Cliffs Restarts Mining at Oak Grove - Analyst Blog

Cliffs Natural Resources Inc. ( CLF) announced that it has resumed underground mining at its Oak Grove coal mine in Alabama but was not  able to ship coal from the site because of damage to the above-ground facilities.

On April 27, 2011, severe weather and a tornado had snapped power and damaged the mine's preparation plants, resulting in the shutdown of the mine. Due to the severe damage to the mine, the company is evaluating the damage to the preparation plant, the impact on its full-year outlook and how soon it can safely bring it back into production to meet the customers' needs.

Cliffs has donated $100,000 to the American Red Cross for tornado relief efforts in the Birmingham area and will also provide $100,000 collectively to various local organizations that are providing basic essentials to victims within Oak Grove Mine's communities. The company has also established a Relief Fund to which its employees can make contributions in support of local relief efforts.

Further on the same day, Cliffs also received the final regulatory approval from the Chinese Ministry of Commerce (MOFCOM) for the proposed acquisition of Consolidated Thompson Iron Mines Limited (CLM.TO). In January 2011, Cliffs has agreed to buy Canada's Consolidated Thompson Iron Mines for C$4.9 billion ($4.95 billion), aiming to expand its capacity to feed Asia's appetite for iron ore.

By acquiring Consolidated Thompson, and upon successful completion of its development projects, Cliffs will have significant exposure to the growing Asian markets, including the potential to generate well over half of its revenues from customers outside of North America.

In the last month, Cliffs posted record revenues and earnings for the first quarter of 2011. Net earnings of $423 million or $3.11 per share in the first quarter were 449%, above last year's $77 million or 57 cents. Earnings surpassed the Zacks Consensus Estimate of $2.25 per share.

Quarterly revenues came in at $1.2 billion, up 63% year over year. The increase was driven by several factors, including higher pricing in each of Cliffs' business segments and the favorable effect of Cliffs' previously disclosed negotiated settlement with ArcelorMittal ( MT).

Operating income in the quarter increased 377% year over year to $541 million.

The company anticipates global steel production to continue to grow in 2011, primarily driven by emerging economies such as China, India and Brazil.

Cliffs faces stiff competition from CONSOL Energy Inc. ( CNX), Massey Energy Co. ( MEE) and Peabody Energy Corp. ( BTU).

We maintain our Neutral recommendation on Cliffs with a short-term Zacks #3 Rank (Hold) on the stock.