Updated Research Report on Cliffs Natural - Analyst Blog

On Mar 25, we issued an updated research report on mining company Cliffs Natural Resources CLF. While the company should gain from its cost management initiatives, it remains exposed to volatility in commodity pricing and weakness in its North American coal business.

Cliffs' adjusted earnings for the fourth quarter of 2013, reported on Feb 13, topped the Zacks Consensus Estimate. The company turned to a profit in the quarter, helped by its cost reduction measures. Sales fell modestly but beat expectations.

Cliffs, a Zacks Rank #4 (Sell) stock, 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 demand for its products on the back of a mending U.S. economy.

Cliffs is also expected to gain from its cost-saving initiatives. Management is focusing on improving cost structure amid a weak pricing environment, reflected by reductions in SG&A and exploration costs targets for 2014 and cost cuts in the North American Coal division. The company expects a 50% year over year reduction in its capital expenditures in 2014.

However, Cliffs' North American Coal segment remains under pressure due to weak pricing for coal products. Weak coal pricing led to a 19% slide in the division's revenues (per ton basis) in the fourth quarter. Pricing of commodities is expected to remain volatile in the near future.

Moreover, the company's decision to curtail Phase II expansion at its Bloom Lake project and idle production at its Wabush Scully Mine in Newfoundland and Labrador is expected to affect production in the Eastern Canadian Iron Ore division in 2014.
 
Other Stocks to Consider

Other companies in the mining industry with a favorable Zacks Rank are General Moly, Inc. GMO, African Minerals Limited (AMLZF) and BHP Billiton Limited BHP. While General Moly retains a Zacks Rank #1 (Strong Buy), both African Minerals and BHP Billiton carry a Zacks Rank #2 (Buy).