Cliffs Natural Kept at Neutral - Analyst Blog
December 06 2013 - 1:00PM
Zacks
On Dec 4, we maintained our Neutral
recommendation on mining company Cliffs Natural
Resources (CLF). While we are encouraged by the company’s
cost management initiatives, we remain on the sidelines considering
weakness in its coal business and suspension of its chromite
project.
Why Reaffirmed?
Cliffs saw higher profit in the third quarter of 2013, reported on
Oct 24, riding on its cost reduction measures and higher iron ore
pricing. However, its earnings missed the Zacks Consensus Estimate.
Sales rose modestly and beat expectations.
Cliffs remains optimistic regarding prospects for cash generation
and the opportunities that will fund organic growth projects and
return cash to shareholders. It also has a significant presence in
the Asia-Pacific region, where demand is still robust, lending
support to shipments.
Moreover, Cliffs has taken up initiatives to drive organic growth
including developing assets within its existing project pipeline.
The company is also boosting its mining and transportation capacity
globally. It sees steady end-markets for its customers on the back
of a mending U.S. economy.
Management is also focusing on improving the cost structure amid a
weak pricing environment, reflected by reduction in exploration
costs target for 2013 and cost cuts in the North American Coal
division.
However, Cliffs' North American Coal segment is under pressure due
to soft pricing for coal products. Weak coal pricing lead to a 23%
fall in the division’s revenues (per ton basis) in the third
quarter.
Moreover, the recent move to indefinitely suspend the chromite
mining project in Ontario represents a setback for Cliffs. The
company has decided to discontinue all developmental activities
indefinitely at the project which is located in the “Ring of Fire”
region of Northern Ontario. In addition, the project’s uncertain
timeline and risks associated with the development of
infrastructure led the company to decide against investing any
additional capital.
Other Stocks to Consider
Other companies in the mining industry with a favorable Zacks Rank
are Rio Tinto plc (RIO), African Minerals
Limited (AMLZF) and Alderon Iron Ore
Corp. (AXX). While Rio Tinto retains a Zacks Rank #1
(Strong Buy), African Minerals and Alderon Iron Ore carry a Zacks
Rank #2 (Buy).
AFRICAN MINERAL (AMLZF): Get Free Report
ALDERON IRON (AXX): Free Stock Analysis Report
CLIFFS NATURAL (CLF): Free Stock Analysis Report
RIO TINTO-ADR (RIO): Free Stock Analysis Report
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