LETTER TO OUR SHAREHOLDERS

Cliffs Today

Given the business outlook, the recent bankruptcies of Wheeling-Pittsburgh and LTV and the weak financial position of other partners and customers, Cliffs has significant challenges ahead.

Prior to the Wheeling filing, which did not have a significant adverse impact on Cliffs' results in 2000, the Company exercised its right to acquire Wheeling's 12.5 percent indirect interest in the Empire Mine. No cash was paid to Wheeling for the interest, only assumption of additional mine liabilities. The acquisition of Wheeling's interest increased Cliffs' ownership in Empire to 35 percent and raised Cliffs' share of the mine's 8-million-ton-production capacity from 1.8 million tons to 2.8 million tons. While we expect to sell the additional tonnage to LTV beginning in 2001, the LTV bankruptcy filing has made this expectation more problematic. The increase in our ownership of Empire has raised Cliffs' total sales capacity from 11.8 million tons to 12.8 million tons.

The LTV bankruptcy filing resulted in a relatively modest charge to fourth quarter results. However, there are substantial contractual obligations and management relationships between Cliffs and LTV, and non-performance by LTV could have a significant impact on Cliffs and/or the Empire Mine. The closure of LTV's wholly-owned mine in Minnesota on January 5th is expected to make LTV a major iron ore customer of Cliffs in 2001 and beyond, under a multi-year sales contract executed in 2000. LTV is also a 25 percent partner in the Empire Mine.

Since its filing, LTV has continued to meet its obligations as a partner of Empire, and we expect LTV will purchase its iron ore pellet requirements from Cliffs. However, LTV has neither affirmed nor rejected its ownership in Empire or its ore purchase contract with Cliffs. In addition, there is much uncertainty relating to the level at which LTV's steelmaking facilities will operate. Bill Calfee, Cliffs' executive vice president-commercial, is chairman of the LTV Unsecured Creditors Committee, and we are committed to achieving a satisfactory outcome.

The steel and iron ore business in North America is going through a painful process of restructuring whereby only the strongest facilities are likely to survive. This will ultimately produce a stronger, more competitive industry, but the path in the near term is fraught with difficulty and uncertainty. We are managing our iron ore business with the expectation that integrated steel and iron ore production capacity will continue to shrink, and foreign competition will remain intense.

We believe Cliffs can be a stronger factor in a consolidating North American pellet market. Most of our pellet capacity is competitive, on both a cost and quality basis, but all of our mines can improve their position. While we have always focused on cost and quality, we need to make dramatic changes in the way we operate to serve a "new" steel industry. Our objective is to be the most admired minerals company, and we are not going to let any barriers to improvement get in our way.

Cost reduction is a key element of our corporate-wide initiative called ForCE 21 (For Competitive Excellence in the 21st Century). ForCE 21 is designed to produce organizational and operational excellence through employee involvement and cultural change. It promotes accelerated change with a focus on improvements in cost, quality and safety. Employee teams, including hourly employees at all facilities, are challenging existing practices in a search for better, more cost effective ways of improving operating performance. Elsewhere in this report are Cliffs' core values that provide a framework for ForCE 21. Although this initiative is just beginning, we have achieved impressive results in a number of areas and are optimistic about its potential.

We recognize that we must do more and are challenging all areas of our organization to ensure that we are being as cost efficient as possible:

• Productivity improvements will result in lower employment levels at most locations, and the outsourcing of various support services is being implemented. The cost savings of these actions when complete will be significant.
• We are working with suppliers of purchased materials and equipment to reduce prices. Over the last two years, we have entered into alliance agreements with a number of suppliers. These suppliers have made major price reductions in exchange for larger volumes and longer-term contracts. We have achieved significant cost savings utilizing the "reverse auction" process available with our e-commerce software platform and expect to realize additional savings with this technology.
• Labor contracts negotiated in 1999 resulted in a strategic alliance with the United Steelworkers' Union, which is providing a unique opportunity to cooperatively pursue objectives that are focused on cost reduction, improved labor productivity and safety.
• All operations are taking actions to minimize energy costs. Energy costs represent almost 25 percent of mine operating costs depending on the mine, so actions taken in this area are vitally important. The increase in energy costs from 1999 to 2000 penalized Cliffs' operating earnings in 2000 by about $14 million. The adverse impact of high energy costs is expected to continue in 2001.

While our business plans are not dependent on reducing imports of steel and iron ore, Cliffs and its steel company partners and customers need a level playing field to deal with foreign trade. Unfairly dumped foreign steel imports are systematically eliminating North American steel capacity, and unfairly imported steel slabs are cutting into the iron ore market. U.S. steel imports, including steel slabs, totaled 38.0 million tons in 2000, the second highest amount in history.

There is significant excess steelmaking capacity in the world, and the United States is a magnet for the surplus due to our weak enforcement of existing trade laws and a strong dollar. Foreign steel companies are selling steel in the United States at prices that are below what it costs to produce, and that is a violation of U.S. trade laws. We are hopeful that the Bush Administration and the 107th Congress will work together, on an urgent basis, to address our country's steel emergency. This is also a vital issue in Canada, and the Canadian government has a steel anti-dumping investigation in progress following complaints by steel producers in Canada.

The import problem that is particularly troubling to Cliffs is the dumping of semi-finished steel slabs. Companies that import slabs in lieu of producing their hot metal requirements reduce or eliminate their iron ore requirements. When foreign producers dump slabs into this country, domestic steelmakers can buy slabs at a cost that is lower than the cost to produce raw steel in their primary steel operations. The unchecked availability of semifinished steel imports could result in the premature closure of certain blast furnaces. Congressmen James Oberstar of Minnesota and Bart Stupak of Michigan were instrumental in getting the U.S. Commerce Department to commence an investigation of whether imports of iron ore and steel slabs are jeopardizing the national security.

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