated to meet the raw material requirements of the consolidating steel industry, we led this restructuring by focusing on our strategic goal to be the pre-eminent supplier of iron ore to our customers. As discussed in “Customers,”

we have worked with our steel company partners to increase our ownership percentage in our mines in exchange for long-term supply agreements.

      We have substantially restructured the ownership interest in our mines largely by converting mine partners into customers with term supply agreements. Under our new operating strategy, royalty and management fee income has been replaced by profit margin on pellet sales. It is our goal to continue to expand 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 year-over-year cost reduction. By developing creative solutions for our customers during the recent industry restructuring, we have been able to generate term supply agreements with many of these companies, which have benefited and are expected to continue to benefit our market position. Our creative solutions include our acquisition of our partners’ interests in the mines and the assumption of certain mine liabilities, thereby allowing our partners to become our customers by entering into term supply agreements with us.

      In recent years, we have increased our ownership interest in a number of mines. We believe that increasing our ownership interests in several of our mines will improve our ability to manage these mines to achieve sustainable, long-term efficient production. With a larger ownership position in a given mine, we are able to make operating and capital decisions faster and more efficiently, and we aspire to leverage this ability throughout the mines in which we have invested. As we increase our ownership in our managed mines, we can more readily share best practices through cross-mine teams, allowing us to increase operating efficiencies and decrease costs. With total or majority ownership of our mines, we can take advantage of synergies among operations by sharing staff and functions between operations. To this end, we have consolidated our Empire and Tilden operations and management in Michigan.

      We intend to continue to pursue investment and management opportunities to broaden our scope as a supplier of iron ore pellets to the integrated steel industry through the acquisition of additional mining interests to strengthen our market position. We are particularly focused on expanding our international investments to leverage our expertise in mining and processing iron ore so that we may capitalize on global demand for steel and iron ore in areas such as China.

      Much of the current increase in global demand for steel is due to industrialization in countries such as China. China is seeking foreign supplies of the raw materials it needs to produce steel to build infrastructure, factories, hotels and other buildings and to manufacture motor vehicles and appliances. China’s increased demand for those materials, including iron ore pellets, has caused raw material prices around the globe to increase. Currently, China is the world’s largest steel producer, with approximately 30 percent of global steel production, and China’s steel production is expected to grow in 2005. Between 2000 and 2004, China increased its imports of iron ore by approximately 37 percent, according to industry reports. It has been reported that China has overtaken the United States as the largest consumer of iron ore, steel and copper, and currently accounts for between one-fifth and one-third of the world’s consumption of iron ore. We intend to capitalize on China’s industrial growth by acquiring well-located iron ore properties and obtaining agreements to supply China with iron ore on terms favorable to the Company.

      We believe we have one of the best industrial research and development groups in the iron ore industry. With the overall goal of achieving cost reductions and quality improvements through pioneering process development at the mines that we manage, we operate a fully-equipped research and development facility located in Ishpeming, Michigan. 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 routinely employed by iron ore pellet customers for laboratory testing and simulation of blast furnace conditions.

      Currently, almost all North American iron ore pellets are consumed in blast furnaces, which is only the first step in the steelmaking process. The blast furnaces produce iron in molten form, which is further processed in basic oxygen furnaces where carbon is removed and steel scrap and other alloys are added to produce molten steel. The molten steel is then cast into steel shapes.

      As part of our efforts to develop alternative metallic products, we participated in Phase II of the Mesabi Nugget Project to construct a $16 million pilot plant, which was completed in May 2003, at our Northshore mine to test and develop Kobe Steel, Ltd.’s (“Kobe Steel”) technology for converting iron ore into nearly pure iron in nugget form. Other participants in the project include Kobe Steel, Steel Dynamics, Inc., Ferrometrics, Inc. and the State of Minnesota. The high-iron-content material could be used to replace steel scrap as a raw material for electric steel furnaces and blast furnaces or basic oxygen furnaces of integrated steel producers or as feed stock for the foundry industry.

      A technology currently licensed to us, in partnership with others, may make it possible to commercially produce a product in granular form comparable to the molten iron product produced by blast furnaces. The granular product, which we call iron nuggets, can be handled and transported easily and is suitable for delivering directly into a steelmaking furnace as a substitute for molten iron or scrap. Iron nuggets have fewer impurities than scrap metal. Most likely, the type of furnace that would use this material would be the electric arc furnace (“EAF”), which is the type of furnace used by the mini-mill steel segment. EAFs now comprise approximately 50 percent of all steelmaking capacity in North America.

      A third operating phase of the pilot plant test in 2004 confirmed the commercial viability of this technology. The pilot plant ended operations August 3, 2004. The product has been used by four electric furnace producers and one foundry with favorable results. Our contribution to the project through the pilot plant testing and development phase was $5.3 million, primarily contributions of in-kind facilities and services. Preliminary construction engineering and environmental permitting activities have been initiated for two potential commercial plant locations (one in Butler, Indiana near Steel Dynamics’ steelmaking facilities and one at our Cliffs Erie site in Hoyt Lakes, Minnesota) with earliest environmental approval expected in the first half of 2005. A decision to proceed on construction of a commercial plant could be made in the first half of 2005. We would be the supplier of iron ore and have a minority interest in the first commercial plant.

Our Investment in ISG

      In 2002, we invested $17.4 million in common stock of International Steel Group, Inc. (“ISG”), which at the time represented approximately seven percent of ISG’s equity. In December 2003, after ISG completed an initial public offering for its common stock, the value of our investment increased to $196.7 million based on the December 31, 2003 closing price. The investment, which had trading restrictions through June 8, 2004, was treated as an “available-for-sale” security, and accordingly in 2003 the $179.3 million ($144.9 million after-tax) increase in value was recorded in “Other comprehensive income.” Prior to the public offering, the investment was accounted for by the “cost method.” In the second half of 2004, we sold our directly-held ISG common stock and recorded a gain of $152.7 million ($99.3 million after-tax).

Customers

      More than 95 percent of our product revenues are derived from sales of iron ore to the North American integrated steel industry, consisting of 14 current or potential customers. Generally, we have multi-year supply agreements with our customers. Sales volume under these agreements is largely dependent on customer requirements, and in a number of cases, we are the sole supplier of iron ore pellets to the customer. Each agreement has a base price that is adjusted over the life of the agreement using one or more adjustment factors. Factors that can adjust price include measures of general industrial inflation, steel prices and international pellet prices.

      During 2004 and 2003, we sold 22.6 million tons and 19.2 million tons of iron ore, respectively, from our share of the production of our iron ore mines and purchases from others. Sales in 2004 were to eight North American, one European and two Chinese steel producers.

      The following seven customers together accounted for a total of 94 percent of “Product sales and services” revenues for the years 2004 and 2003:

      Our term supply agreements expire between 2007 and 2018. The weighted average duration is nine years:

      Our 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 freighter until the Great Lakes are passable, which causes our first quarter inventory levels to rise. Our practice of delivering product to ports on the lower Great Lakes

and/or to customers’ facilities prior to the transfer of title has somewhat mitigated the seasonal effect on first quarter inventories and sales.

      In 2004, 80 percent of our product revenues (79 percent in 2003) were derived from sales to our U.S. customers.

      Information regarding Operations, Competition, Environment, Energy, Research and Development and Employees is presented under the captions “Operations,” “Competition,” “Environment,” “Energy,” “Research and Development” and “Employees,” respectively, all of which are included in Item 2 and are incorporated by reference and made a part hereof.

      The following map shows the locations of our mines:

      We directly or indirectly own and operate interests in the following six North American iron ore mines:

We increased our ownership in these mines (other than Northshore and United Taconite) in 2002 through assumption of the liabilities associated with the mine interests from their steel company owners.

      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 and is accessed via a paved road off State Highway 35. The mine has been in operation since 1963. We entered into an agreement with Ispat Inland effective December 31, 2002 that restructured the ownership of the Empire Mine. Under the agreement, we acquired the 25 percent interest rejected by LTV Corporation in its chapter 11 bankruptcy proceedings and a 19 percent interest from Ispat Inland. Currently, we manage the mine and have a 79 percent interest; Ispat Inland has a 21 percent interest in the mine and has the right to require us to purchase all of its interest under certain circumstances after 2007. We and Ispat Inland take our respective share of production

pro rata; however, provisions in the partnership agreement allow additional or reduced production to be delivered under certain circumstances. We own directly approximately one-half of the remaining ore reserves at the Empire Mine and lease them to Empire. The Empire Mine leases the balance of its reserves from the other owners of such reserves. Over the past eight years, the Empire Mine has produced between 3.6 million tons and 8.4 million tons of iron ore pellets annually.

      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 main entrance to the Tilden mine is accessed by means of a paved road off of County Road 476. The Tilden mine has been in operation since 1974. On January 31, 2002, we increased our ownership of the Tilden mine to 85 percent by acquiring Algoma’s 45 percent interest in the mine and executing a term supply agreement under which we are Algoma’s sole supplier of iron ore pellets for 15 years. Currently, we manage the mine and have a 85 percent interest, and Stelco has a 15 percent interest in the mine. Each partner takes its share of production pro rata; however, provisions in the partnership 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. Over the past eight years, the Tilden mine has produced between 6.0 million tons and 7.9 million tons of iron ore pellets annually.

      On January 29, 2004, Stelco applied for and obtained Bankruptcy Court protection from creditors in Ontario Superior Court under the Companies’ Creditors Arrangement Act. At the time of the filing, we had no trade receivable exposure to Stelco. Additionally, Stelco has continued to operate and has met its cash call requirements at the Tilden, Hibbing and Wabush mining ventures to date. The Bankruptcy Court has extended the deadline for the submittal of bids to purchase Stelco until February 14, 2005. Stelco has received an extension of the stay period from February 11, 2005 to April 29, 2005.

      The Empire and Tilden mines are located adjacent to each other. Our recent increase in ownership of our Michigan mines has facilitated consolidation of operations and management, which will offer operational and cost benefits that were not achievable under the previous ownership structure. These benefits include a consolidated transportation system, more efficient employee and equipment operating schedules, reduction in redundant facilities and workforce and best practices sharing.

      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. The main entrance to the Hibbing mine is accessed by means of a paved road and is located off County Road 5. The Hibbing mine has been in operation since 1976. In 2002, we acquired from Bethlehem Steel an eight percent interest in the Hibbing mine, which increased our ownership to 23 percent. Currently, we manage the mine and have a 23 percent interest. ISG has a 62.3 percent interest and Stelco has a 14.7 percent interest in the mine. 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. Over the past eight years, the Hibbing mine has produced between 6.1 million tons and 8.3 million tons of iron ore pellets annually.

      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 formation. Northshore’s processing facilities are located in Silver Bay, Minnesota, near Lake Superior, on U.S. Highway 61. The main entrance to the Northshore mine is accessed by means of a gravel road and is located off County Road 20. The Northshore mine has been in continuous operation since 1990. The Northshore mine began production under our management and ownership on October 1, 1994. Currently, we own 100 percent of the mine. Over the past eight years, the Northshore mine has produced between 2.8 million tons and 5.0 million tons of iron ore pellets annually.

      The Northshore mine has a long history. It was first discovered in 1871 and operated in the 1920’s as the Mesabi Iron Company, one of the first commercial attempts at mining taconite. The property was operated for over 30 years by Reserve Mining Co. (“Reserve”), one of the two pioneering large scale pellet operations in Minnesota. Poor economic conditions in the steel industry forced the shutdown and bankruptcy of Reserve in 1986. The Reserve assets were purchased by Cyprus Minerals in 1989, and the property restarted operation in 1990. We purchased the property from Cyprus Minerals in 1994.

      United Taconite. The United Taconite mine is located on Minnesota’s Mesabi Iron Range in and around the city of Eveleth, Minnesota, west of U.S. Highway 53. The main entrance to the United Taconite mine is accessed by means of a paved road and is located off Route 37. The mine has been operating since 1965. On November 26, 2003, the U.S. Bankruptcy Court for the District of Minnesota approved the purchase of the assets of Eveleth Mines by United Taconite. Eveleth Mines ceased mining operations earlier in 2003 and was acquired by United Taconite effective as of December 1, 2003. Currently, we manage the mine and hold a 70 percent interest; Laiwu holds a 30 percent interest. Over the past six years, the United Taconite mine has produced between 1.6 million tons and 4.4 million tons of iron ore pellets annually.

      Wabush Mines. The Wabush mine and concentrator is located in Wabush, Labrador, Canada, and the pellet plant is located in Pointe Noire, Quebec, Canada. The main entrance to the Wabush mine is accessed by means of a paved road and is located on Highway 530, about three miles west of the town of Wabush. The pellet plant is accessed by a paved road off Highway 138, about ten miles west of the town of Sept-Iles, Quebec. The Wabush mine has been in operation since 1965. In 1997, we acquired Ispat Inland’s interest in the Wabush mine. In August 2002, we acquired our proportionate share (approximately 4.05 percent) of the 15.09 percent interest rejected by Acme Metals Incorporated in its bankruptcy proceedings. As a result of these two events, we increased our ownership in the mine from 7.7 percent to 26.8 percent. We also manage the mine. Stelco has a 44.6 percent interest and Dofasco Inc. (“Dofasco”) has a 28.6 percent interest in the mine.

      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. From the Mesabi Range, Hibbing pellets are transported by rail to a shiploading port at Superior, Wisconsin. United Taconite pellets are shipped by railroad to the port of Duluth, Minnesota. At Northshore, crude ore is shipped by a wholly-owned railroad from the mine to processing facilities at Silver Bay, Minnesota. In Canada, there is an open pit mine and concentrator at Wabush, Labrador, Newfoundland and a pellet plant and dock facility at Pointe Noire, Quebec. 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 to Canada, the United States and other international destinations or shipped as concentrates for sinter feed to Europe.

      We have a corporate policy relating to internal control and procedures with respect to auditing and estimating ore reserves. The procedures include the calculation of ore reserves at each mine by mining engineers and geologists under the direction of our Chief Mining Engineer. Our Chief Geologist and Manager of Mine Technology then compile and review the calculations and submit them to our Assistant Controller of Corporate Accounting. Our Assistant Controller of Corporate Accounting prepares the disclosures for our annual and quarterly reports based on those calculations and submits the draft disclosures to our Chief Geologist and Manager of Mine Technology for further review and approval. The draft disclosures are then reviewed and approved by our Chief Financial Officer and Chief Executive Officer before inclusion in our annual and quarterly reports. Additionally, the long-range mine planning and ore reserve estimates are reviewed annually by our Audit Committee. Furthermore, all changes to ore reserve estimates, other than those due to changes in production levels, are documented by our Chief Geologist and Manager of Mine Technology and are submitted to our Vice President of Operations for review and approval. Finally, we perform periodic reviews of long-range mine plans and ore reserve estimates at mine staff meetings and senior management meetings.

Operations

      During 2004 and 2003, we produced 21.7 million tons and 18.1 million tons, respectively, for our account and 12.7 million tons and 12.2 million tons, respectively, on behalf of the steel company owners of the mines. The 7.0 million ton increase in our share of tons produced in 2004 compared to 2002 principally reflected the acquisition in December 2003 and full year production in 2004 of United Taconite and increased customer demand. The following is a summary of total production and our share of that production:

Our business is subject to a number of operational factors that can affect our future profitability. Significant mining challenges include the following:

A more detailed description of these risks is contained in “Management’s Discussion and Analysis of Financial Conditions and Results of Operations — Risks Relating to the Company.”

      Mine Capacity and Iron Ore Reserves. The following is a table that reflects expected current annual capacity and economic ore reserves for our iron ore mines as of December 31, 2004. The estimated ore reserves and full production rates could be affected by, among other things, future industry conditions, geological conditions, and ongoing mine planning. Maintenance of effective production capacity of the ore reserves could require increases in capital and development expenditures. Alternatively, changes in economic conditions or in the expected quality of ore reserves could decrease capacity or mineral reserves. Technological progress could alleviate such factors or increase capacity or ore reserves. Our 2005 ore reserve estimates for our iron ore mines as of December 31, 2004 were estimated from fully-designed pits developed using three-dimensional modeling techniques. The fully-designed pit incorporates design slopes, practical mining shapes and access ramps to assure the accuracy of our reserve estimates.

General Information about the Mines

      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.

      Exploration and Development. The Empire, Tilden, Hibbing, Northshore, United Taconite and Wabush mines are all open pit mines that are well past the exploration stage and are in production. Additional pit development is underway at each mine as required by long-range mine plans. 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/or 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 readily liberate from the waste minerals upon fine grinding.

      Geologic models are developed for all mines to define the major ore and waste rock types. Computerized block models are then constructed that include all relevant geologic and metallurgical data. These are used to generate grade and tonnage estimates, followed by detailed mine designs.

      Mine Facilities and Equipment. Each of the mines has crushing, concentrating, and pelletizing 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 diesel or gasoline. The total cost of the property, plant and equipment, net of applicable accumulated amortization and depreciation as of December 31, 2004, for each of the mines is set forth in the chart below.

We directly own approximately one-half of the remaining ore reserves at the Empire mine and approximately three percent of the reserves at the Hibbing mine, and lease or sublease the balance of the reserves from their owners. We own all of the ore reserves at the Tilden mine. The ore reserves at Northshore mine, United Taconite mine and Wabush Mines are owned by others and leased or subleased directly to those mines.

      The reduction in our ore reserve estimates for the Empire mine is due to the inability to develop effective mine plans that produce cost-justified combinations of production volume, ore quality and stripping requirements with our 2003 reserve base. A more detailed description of the reduction in ore reserve estimates for the Empire mine is contained in “Management’s Discussion and Analysis of Financial Conditions and Results of Operations — Risks Relating to the Company.” The reduction in our ore reserve estimates for Wabush Mines is largely a reflection of increased operating costs, the impact of currency exchange rates and a reduction in maximum mining depth due to dewatering capabilities based on a hydroanalysis evaluation. Partially offsetting these impacts were higher Eastern Canadian pellet pricing and an increase in Wabush production to its capacity of six million tons per year. A more detailed description of the reduction in ore reserve estimates for Wabush Mines is contained in “Management’s Discussion and Analysis of Financial Conditions and Results of Operations — Risks Relating to the Company.”

Competition

      We compete with several iron ore producers in North America, including Iron Ore Company of Canada, Quebec Cartier Mining Co. and U.S. Steel, as well as other steel companies that own interests in iron ore mines that may have excess iron ore inventories. In addition, significant amounts of iron ore have, since the early 1980s, been shipped to the United States from Brazil and Venezuela in competition with iron ore produced by us.

      As the North American steel industry continues to consolidate, a major focus of the consolidation is on the continued life of the integrated steel industry’s raw steel making operations, i.e., blast furnaces and basic oxygen furnaces that produce raw steel. Some steelmakers are importing semi-finished steel slabs as an alternative to using blast furnaces and basic oxygen furnaces to produce steel because of the costs associated with relining blast furnaces and maintaining coke ovens. These imported steel slabs can be converted and finished in the steelmaker’s downstream finishing facilities. If the trend continues, and more slabs are imported, the demand for pellets that are used primarily in blast furnaces would diminish. In addition, other competitive forces have become a large factor in the iron ore business. Electric furnaces built by “mini-mills,” which are steel recyclers, generally produce steel by using scrap steel, not iron ore pellets, in their electric furnaces.

      Competition among the sellers of iron ore pellets is predicated upon the usual competitive factors of price, availability of supply, product performance, service and transportation cost to the consumer.

Environment

      In the construction of our facilities and in their operation, substantial costs have been incurred and will be incurred to avoid undue effects on the environment. Our North American capital expenditures relating to environmental matters were $7.3 million in 2004 and $2.7 million in 2003. It is estimated that approximately $17.5 million will be spent in 2005 for capital investment in environmental control facilities.

      Generally, various legislative bodies and federal and state agencies are continually promulgating numerous new laws and regulations affecting us, 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 be reasonably expected to result in a material adverse effect on our business or financial condition, we cannot predict the collective adverse impact of this expanding body of laws and regulations.

      The iron ore industry has been identified by the Environmental Protection Agency (the “EPA”) as an industrial category that emits pollutants established by the 1990 Clean Air Act Amendments. These pollutants included over 200 substances that are now classified as hazardous air pollutants (“HAP”). The EPA is required to develop rules that would require major sources of HAP to utilize Maximum Achievable Control Technology (“MACT”) standards for their emissions. Pursuant to this statutory requirement, the EPA published a final rule on October 30, 2003 imposing emission limitations and other requirements on taconite iron ore processing operations. We must comply with the new requirements by no later than October 30, 2006. Our projected capital expenditures in 2005 and 2006 to meet the MACT standards are approximately $20 million, including $4 million related to the restart of Line 1 at United Taconite. In December 2003, we filed a Petition to Delist Taconite Iron Ore Processing from MACT under Section 112 of the Clean Air Act based upon extensive data analyses, human health and ecological risk assessments that are believed to demonstrate that a MACT regulation for taconite operations is not warranted. Typically, the EPA’s consideration of a petition is an iterative process extending over several months, with a longer period for controversial subjects. On January 23, 2004, the National Wildlife Federation, Minnesota Conservation Federation, Lake Superior Alliance and Save Lake Superior Association filed a petition for review of the EPA’s final MACT rule in the United States Court of Appeals for the District of Columbia. This petition challenged the EPA’s decision not to impose standards for mercury and asbestos and monitoring of formaldehyde from taconite indurating furnaces. We filed a petition to intervene in this case. Subsequently, the Court remanded to EPA the asbestos and mercury rules; no determination has yet been made regarding the monitoring of formaldehyde.

      Our environmental liability includes our obligations related to six sites which are independent of our iron mining operations, seven former iron ore-related sites, eight leased land sites where we are lessor and miscellaneous remediation obligations at our operating units. Included in the obligation are federal and state sites where we are named as a potentially responsible party (“PRP”), such as the Milwaukee Solvay site described in “Item 3. Legal Proceedings,” the Rio Tinto mine site in Nevada, where significant site clean-up activities have taken place, and the Kipling, Deer Lake and Pellestar sites in Michigan.

      Pellestar. In February 2003, we received a Notice of Potential Liability from the EPA with respect to the Pellestar site, located in Negaunee Township, Marquette County, Michigan (the “Site”). The EPA advised us that we are considered to be a PRP under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (“CERCLA”). We, through a subsidiary, owned the Site from 1955 to 1986, at which time the Site was sold. During the period that we owned the Site, we operated a pilot plant facility for research and development activities on different pelletizing processes. Subsequent owners and operators conducted a variety of recycling activities on the Site. We are one of a number of PRPs relating to the Site. In the third quarter 2003, we, along with the other PRPs, entered into a proposed Administrative Order by Consent (a “Consent Order”), and the PRPs collectively retained a consultant to implement an EPA-approved Removal Action Plan (“RAP”) at the Site. Clean-up activities under the RAP have been completed. Our share of the cost of the clean-up was $.2 million. Our only outstanding obligation under the Consent Order is the payment of our share of EPA oversight costs, which have yet to be determined.

      For additional information on our environmental matters, see “Item 3. Legal Proceedings” and Note 5 in the Notes to our Consolidated Financial Statements for the year ended December 31, 2004.

Energy

      Electricity. The Empire and Tilden mines each have electric power supply contracts with Wisconsin Electric Power Company that are effective through 2007 and include an energy price cap and certain power curtailment features.

      Electric power for the Hibbing mine and the United Taconite mine is supplied by Minnesota Power, Inc., under agreements that continue to December 2008 and October 2008, respectively.

      Silver Bay Power Company, an indirect wholly-owned subsidiary of ours, with a 115 megawatt power plant, provides the majority of Northshore’s energy requirements, has an interconnection agreement with

Minnesota Power, Inc. for backup power, and sells 40 megawatts of excess power capacity to Northern States Power Company under a contract that extends to 2011.

      Wabush Mines owns a portion of the Twin Falls Hydro Generation facility that provides power for Wabush’s mining operations in Newfoundland. We have 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.

      Process Fuel. We have contracts providing for the transport of natural gas for our United States iron ore operations. 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. mines have the capability of burning natural gas, with higher recent natural gas prices, the pelletizing operations for the U.S. mines utilized alternate fuels when practicable. Wabush Mines has the capability to burn oil and coke breeze.

      Any substantial unmitigated interruption of either electric power or process fuel supply could be materially adverse to us.

Research and Development

      We have been a leader in iron ore mining technology for more than 150 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 today of sophisticated computers and global positioning satellite systems, we and our managed mines have been leaders in the application of new technology to the centuries-old business of mineral extraction.

      We maintain research facilities in Ishpeming, Michigan at our Cliffs Technology Center. It was at these facilities that the current concentrating and pelletizing process was developed in the 1950s. This successful development allowed for what was once considered millions of tons of useless rock to be turned into an iron ore reserve that provides the basis for our operations today. Today our engineering and technical staffs are engaged in full-time technical support of our operations and improvement of existing products.

      As discussed above under “Item 1. Business,” in 2002, we agreed to participate in Phase II of the Mesabi Nugget Project. Other participants include Kobe Steel, Steel Dynamics, Inc., Ferrometrics, Inc. and the State of Minnesota. Construction of a $16 million pilot plant at our Northshore mine, to test and develop Kobe Steel’s technology for converting iron ore into nearly pure iron in nugget form, was completed in May 2003. The high-iron-content product could be utilized to replace steel scrap as a raw material for electric steel furnaces and blast furnaces or basic oxygen furnaces of integrated steel producers or as feed stock for the foundry industry.

      The technology currently licensed to us, in partnership with others, may make it possible to commercially produce a product in granular form comparable to the molten iron product produced by blast furnaces. The granular product, which we call iron nuggets, can be handled and transported easily and is suitable for delivery directly into a steelmaking furnace as a substitute for molten iron or scrap. Iron nuggets have fewer impurities than scrap metal. Most likely, the type of furnace that would use this material would be the EAF, which is the type of furnace used by the minimill steel segment. EAFs now comprise approximately 50 percent of all steelmaking capacity in North America.

      A third operating phase of the pilot plant test in 2004 confirmed the commercial viability of this technology. The pilot plant ended operations August 3, 2004. The product has been used by four electric furnace producers and one foundry with favorable results. Our contribution to the project through the pilot plant testing and development phase was $5.3 million, primarily contributions of in-kind facilities and services. Preliminary construction engineering and environmental permitting activities have been initiated for two potential commercial plant locations (one in Butler, Indiana near Steel Dynamics’ steelmaking facilities and one at our Cliffs Erie site in Hoyt Lakes, Minnesota) with earliest environmental approval expected in the first

half of 2005. A decision to proceed on construction of a commercial plant could be made in the first half of 2005; we would be the supplier of iron ore and have a minority interest in the first commercial plant.

Employees

      As of December 31, 2004, there were a total of 3,777 employees:

      Hourly employees at our mining operations (other than Northshore) are represented by the United Steel Workers of America (“USWA”) under collective bargaining agreements. In August 2004, four-year labor agreements were ratified between each of the Hibbing, Tilden, United Taconite and Empire mines and the USWA covering the period to August 1, 2008. Also, in October 2004, we entered into a five-year agreement with the USWA covering the employees of the Wabush mine, which expires on March 1, 2009. Hourly employees of one of our wholly owned railroads are represented by six unions with labor agreements expiring at various dates.

      Our safety systems, which reflect the shared commitment of management and employees to the prevention of incidents and illnesses, continue to pay off in improved performance. Demonstrating this commitment, we established a safe production goal of a 25 percent reduction in the reportable incident rate to 2.0 per 200,000 employee hours worked for 2004. Although the target was not achieved, overall safety performance was again the best in our history. The frequency rate as defined by the Mine Safety and Health Administration (“MSHA”) for total reportable incidents was 2.41 per 200,000 employee hours worked, an improvement of 11 percent from 2003 and 38 percent from 2002. According to MSHA, the industry frequency rate for total reportable incidents for U.S. mines, mills and shops (excluding coal) was 3.99 per 200,000 employee hours worked in 2004. Our frequency rate for lost-time incidents was 1.4 per 200,000 employee hours worked, unchanged from 2003 and a 26 percent improvement from 2002.

      We and certain of our subsidiaries are involved in various claims and ordinary routine litigation incidental to our businesses, including claims relating to the exposure to asbestos and silica. The full impact of these claims and proceedings in the aggregate continues to be unknown. It is possible that some of these claims and proceedings could be decided unfavorably. Unfavorable outcomes or settlements or adverse media coverage could encourage the commencement of additional similar litigation. We continue to monitor our claims and litigation expense but believe, based on currently known information, that resolution of currently pending claims and proceedings are unlikely in the aggregate to have a material adverse effect on our consolidated financial statements.

      Maritime Asbestos Litigation. The Cleveland-Cliffs Iron Company (“Iron”) and/or The Cleveland-Cliffs Steamship Company, or both, which are our subsidiaries, have been named defendants in 479 actions brought from 1986 to date by former seamen (or their administrators) 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. In a significant majority of the cases, our entities are co-defendants with a number of other shipowners whose employees worked on our entities’ vessels and the vessels of such other shipowners, as well as shipyards and manufacturers of asbestos-containing products. The general understanding among shipowners is that any liability in these cases will be divided according to the proportion of time served by such seamen on the respective owners’ vessels. There, however, can be no guarantees that all of these co-defendants are or will continue to be solvent. All 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 shipowners and other defendants. All of these cases have been administratively dismissed without prejudice, but can be reinstated upon application by plaintiffs’ counsel. The claims against our entities are insured, subject to self-insured retentions by the 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 these claims.

      Milwaukee Solvay Coke. In September 2002, we received a draft of a proposed Administrative Order by Consent from the EPA, for clean-up and reimbursement of costs associated with the Milwaukee Solvay coke plant site in Milwaukee, Wisconsin. The plant was operated by a predecessor of ours from 1973 to 1983, which predecessor we acquired in 1986. In January 2003, we completed the sale of the plant site and property to a third party. Following this sale, an Administrative Order by Consent (“Solvay Consent Order”) was entered into with the EPA by us, the new owner and another third party who had operated on the site. In connection with the Solvay Consent Order, the new owner agreed to take responsibility for the removal action and agreed to indemnify us for all costs and expenses in connection with the removal action. In the third quarter 2003, the new owner, after completing a portion of the removal, experienced financial difficulties. In an effort to continue progress on the removal action, we expended approximately $.9 million in the second half of 2003 and $2.1 million in 2004. At this time, we believe the requirements of the removal action have been substantially completed.

      On August 26, 2004, we received a Request for Information pursuant to Section 104(e) of CERCLA relative to the investigation of additional contamination below the ground surface at the Milwaukee Solvay site. The Request for Information was also sent to 13 other PRPs. At this time, the nature and extent of the contamination, the required remediation, the total cost of the clean-up and the cost-sharing responsibilities of the PRPs cannot be determined. We increased our environmental reserve for Milwaukee Solvay by $.8 million in 2004 for potential additional exposure.

      Mountain West Mines. On May 4, 2004, Iron, a subsidiary of the Company, was sued along with two other defendants in the United State District Court for the District of Wyoming. The plaintiff, Mountain West Mines, Inc. (“Mountain West”), asserts that Iron and the other defendants are liable to it for a four percent overriding royalty interest on all yellowcake uranium produced from the Powder River Basin in Wyoming and sold by Iron or certain other entities with which Iron had conducted business. Mountain West is seeking a substantial but as yet uncertain amount from Iron. We are defending the Civil Action vigorously and have filed an answer denying any liability to Mountain West on any theory as well as a counterclaim seeking a declaration that Iron has no obligation to Mountain West. Discovery in the case is ongoing, and the case is set for trial on June 20, 2005.

      None.

EXECUTIVE OFFICERS OF THE REGISTRANT

      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 executive officers were elected effective on the effective dates listed below for each such officer.

      The business experience of the persons named above for the last five years is as follows:

PART II

Stock Exchange Information

      Our Common Shares (ticker symbol CLF) are listed on the New York Stock Exchange. The shares are also listed on the Chicago Stock Exchange.

Common Share Price Performance and Dividends

      All per share information has been adjusted retroactively to reflect the two-for-one stock split effective December 31, 2004.

      At February 16, 2005, we had 1,769 shareholders of record. No dividends were paid in 2003.

Issuer Purchases Of Equity Securities

      The share information has been adjusted retroactively to reflect the two-for-one stock split effective December 31, 2004.

Summary of Financial and Other Statistical Data

Cleveland-Cliffs Inc and Consolidated Subsidiaries

Two-for-One Stock Split

      On November 9, 2004, the Board of Directors of Cleveland-Cliffs Inc approved a two-for-one stock split of its Common Shares. The record date for the stock split was December 15, 2004 with a distribution date of December 31, 2004. Accordingly, all Common Shares, per share amounts, stock compensation plans and preferred stock conversion rates have been adjusted retroactively to reflect the stock split. Additionally, all diluted per share amounts reflect the “as-if-converted” effect of the Company’s convertible preferred stock as required by Emerging Issues Task Force Consensus 04-8.

Overview

      Cleveland-Cliffs Inc (including its consolidated subsidiaries, the “Company” or “Cliffs”) is the largest producer of iron ore pellets in North America and sells the majority of its pellets to integrated steel companies in the United States and Canada. The Company operates six iron ore mines located in Michigan, Minnesota, and Eastern Canada that currently have a rated capacity of 37.7 million tons of iron ore pellet production annually. The other iron ore mines in the U.S. and Canada have an aggregate rated capacity of 22.9 million tons and 21.2 million tons, respectively. Based on its percentage ownership in the mines it operates, Cliffs’ share of the rated pellet production capacity is currently 23.1 million tons per annum, representing approximately 28 percent of total North American pellet capacity.

      Prior to 2002, Cliffs principally held a minority interest in the mines it managed, with the majority interest in each mine held by various North American steel companies. Cliffs’ earnings were principally comprised of royalties and management fees paid by the partnerships, along with sales of its equity share of the mine pellet production. Faced with marked deterioration in the financial condition of many of its partners and customers, the Company embarked on a strategy to reposition itself from a manager of iron ore mines on behalf of steel company partners to primarily a merchant of iron ore through increasing its ownership interests in its mines.

      The Company’s increased mine ownerships combined with the explosive growth of steel and iron ore demand created by an expanding Chinese economy and consolidation of the North American steel industry has resulted in a most remarkable year in 2004. The Company’s strategic redirection and acceptance of additional risks of increased mine ownerships followed by significant increases in iron ore demand and pricing culminated in record profits in 2004, solid financial condition, and a strong base for future growth.

      The Company’s successful navigation through numerous customer and partner bankruptcies and corresponding consolidation of the North American steel industry has resulted in the Company emerging with new long-term supply agreements, at more favorable pricing, with steel company partners and customers that are financially stronger than their predecessors. One premier example is International Steel Group, Inc. (“ISG”), which acquired and consolidated several bankrupt steel companies. In 2002, the Company invested $13.0 million in ISG to support its acquisition of idled LTV Corporation (“LTV”) steelmaking assets, receiving a seven percent stake in return. The Company also entered into a 15-year term supply agreement to supply all of ISG’s pellet requirements for its Cleveland and Indiana Harbor plants. Later in 2002, the Company invested another $4.4 million to support ISG’s acquisition of the steelmaking assets of Acme Metals Incorporated (“Acme”) and invested another $10.7 million of pension trust assets to support ISG’s acquisition of Bethlehem Steel Corporation’s (“Bethlehem Steel”) assets in 2003. In conjunction with the acquisition of Bethlehem Steel, ISG acquired Bethlehem’s 62.3 percent equity interest in the Company-managed Hibbing mine. Through its investments in ISG, the Company received 5.9 million shares (5.1 million shares directly-held and .8 million shares held in its pension trust). In 2004, the Company realized a $152.7 million pre-tax ($99.3 million after-tax) gain on the sale of its 5.1 million shares of directly-held ISG common stock. The Company continues to own .1 million shares of ISG common stock in its pension trusts. Also in 2004, ISG acquired the bankrupt assets of Weirton Steel Corporation (“Weirton”) and Georgetown Steel Corporation. In conjunction with its acquisition of Weirton, ISG assumed the Company’s term supply agreement with Weirton with some modifications. ISG, currently the Company’s largest customer, recently agreed to merge with Mittal Steel, the parent company of Ispat Inland Inc. (“Ispat Inland”), another significant customer and 21 percent partner in the Company’s Empire mine. The merger is expected to close in the first quarter of 2005, creating the largest steel company in the world.

      Also in 2004, the Company dramatically improved its liquidity, initially through its January 2004 offering of $172.5 million of redeemable cumulative convertible perpetual preferred stock. The proceeds from the issuance were utilized to repay the Company’s $25 million balance of its unsecured notes and to fund $76.1 million into its underfunded salaried and hourly pension plans and retiree healthcare accounts (“VEBAs”). Additionally, the proceeds from the sale of ISG stock and cash flow from operations provided the Company with the liquidity for required capital expenditures to maintain and expand its production capacity and to investigate opportunities to further its strategic growth objectives. In January 2005, the Company initiated an all-cash offer to purchase the outstanding shares of Portman Limited, a Western Australia-based iron ore mining and exploration company. If successful, the acquisition cost will be approximately U.S. $500 million. See “Offer to Purchase Portman Limited.” The Company also continues to investigate opportunities in North America, including Eastern Canadian and U.S. iron ore mines.

      The Company’s share of production in 2004 was a record 21.7 million tons. Mine operating costs on a per ton basis in 2004 increased by about 3.5 percent versus 2003 primarily due to energy, supply and royalty escalation (much of which was recovered in or was due to our sales contract escalators) and cost related to the U.S. labor negotiations and the fixed cost effect of the 14-week labor stoppage at Wabush Mines in Canada where we have a 26.83 percent ownership. From a safety standpoint, 2004 was the safest year on record in the Company’s 157-year history as measured by the Mine Safety and Health Administration total reportable incident frequency.

      The Company’s operating objectives are to maximize production, efficiency and productivity at its existing North American mines. All of the mines and processing facilities have been in existence for several decades and are energy and labor intensive operations. Energy comprises approximately 25 percent of our mine production costs. We continue to strive for employment productivity improvements to offset rising energy and employee medical and legacy costs. In that regard, employees at the Empire and Tilden mines in Michigan and the Hibbing Taconite and United Taconite mines in Minnesota, represented by the United

Steelworkers of America (“USWA”), ratified new four-year labor agreements that are comparable to other USWA contracts in the industry. The new agreements provide for wage increases and additional funding into employees pension plans and VEBAs in exchange for employees and future retirees sharing in healthcare insurance costs and certain other provisions that will continue to improve productivity. (See “Labor Contracts.”)

Key Operating and Financial Indicators

      Following is a summary of the Company’s key operating and financial indicators for the years 2004, 2003 and 2002:

      Iron ore pellet sales in 2004 were a record 22.6 million tons, a 3.4 million ton or 18 percent, increase from the previous record 19.2 million tons sold in 2003. The sales increase primarily reflects the effect of new and revised agreements initiated in 2002 and 2003 consistent with the Company’s increased mine ownerships. Iron ore pellet production for Cliffs’ account was 21.7 million tons in 2004 versus 18.1 million tons in 2003. The 3.6 million ton, or 20 percent, increase was largely due to the full year production of United Taconite, which was acquired in December 2003, and higher production at all mines except Wabush.

      The Company’s increase in 2004 sales margin from 2003 was principally due to an increase in sales prices and volume and was partially offset by higher production costs. The increase in sales prices reflects the effect on term supply agreement escalators of higher steel prices and an approximate 20 percent increase in international pellet prices. Production costs were adversely affected by higher energy and supply pricing, costs associated with U.S. labor negotiations and Wabush work stoppage, and a $3.4 million unfavorable exchange rate effect reflecting the impact of a weaker U.S. dollar on the Company’s share of Wabush costs. On a year-over-year basis, these factors were partly offset by the fixed cost impact of the five-week production curtailment in 2003 at the Empire and Tilden mines relating to loss of electric power due to flooding in the Upper Peninsula of Michigan.

      The Company’s business is affected by a number of factors, which are described in detail below under “Risks Relating to the Company.” As the Company has increased its role as a merchant of iron ore to steel company customers, it has become more dependent on the revenues from its term supply agreements. Because its agreements are largely requirements contracts, those revenues are heavily dependent on customer consumption of iron ore. Customer requirements may be affected by increased use of iron ore substitutes,

including imported semi-finished steel, customer rationalization or financial failure, and decreased North American steel production resulting from increased imports or lower steel consumption.

      Further, the Company’s sales are concentrated with relatively few customers. Unmitigated loss of sales would have a significantly greater impact on operating results and cash flow than revenue, due to the high level of fixed costs in the iron ore mining business and the high cost to idle or close mines. In the event of a venture participant’s failure to perform, remaining solvent venturers, including the Company, may be required to assume additional fixed costs and record additional material obligations. The premature closure of a mine due to the loss of a significant customer or the failure of a joint venture participant would accelerate substantial employment and mine shutdown costs.

Results of Operations

      Net income in 2004 was $323.6 million, including a $3.1 million after-tax gain from a discontinued operation, compared with a net loss in 2003 of $32.7 million. Included in the 2003 net loss was an extraordinary gain of $2.2 million relating to the United Taconite acquisition of the Eveleth mine assets in Minnesota in December 2003. Income in 2004 was $11.80 per diluted share compared with a net loss of $1.60 per diluted share in 2003. Following is a summary of results:

2004 Versus 2003

      Net income for the year 2004 was $323.6 million, or $11.80 per diluted share, compared with a net loss of $32.7 million, or $1.60 per diluted share, for the year 2003. Excluding the after-tax gain from a discontinued operation in 2004 of $3.1 million and the after-tax extraordinary gain in 2003 of $2.2 million relating to the United Taconite acquisition of the Eveleth mine assets in December 2003 (See Extraordinary Gain). Income from continuing operations in 2004 was $320.5 million, versus a loss of $34.9 million in 2003.

      The $355.4 million increase in income from continuing operations reflected improved pre-tax results of $320.8 million and lower income taxes of $34.6 million. The lower taxes in 2004 reflected a $113.8 million reversal of deferred tax valuation allowance partly offset by the current year’s tax provision. Included in the pre-tax increase of $320.8 million was $152.7 million relating to a gain on sale of directly-held ISG common stock and higher sales margins of $159.8 million. Following is a summary of the sales margin:

      Revenues from iron ore sales and services were $998.6 million in 2004, an increase of $311.8 million, or 45 percent, from revenues of $686.8 million in 2003. The increase was mainly due to higher sales prices and the 3.4 million ton, or 18 percent, increase in pellet sales volume in 2004. The increase in pellet sales in 2004 was due to higher demand by the integrated steel industry and increased production. The 22.6 million tons sold in 2004 was a record, surpassing the previous record of 19.2 million tons sold in 2003. The increase in sales price realization resulted from term supply agreement escalators, primarily higher steel prices and an approximate 20 percent increase in international pellet prices.

      Cost of goods sold and operating expenses totaled $848.7 million in 2004, an increase of $152.0 million, or 22 percent, from $696.7 million in 2003, principally due to higher sales and production volume of $122.8 million, increased energy and supply pricing of $19.9 million, the fixed-cost effect of a 14-week labor stoppage at Wabush in third quarter 2004 of $5.2 million, a $3.4 million exchange rate effect due to the impact of a weaker U.S. dollar on the Company’s share of Wabush production costs, and $3.0 million related to 2004 U.S. labor negotiations. Operating costs in 2003 included an $11.1 million fixed-cost impact caused by a five-week production curtailment at the Empire and Tilden mines relating to the loss of electric power due to flooding in the Upper Peninsula of Michigan.

      Sales margin in 2004 was $149.9 million versus a loss of $9.9 million in 2003. The sales margin improvement of $159.8 million in 2004 was principally due to an increase in sales prices and volume, and was partially offset by higher production costs.

      Royalties and management fees from partners were $11.3 million in 2004, an increase of $.7 million from 2003. The increase was principally attributed to management fees from United Taconite production.

      In 2004 and 2003, the Company recorded additional Empire impairment charges of $5.8 million and $2.6 million, respectively, for current years’ fixed asset additions. Empire’s long-lived assets were impaired in 2002. Approximately $2.2 million of the 2004 Empire fixed asset additions were related to an increase in the asset retirement obligation reflecting a one year decrease in the estimated mine life due to a change in annual production levels.

      Administrative, selling and general expenses in 2004 were $33.1 million, an increase of $8.0 million from 2003. The increase primarily reflects higher stock-based and incentive compensation of $8.5 million.

      In third quarter 2003, the Company initiated a salaried reduction program as part of its cost-reduction initiatives. The action resulted in a reduction of 136 staff employees at its corporate, central services and various mining operations, which represented an approximate 20 percent decrease in salaried workforce at the Company’s U.S. operations (prior to the acquisition of United Taconite). Accordingly, the Company recorded a restructuring charge of $8.7 million in 2003, which included non-cash pension and OPEB obligations of $6.2 million and one-time severance benefits of $2.5 million. Less than $1.6 million required cash funding in 2003 leaving a remaining severance liability of approximately $.9 million at December 31, 2003. In 2004, the Company expended $.7 million and recorded a credit of $.2 million in satisfaction of the obligation.

      The Company recorded $1.6 million in the first quarter 2004 for customer bankruptcy exposures compared with $7.5 million in 2003 ($2.6 million and $4.9 million in the second and third quarter, respectively) relating to the Weirton and WCI Steel Inc. (“WCI”) bankruptcies. (See Customers for further discussion.)

      Miscellaneous expense was $2.9 million in 2004, a decrease of $2.2 million from 2003 expenses of $5.1 million. The decrease primarily reflected lower coal retiree expense of $1.6 million, decreased business development costs of $1.0 million, and debt restructuring fees in 2003 of $.8 million partially offset by lower rental income of $.9 million.

      Interest expense was $.8 million in 2004, a decrease of $3.8 million from 2003 interest expense of $4.6 million. The decrease principally reflected the repayment of the Company’s senior unsecured notes in January 2004.

      Other income of $4.2 million in 2004 was $2.9 million less than in 2003. The decrease primarily related to non-strategic Michigan land sales in 2003.

      Through 2003, the Company maintained a valuation allowance to reduce its deferred tax asset in recognition of uncertainty regarding full utilization. In the fourth quarter of 2004, the Company determined, based on the existence of sufficient evidence, that it no longer required a valuation allowance other than $8.9 million, which may not be realized, related to net operating loss carryforwards of $25.4 million that will begin to expire in 2021, which are attributable to pre-consolidation separate return years of one of its subsidiaries. As a result, a $113.8 million adjustment to reduce the valuation allowance was credited to income. Excluding the $113.8 million valuation reversal, income tax expense in 2004 of $78.9 million was $79.2 higher than 2003 principally reflecting higher pre-tax income.

      Effective December 1, 2003, United Taconite, a newly formed company owned 70 percent by a subsidiary of the Company and 30 percent by a subsidiary of Laiwu Steel Group Limited (“Laiwu”) of China, purchased the assets of Eveleth Mines LLC in Minnesota. The purchase price was $3.0 million plus the assumption of certain liabilities, primarily mine closure-related environmental obligations. As a result of this transaction, the assets acquired exceeded the cost of the acquisition, resulting in an “extraordinary gain” of $2.2 million, net of $.5 million tax and $1.2 million minority interest.

2003 Versus 2002

      The net loss for the year 2003 was $32.7 million, or $1.60 per share, including the extraordinary gain of $2.2 million related to the United Taconite acquisition of the Eveleth mine assets in Minnesota in December 2003. The net loss in 2002 of $188.3 million, or $9.31 per share included a loss of $108.5 million from a discontinued operation, and a $13.4 million cumulative effect charge related to a change in the Company’s accounting method for recognizing estimated future mine closure obligations.

      The loss from continuing operations was $34.9 million in 2003 versus a loss of $66.4 million in 2002. The $31.5 million lower loss reflected improved pre-tax results of $22.1 million and lower income tax expense of $9.4 million principally due to establishing a deferred tax valuation allowance in 2002. The improvement in pre-tax results was primarily due to the $52.7 million charge for the impairment of mining assets in 2002; the impairment charge was $2.6 million in 2003. Partially offsetting the lower impairment charge was a $13.6 million decrease in sales margin, summarized as follows:

      Revenues from iron ore sales and services were $686.8 million in 2003, an increase of $176.0 million, or 34 percent, from revenues of $510.8 million in 2002. The 4.5 million ton, or 31 percent, increase in pellet sales volume in 2003 was due to the combined effect of increased customer demand, new term supply agreements (including the full-year effect of new agreements in 2002) and increased ownership interest in existing joint-venture mines. The 19.2 million tons sold in 2003 was a record, surpassing the previous record of 14.7 million tons sold in 2002. The increase in revenue also reflected an increase in sales price realization, which resulted from favorable term supply agreement price provisions and the mix of agreements.

      Cost of goods sold and operating expenses totaled $696.7 million in 2003, an increase of $189.6 million, or 37 percent, from $507.1 million in 2002. Excluding fixed costs related to production curtailments, 2003 costs and expenses were $199.1 million, or 41 percent, higher than 2002, principally due to increased production and

sales volume and higher production costs. The production cost increase reflected higher energy rates, increased pension and medical costs, throughput difficulties at the Michigan mines, an equipment outage at the Tilden operations in Michigan in December 2003, and the impact of the decreased U.S. exchange rate with Canada.

      Increased energy rates resulted in an approximate $17 million aggregate increase in costs in 2003 versus 2002. Similarly, increases in pension expense (excluding restructuring charges) per ton of production accounted for a cost increase in 2003 versus 2002 of more than $8 million, and higher medical costs (including OPEB increases) per ton of production contributed almost $5 million to the cost increase. The pension and OPEB increases are net of approximately $7 million of 2003 expense decreases related to the salaried plan modifications for certain U.S. salaried employees and retirees, which became effective July 1, 2003.

      On May 15, 2003, the failure of a dam in the Upper Peninsula of Michigan resulted in flood conditions, which caused production curtailments at the Empire and Tilden mines for approximately five weeks. While the flooding did not directly damage the mines, the mines were idled when Wisconsin Energy Corporation, which supplies electricity to the mines, was forced to shutdown its power plant in Marquette, Michigan. The mines returned to full production by the end of June; however, approximately 1.0 million tons of production was lost (Company’s share .8 million tons). The Company’s share of fixed costs related to the lost production was $11.1 million. The Company is pursuing a business interruption claim under its property insurance program. Production curtailments in 2002, due to market conditions, had a $20.6 million fixed cost effect.

      On November 26, 2003, the Tilden mine experienced a crack in a kiln riding ring that required the shutdown of its Unit #2 furnace in the pelletizing plant. As a result of the failure, Tilden’s production in 2003 decreased by ..3 million tons resulting in a 2003 loss of approximately $6 million, including the cost of the repair and the cost of accelerating planned 2004 maintenance into December 2003 to coincide with the riding ring repair. Year 2004 production was not significantly affected by the failure.

      The decrease in 2003 sales margin of $13.6 million reflected an increase in cost of goods sold and operating expenses (net of freight and minority interest) of approximately $73 million offset by the effect of higher production and sales volume of approximately $40 million and higher average sales revenue per ton of approximately $20 million. Our sales volume increased by 4.5 million tons or 31 percent. Production increased by 3.4 million tons or 23 percent.

      Royalties and management fees from partners were $10.6 million in 2003, a decrease of $1.6 million from 2002. The decrease was principally due to the whole-year effect of the Company’s increased ownership in mines in 2002, partially offset by increased production.

      As a result of increasing production costs at Empire mine, revised economic mine planning studies were completed in the fourth quarter of 2002 and updated in the fourth quarter of 2003. Based on the outcome of these studies, the ore reserve estimates at Empire were reduced from 116 million tons at December 31, 2001 to 63 million tons at December 31, 2002 and 29 million tons at December 31, 2003. The Company concluded that the assets of Empire were impaired as of December 31, 2002, based on an undiscounted probability-weighted cash flow analysis. The Company recorded an impairment charge of $52.7 million to write-off the carrying value of the long-lived assets of Empire. In 2003, the Company recorded an additional impairment charge of $2.6 million for current-year fixed-asset additions.

      Administrative, selling and general expenses in 2003 were $25.1 million, an increase of $1.3 million from 2002. The increase primarily reflects higher professional fees related to financing and business development activities and higher stock-based compensation partially offset by lower employment costs and incentive

compensation. The increase in stock-based compensation of $4.3 million principally reflected the increase in the Company’s common share price in 2003.

      In the third quarter of 2003, the Company initiated a salaried reduction program as part of its cost-reduction initiatives. The action resulted in a reduction of 136 staff employees at its corporate, central services and various mining operations, which represented an approximate 20 percent decrease in salaried workforce at the Company’s U.S. operations (prior to the acquisition of United Taconite). Accordingly, the Company recorded a restructuring charge of $8.7 million in 2003. The charge is principally related to severance, pension and healthcare benefits with less than $1.6 million requiring cash funding in 2003.

      As noted in the “Risks Relating to the Company,” three of the Company’s significant customers petitioned for protection under chapter 11 of the U.S. Bankruptcy Code in 2003. As a result, the Company recorded reserves totaling $7.5 million in the second and third quarters of 2003 related to its bankruptcy exposures.

      Miscellaneous expense was $5.1 million in 2003, an increase of $1.2 million from 2002. The increase primarily reflected higher coal retiree expense of $2.0 million, an increase in litigation reserves of $.5 million and higher state and local taxes of $.4 million partially offset by lower debt-restructuring fees of $1.9 million.

      Interest income of $10.6 million in 2003 was $5.8 million above 2002 interest income of $4.8 million. The increase primarily reflected interest on the long-term receivables from Ispat Inland and Rouge Industries Inc. (“Rouge”).

      Interest expense was $4.6 million in 2003, a decrease of $2.0 million from 2002 interest expense of $6.6 million. The decrease principally reflected lower average borrowing due to the repayment and cancellation of the Company’s $100 million revolving credit facility in October 2002 and repayment of a portion of the senior unsecured notes. The Company made senior unsecured note repayments of $15 million in December 2002, $5 million in June 2003, $25 million in December 2003 and the $25 million balance early in 2004.

      Other income of $7.1 million in 2003 was $.9 million higher than 2002. The increase primarily reflected higher sales of non-strategic assets in 2003 of $.8 million.

      In the third quarter of 2002, the Company recorded a valuation allowance to fully reserve its net deferred tax assets in recognition of uncertainty regarding their realization. In 2003, the Company increased its deferred tax valuation allowance by $2.1 million to $122.7 million to offset increases in the deferred tax assets. The Company recorded an income tax credit of $.3 million, which was attributable to qualifying for a special refund of taxes paid in prior years, of $.9 million, partially offset by foreign, state and local taxes. The $9.1 million net tax expense in 2002 reflected the recognition of the valuation allowance net of a $4.4 million favorable adjustment of prior years’ tax liabilities.

      In the fourth quarter of 2002, Cliffs exited the ferrous metallics business and abandoned its 82 percent investment in Cliffs and Associates Limited (“CAL”), an HBI facility located in Trinidad and Tobago. For the year 2002, Cliffs reported a loss from discontinued operation of $108.5 million, consisting of $97.4 million

($95.7 million in the third quarter) of impairment charges and $11.1 million of idle expense. No expense was recorded in 2003.

      On July 23, 2004, Cliffs and Outokumpu Technology GmbH (the 18 percent co-owner of CAL) sold the assets of CAL’s HBI facility to ISG. Terms of the sale include a purchase price of $8.0 million plus assumption of liabilities. The Company recorded after-tax income of approximately $3.1 million related to this contract in 2004. The gain is classified under “Discontinued Operation” in the Statement of Consolidated Operations. CAL may receive up to $10 million in future payments contingent on HBI production and shipments.

      Effective January 1, 2002, the Company implemented Statement of Financial Accounting Standards (“SFAS”) No. 143, “Asset Retirement Obligations.” The statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period incurred. As a result of the change in accounting method, the Company recorded a cumulative effect non-cash charge of $13.4 million, recognized on January 1, 2002, to provide for contractual and legal obligations associated with the eventual closure of its mining operations.

Cash Flow and Liquidity

      At December 31, 2004, the Company had cash and cash equivalents of $216.9 million. Following is a summary of 2004 cash flow activity:

      Following is a summary of key liquidity measures:

Included in net cash from operating activities before changes in operating assets and liabilities is $76.1 million of contributions to pension plans and post-retirement benefits trusts and $57.1 million of income tax payments. The $182.7 million increase in marketable securities reflects the Company’s investment of surplus cash in highly-liquid short-term securities with put options. The increase in trade receivables of $44.6 million included supplemental term sales contract revenue based on annual steel pricing, on which payments are due in the first half of 2005.

      At December 31, 2004, there were 3.3 million tons of pellets in inventory, .7 million tons less than December 31, 2003, at a cost of $108.2 million, or a decrease of $21.5 million from December 31, 2003.

      The Company repaid the remaining principal balance on its senior unsecured notes of $25 million in January 2004. On April 30, 2004, the Company entered into a $30 million unsecured revolving credit agreement, which expires on April  29, 2005. There have been no borrowings under the facility.

      The Company realized $17.9 million from the exercise of stock options in 2004 and issued a total of 719,780 shares from treasury stock. The Company also repurchased 170,000 shares at a cost of $6.5 million relating to its two million share stock repurchase program; the repurchase program was suspended in January 2005.

      The Company anticipates that its share of capital expenditures related to the iron ore business, which was $60.7 million in 2004, will increase to approximately $135 million in 2005. The Company expects to fund its capital expenditures from available cash and current operations. The anticipated increase in capital expenditures is primarily due to capacity expansion projects at its United Taconite and Northshore mines in Minnesota. The United Taconite expansion project was brought on line with the restart of its idle pellet furnace in the fourth quarter of 2004 at a total cost of approximately $35 million, with 2004 expenditure of $13.3 million. The expansion will add approximately 1.0 million tons (Company share .7 million tons) to United Taconite’s annual production capacity. The Company also plans to re-start an idled furnace at its wholly-owned Northshore mine in the first quarter of 2005 at an estimated cost of approximately $30 million. The expansion will increase Northshore’s annual production capacity by approximately .8 million tons. A further expansion at United Taconite is being evaluated.

      In the third and fourth quarters of 2004, the Company sold 5.1 million shares of its directly-held ISG common stock in market transactions totaling $170.1 million. The sales resulted in a gain of $152.7 million pre-tax ($99.3 million after-tax). The Company continues to own ..1 million shares of ISG stock through pension fund investments.

      In January 2004, the Company completed an offering of $172.5 million of redeemable cumulative convertible perpetual preferred stock, without par value, issued at $1,000 per share. The preferred stock pays quarterly cash dividends at a rate of 3.25 percent per annum, has a liquidation preference of $1,000 per share and is convertible into the Company’s common shares at an adjusted rate of 32.3354 common shares per share of preferred stock, which is equivalent to an adjusted conversion price of $30.93 per share at December 31, 2004, subject to further adjustment in certain circumstances. Each share of preferred stock may be converted by the holder: (1) if during any fiscal quarter ending after March 31, 2004 the closing sale price of the

Company’s common stock for at least 20 trading days in a period of 30 consecutive trading days ending on the last trading day of the preceding quarter exceeds 110 percent of the applicable conversion price on such trading day ($34.02 at December 31, 2004; this threshold was met as of December 31, 2004); (2) if during the five business day period after any five consecutive trading-day period in which the trading price per share of preferred stock for each day of that period was less than 98 percent of the product of the closing sale price of the Company’s common stock and the applicable conversion rate on each such day; (3) upon the occurrence of certain corporate transactions; or (4) if the preferred stock has been called for redemption. On or after January 20, 2009, the Company, at its option, may redeem some or all of the preferred stock at a redemption price equal to 100 percent of the liquidation preference, plus accumulated but unpaid dividends, but only if the closing price exceeds 135 percent of the conversion price, subject to adjustment, for 20 trading days within a period of 30 consecutive trading days ending on the trading day before the date the Company gives the redemption notice. The Company may also exchange the preferred stock for convertible subordinated debentures in certain circumstances. The Company has reserved approximately 5.6 million common treasury shares for possible future issuance for the conversion of the preferred stock. The Company’s shelf registration statement with respect to the resale of the preferred stock, the convertible subordinated debentures that we may issue in exchange for the preferred stock and the common shares issuable upon conversion of the preferred stock and the convertible subordinated debentures was declared effective by the SEC on July 22, 2004. The preferred stock is classified for accounting purposes as “temporary equity” reflecting certain provisions of the agreement that could, under remote circumstances, require the Company to redeem the preferred stock for cash. The net proceeds after offering expenses were approximately $166 million. A portion of the proceeds was utilized to repay the remaining outstanding $25.0 million in principal amount of the Company’s senior unsecured notes in the first quarter of 2004. The Company has also used approximately $63.0 million to fund its underfunded pension plans and contributed $13.1 million to its VEBAs in 2004.

Operations and Customers

      The Company’s pellet sales for the year 2004 were a record 22.6 million tons versus the previous record of 19.2 million tons sold in 2003. The increase in pellet sales in 2004 was due to higher demand by the integrated steel industry and increased production. The higher production primarily reflects production from United Taconite which was acquired in December 2003. The Company ended the year 2004 with 3.3 million tons of iron ore pellet inventory, a decrease of .7 million tons from 2003, reflecting the Company’s increased sales. The Company’s 2005 sales volume is projected to be a record 24 million tons, a seven percent increase from 2004. The Company is largely committed under term supply agreements, which are subject to changes in customer requirements. Revenue per ton from iron ore sales and services is dependent upon several price adjustment factors included in the Company’s term supply agreements, primarily the percentage change from 2004 to 2005 in the international pellet price for blast furnace pellets and Producers Price Indices (“PPI”), and one customer’s hot-rolled coil price realizations from a number of its operations. Following is the estimated impact to the Company’s average revenue per ton from iron ore sales and services (excluding freight and minority interest cost reimbursements) based on 2004 sales realization of $44.19 per ton:

      One of the Company’s term supply agreements contains price collars, which limits the percentage increase or decrease in prices for our iron ore pellets during any one year to seven percent of the previous year’s contract price.

      On October 23, 2003, Rouge, a significant pellet sales customer of the Company, filed for chapter 11 bankruptcy protection. On January 30, 2004, Rouge sold substantially all of its assets to Severstal North America, Inc. (“Severstal”). Severstal, as part of the acquisition of assets of Rouge, assumed the Company’s term supply agreement with Rouge with minimal modifications. The contract provides that the Company will be the sole supplier of iron ore pellets through 2012. The Company sold 3.3 million tons to Severstal/Rouge in 2004 and 3.0 million tons in 2003. Additionally, in the first quarter of 2004, Rouge repaid a $10 million secured loan balance outstanding plus accrued interest.

      On September 16, 2003, WCI petitioned for protection under chapter 11 of the U.S. Bankruptcy Code. At the time of the filing, the Company had a trade receivable exposure of $4.9 million, which was reserved in the third quarter of 2003. WCI purchased 1.7 million tons, or 8 percent of total tons sold in 2004, and purchased 1.5 million tons, or 8 percent of total tons sold in 2003. WCI continues to operate and purchase pellets from the Company. On October 14, 2004, the Company and the current owners of WCI reached tentative agreement that the Company would supply 1.4 million tons of iron ore pellets in 2005 and, in 2006 and thereafter, would supply one hundred percent of WCI’s annual requirements up to a maximum of two million tons of iron ore pellets. The new agreement, which is for a 10-year term beginning in 2005 and provides for the Company’s recovery of its $4.9 million pre-petition receivable plus $.9 million of subsequent pricing adjustment over time, was approved by the Bankruptcy Court on November 16, 2004. The agreement provides the Company with a right to terminate the agreement after 2005 if a plan of reorganization is not confirmed before June 30, 2005 and consummated by July 31, 2005; in that event, the $5.8 million receivable would be due at the end of 2005.

      On May 19, 2003, Weirton filed for protection under chapter 11 of the U.S. Bankruptcy Code. Weirton, a significant customer of the Company, purchased approximately ..5 million tons in 2004 through May 17, or 2 percent of all tons sold in 2004, and 2.8 million tons, or 14 percent of tons sold in 2003. On April 22, 2004, the Bankruptcy Court issued an order approving the sale of Weirton’s assets to a subsidiary of ISG, and on May 18, 2004, ISG completed the acquisition of substantially all of the assets, including the power-related leased assets (discussed below), of Weirton. As part of the acquisition, ISG assumed the Company’s term supply agreement with Weirton with some modifications. The contract term is for 15 years with the Company supplying the majority of pellets required for the ISG-Weirton facility in 2004 and 2005 and all of ISG-Weirton’s pellet requirements thereafter. The Company sold 1.4 million tons to ISG-Weirton in 2004 under the assumed contract.

      The Company is a 40.5 percent participant in a joint venture that acquired certain power-related assets from FW Holdings, Inc. (“FW Holdings”), a subsidiary of Weirton, in 2001, in a purchase-leaseback arrangement. On February 26, 2004, FW Holdings filed a petition for chapter 11 bankruptcy protection. In connection with its bankruptcy filing, FW Holdings filed an adversary complaint against the joint venture members for declaratory relief and the return of assets acquired in the purchase-leaseback transaction. In that complaint, FW Holdings asserted that the lease transaction should be recharacterized as a secured loan. As a result, FW Holdings did not make its quarterly lease payment due on March 31, 2004, of which the Company’s share was $.5 million. In conjunction with ISG’s purchase of the Weirton assets, a settlement agreement was reached between Weirton, ISG and the joint venture. As a result of the settlement agreement, the Company wrote down its investment to $6.1 million as of March 31, 2004 from $10.3 million. An additional $1.6 million charge was included in the “Provision for customer bankruptcy exposures” in the first quarter 2004; the Company had previously recorded a $2.6 million reserve for Weirton bankruptcy exposures in May 2003. The sale of Weirton’s assets to ISG resulted in a $10 million payment to the joint venture on

closing (Company share $4.0 million), which was made on May 18, 2004, and annual payments of $.5 million (Company share $.2 million) including interest at the rate of five percent over the next 15 years. The joint venture members also received a release from Weirton and FW Holdings of bankruptcy claims, such as preference actions, upon the closing of the sale to ISG.

      On October 25, 2004, the acquisition of LNM Holdings N.V. and ISG by Ispat International, N.V., the parent of Ispat Inland, was announced. On December 17, 2004, Ispat International, N.V. completed its acquisition of LNM Holdings N.V. to form Mittal Steel Company N.V. (“Mittal”). The merger with ISG, subject to shareholder approvals, is expected to be completed by the end of the first quarter of 2005, resulting in the world’s largest steel company. In December 2004, ISG and the Company amended their sales agreement, which runs through 2016, to increase the base price and moderate the supplemental steel price sharing provisions. ISG is currently the Company’s largest customer with total pellet purchases in 2004 of 8.9 million tons. Additionally, ISG is a 62.3 percent equity participant in Hibbing. The Company’s pellet sales to Ispat Inland in 2004 totaled 2.6 million tons. Ispat Inland is a 21 percent equity partner in Empire. The Company’s sales to ISG and Ispat Inland are under agreements which are not scheduled to expire for at least ten years. For 2004, the combined sales to ISG and Ispat Inland accounted for 51 percent of the Company’s sales volume and, including their equity share of Empire and Hibbing production, accounted for 52 percent of the Company’s managed production. The Company currently does not expect the merger to affect its relationships with ISG and Ispat Inland for the foreseeable future.

      On January 29, 2004, Stelco Inc. (“Stelco”) applied and obtained Bankruptcy Court protection from creditors in Ontario Superior Court under the Companies’ Creditors Arrangement Act. Pellet sales to Stelco totaled 1.2 million tons in 2004 and .1 million tons in 2003. Stelco is a 44.6 percent participant in Wabush, and U.S. subsidiaries of Stelco (which have not filed for bankruptcy protection) own 14.7 percent of Hibbing and 15 percent of Tilden. At the time of the filing, the Company had no trade receivable exposure to Stelco. Additionally, Stelco has continued to operate and has met its cash call requirements at the mining ventures to date. The Court has extended the deadline for the submittal of bids to purchase Stelco until February 14, 2005. Stelco has received an extension of the stay period under its Court-ordered restructuring from February 11, 2005 to April 29, 2005.

Production

      Following is a summary of 2004, 2003 and 2002 mine production and Company ownership:

The Company preliminarily expects total mine production in 2005 to be approximately 37 million tons; the Company’s share of production is currently estimated to be approximately 23 million tons. The increase in 2005 estimated production principally reflects higher production levels at all mines including capacity

expansion projects at United Taconite and Northshore mines. Production schedules are subject to change in pellet demand. Production costs per ton are expected to increase between four percent and five percent from the 2004 cost of goods sold and operating expenses (excluding freight and minority interest) of $37.56 per ton.

      As discussed in “Cash Flow and Liquidity,” the Company commenced a capacity expansion program in the fourth quarter of 2004 at United Taconite that is expected to add approximately 1.0 million tons (Company’s share .7 million tons) to United Taconite’s annual production capacity and plans to re-start an idled furnace at its wholly-owned Northshore mine in the third quarter of 2005, which will increase Northshore’s annual production capacity by approximately .8 million tons. A further expansion at United Taconite is being evaluated.

Increased Mine Ownership

      Effective December 1, 2003, United Taconite purchased the ore mining and pelletizing assets of Eveleth Mines. Eveleth Mines had ceased mining operations in May 2003 after filing for chapter 11 bankruptcy protection on May  1, 2003. Under the terms of the purchase agreement, United Taconite purchased all of Eveleth Mines’ assets for $3 million in cash and the assumption of certain liabilities, primarily mine closure-related environmental obligations. As a result of this transaction, the Company, after assigning appropriate values to assets acquired and liabilities assumed, was required to record an “extraordinary gain” of $2.2 million, net of $.5 million tax and $1.2 million minority interest. In conjunction with this transaction, the Company and its Wabush Mines venture partners entered into pellet sales and trade agreements with Laiwu to optimize shipping efficiency. Sales to Laiwu under these contracts totaled .2 million tons and .1 million tons in 2004 and 2003, respectively.

      Effective December 31, 2002, the Company increased its ownership in Empire from 46.7 percent to 79 percent in exchange for assumption of all mine liabilities. Under the terms of the agreement, the Company indemnified Ispat Inland from obligations of Empire in exchange for certain future payments to Empire and to the Company by Ispat Inland of $120.0 million, recorded at a present value of $64.1 million at December 31, 2004 ($61.3 million at December 31, 2003) with $52.1 million classified as “Long-term receivable” with the balance current, over the 12-year life of the supply agreement. A subsidiary of Ispat Inland has retained a 21 percent ownership in Empire, which it has a unilateral right to put to the Company in 2008. The Company is the sole outside supplier of pellets purchased by Ispat Inland for the term of the supply agreement. Sales to Ispat Inland by the Company (over and above Ispat Inland’s equity share of Empire production) totaled 2.6 million tons and 1.4 million tons in 2004 and 2003, respectively.

      On January 31, 2002, the Company increased its ownership in Tilden from 40 percent to 85 percent with the acquisition of Algoma’s interest in Tilden for assumption of mine liabilities associated with the interest. The acquisition increased the Company’s share of the annual production capacity by 3.5 million tons. Concurrently, a term supply agreement was executed that made the Company the sole supplier of iron ore pellets purchased by Algoma for a 15-year period.

      In July 2002, the Company acquired (effective retroactive to January 1, 2002) an eight percent interest in Hibbing from Bethlehem Steel for the assumption of mine liabilities associated with the interest. The acquisition increased the Company’s ownership of Hibbing from 15 percent to 23 percent. This transaction reduced Bethlehem Steel’s ownership interest in Hibbing to 62.3 percent. In October 2001, Bethlehem Steel filed for protection under chapter 11 of the U.S. Bankruptcy Code. At the time of the filing, the Company had a trade receivable of approximately $1.0 million, which has been written off. In May 2003, ISG purchased the assets of Bethlehem Steel, including Bethlehem Steel’s 62.3 percent interest in Hibbing.

      In August 2002, Acme Steel Company, a wholly-owned subsidiary of Acme Metals Incorporated, which had been under chapter 11 bankruptcy protection since 1998, rejected its 15.1 percent interest in Wabush. As a result, the Company’s interest increased to 26.83 percent. Acme had discontinued funding its Wabush obligations in August 2001.

Effect of Mine Ownership Increases

      While none of the increases in mine ownerships during 2002 required cash payments, the ownership changes resulted in the Company recognizing net obligations of approximately $93 million at December 31, 2002. Additional consolidated obligations assumed totaled approximately $163 million at December 31, 2002, primarily related to employment and legacy obligations at the Empire and Tilden mines, partially offset by non-capital non-current assets, principally the $58.8 million Ispat Inland long-term receivable. United Taconite’s acquisition of the Eveleth mine assets in December 2003 was for $3 million cash and assumption of certain liabilities, primarily mine-closure related environmental obligations.

Labor Contracts

      In August 2004, employees at the Empire and Tilden mines in Michigan and the Hibbing Taconite and United Taconite mines in Minnesota, represented by the United Steelworkers of America (“USWA”), ratified new four-year labor agreements that are comparable to other USWA contracts in the industry. The new agreements provide employees a nine percent wage increase over the next four years and for the Company and its partners to fund an estimated $220 million into pension plans and VEBAs during the term of the contracts. Accelerated funding of these plans will better secure employee post-employment benefits and reduce the Company’s future years’ employment legacy costs. The agreements also provide that employees and future retirees share in healthcare insurance cost, with the Company’s share of future retirees healthcare premiums capped at 2008 levels for 2009 and beyond. In addition, the union agreed to certain workforce flexibility provisions and other work rule modifications that will improve productivity.

      On October 10, 2004, a new five-year labor agreement was ratified by the USWA, representing hourly employees at Wabush Mines in Canada. The new agreement provides for increases in wages and benefits that are expected to be partially offset by improved productivity associated with increased worker flexibility provisions. On July 5, 2004, the USWA initiated a strike that idled Wabush mining and concentrating facilities in Labrador, Newfoundland and pelletizing and shipping facilities in Pointe Noire, Quebec. As a result of the work stoppage, Wabush lost approximately 1.7 million tons of production (Company share .5 million tons). Operations resumed on October 11, 2004.

Other Related Items

      The iron ore industry has been identified by the United States Environmental Protection Agency (the “EPA”) as an industrial category that emits pollutants established by the 1990 Clean Air Act Amendments. These pollutants included over 200 substances that are now classified as hazardous air pollutants (“HAP”). The EPA is required to develop rules that would require major sources of HAP to utilize Maximum Achievable Control Technology (“MACT”) standards for their emissions. Pursuant to this statutory requirement, the EPA published a final rule on October 30, 2003 imposing emission limitations and other requirements on taconite iron ore processing operations. We must comply with the new requirements by no later than October 30, 2006. Our projected capital expenditures in 2005 and 2006 to meet the proposed MACT standards are approximately $20 million, including $4 million related to the restart of Line 1 at United Taconite.

      In 2002, the Company agreed to participate in Phase II of the Mesabi Nugget Project. Other participants include Kobe Steel, Ltd. (“Kobe Steel”), Steel Dynamics, Inc., Ferrometrics, Inc. and the State of Minnesota. Construction of a $16 million pilot plant at the Company’s Northshore Mine, to test and develop

Kobe Steel’s technology for converting iron ore into nearly pure iron in nugget form, was completed in May 2003. The high-iron-content product could be utilized to replace steel scrap as a raw material for electric steel furnaces and blast furnaces or basic oxygen furnaces of integrated steel producers or as feed stock for the foundry industry. A third operating phase of the pilot plant test in 2004 confirmed the commercial viability of this technology. The pilot plant ended operations August 3, 2004. The product has been used by four electric furnace producers and one foundry with favorable results. The Company’s contribution to the project through the pilot plant testing and development phase was $5.3 million, primarily contributions of in-kind facilities and services. Preliminary construction engineering and environmental permitting activities have been initiated for two potential commercial plant locations (one in Butler, Indiana near Steel Dynamics’ steelmaking facilities and one at the Company’s Cliffs Erie site in Hoyt Lakes, Minnesota) with earliest environmental approval expected in the first half of 2005. A decision to proceed on construction of a commercial plant could be made in the first half of 2005; the Company would be the supplier of iron ore and have a minority interest in the first commercial plant.

      In March 2004, a subsidiary of the Company entered into an agreement to provide technical assistance to C.V.G. Ferrominera Orinoco C.A. of Venezuela. Under the agreement, the Company is assisting Ferrominera in achieving stable and sustainable production at its iron ore pellet plant located in the State of Bolivar, Venezuela.

      Ferrominera Orinoco is a government-owned company responsible for the development of Venezuela’s iron ore industry. Ferrominera Orinoco owns a 3.3 million metric ton pellet plant located in Puerto Ordaz, Venezuela, where it processes high-grade ores produced from its main iron ore deposits in Ciudad Piar. Production from the mine and pellet plant is for both domestic consumption and sale in the international markets.

      Under terms of the agreement, the Company is providing technical assistance from the U.S., including a team residing in Venezuela and working at the pellet plant on a full-time basis. The objective of the contract is to assist current management in various operational functions including operations and process control, maintenance, safety, environmental, training, and quality control. The Company is receiving a fixed fee with additional amounts based on the level of production achieved. The agreement was effective April 1, 2004 and is for an initial term of five years.

      On February 16, 2004, the Company entered into an option agreement with PolyMet Mining Inc., a U.S. subsidiary of PolyMet Mining Corporation (collectively “PolyMet”), that grants PolyMet the exclusive right to acquire certain land, crushing, concentrating and other ancillary facilities located at the Company’s Cliffs Erie site in Minnesota.

      Under the terms of the agreement, the Company received $500,000 and one million common shares of PolyMet for maintaining certain identified components of the Cliffs Erie facility, while PolyMet conducts a feasibility study on the development of its Northmet PolyMetallic non-ferrous ore deposit located near the Cliffs Erie site. PolyMet will have until June 30, 2006 to exercise its option and acquire the assets covered under the agreement for additional consideration.

      PolyMet is a non-ferrous mining company located in Vancouver, B.C. Canada. Its stock trades Over-The-Counter in the U.S. under the symbol POMGF.OB. Its stock closed at $.23 per share on February 13, 2004. The Company is recognizing the $500,000 option payment and one million common shares (valued at $230,000 on the agreement date) under the deposit method. The shares are classified as available-for-sale with mark-to-market changes recognized in equity as other comprehensive income. At December 31, 2004, the market value of the shares was $515,000.

Strategic Investments

      The Company intends to continue to pursue investment and management opportunities to broaden its scope as a supplier of iron ore pellets to the integrated steel industry through the acquisition of additional mining interests to strengthen its market position. The Company is particularly focused on expanding its international investments to leverage its expertise in mining and processing iron ore to capitalize on global demand for steel and iron ore in areas such as China. The Company’s innovative United Taconite joint venture with Laiwu is one example of its ability to expand geographically by supplying pellets from Wabush Mines in Eastern Canada in exchange for Laiwu’s United Taconite pellets, and the Company intends to continue to pursue similar opportunities in other regions. In addition, the Company will continue to investigate opportunities in North America including Eastern Canadian and U.S. mines. In the event of any future acquisitions or joint-venture opportunities, the Company may consider using available liquidity or other sources of funding to make investments.

Offer to Purchase Portman Limited

      On January 11, 2005, the Company, through a wholly-owned subsidiary incorporated for the sole purpose of making an acquisition offer, announced an all-cash offer for the outstanding shares of Portman Limited (“Portman”), a Western Australia-based independent iron ore mining and exploration company. The Company’s offer (“Offer”) consisted of A$3.40 per share, or US$2.65 per share (assuming an exchange rate of A$1.28 equal to US$1.00), which will result in a total acquisition price of approximately US $500 million. The Offer has the support of Portman’s Board of Directors. If successful, the Company expects to fund the acquisition with existing cash and borrowings under its revolving credit facility. The Company has hedged its potential foreign exchange exposure through the acquisition of a put option. The Company has a commitment from its bankers to increase its revolving credit facility from $30 million to $100 million and extend its term through January 6, 2006; the Company is working on a longer term $250 million revolving credit facility to replace the existing facility.

      Portman supplies iron ore to the Chinese and Japanese markets, with approximately 75 percent of the product exported to China and 25 percent exported to Japan. Portman currently has approximately six million tons of annual iron ore capacity, which will be expanded to eight million tons by late 2005.

Environmental and Closure Obligations