Cliffs Natural Resources Inc (CLF): A Once-in-a-Decade Opportunity?

One of the former high flyers of both the current bull market and the one leading up to the Great Recession, Cliffs Natural Resources Inc (NYSE:CLF), has been absolutely decimated as of late. Having traded as high as $100 dollars a share as recently as 2011, Cliffs Natural Resources Inc (NYSE:CLF) has been beaten down to recent lows of $15. When a company has a share price that falls 85% from its highs, there is often something terribly wrong. Its market may be shrinking, there is a possibility of bankruptcy due to a massive debt load, or there is possibly an SEC investigation. What’s interesting about Cliffs Natural Resources Inc (NYSE:CLF) is that not only is the company still profitable, earning $457 Million in 2012 and expected to earn around $400 Million this year, but it is being priced as if the iron ore industry  is not long for this world. Can it be that iron ore is about to go the way of the buggy whip, or should Foolish investors dig a little deeper?

The Iron Age

Iron is one of the most important base commodities of the modern world. It is the main component in steel, without which many of the things we find commonplace today would not be possible. The world produces over 3 billion tons of iron ore per year, 98% of which is used in the production of steel. While North American iron consumption is more or less stable, the real source of increased demand over the last few decades has of course been the BRICS, particularly China and India. At the peak of the boom before the Great Recession ore prices peaked at just over $175 dollars per ton, and as the global economy recovered they continued their march upward to just under $190 dollars per ton. Since then, prices have pulled back to $120, leaving investors reeling. It’s no surprise then that steel and iron stocks have been dumped en masse. But is it possible that the street was overreacting when it sent shares of Cliffs Natural Resources Inc (NYSE:CLF) to its recent lows?

Once in a decade

Given the roller coaster ride that long-term holders of Cliffs Natural Resources have been on since the turn of the millennium, what do foolish investors have to work with in order to assess a good entry point? It’s tricky but Foolish investors have something working in their favor: the market capitalization of Cliffs in relation to the value of its assets. The companies value in the eyes of Mr. Market has varied a great deal but it has traded for a healthy discount to book value just twice since the year 2000. Investors brave enough to step up to the plate at either of those times were rewarded handsomely in subsequent years. For the quarter ended Mar. 31, 2013, Cliffs Natural Resources Inc (NYSE:CLF) showed 13.8 billion in assets and 8.1 billion in liabilities, yielding an equity value of $5.7 billion. This compares with Cliffs’ current market capitalization of $2.7 billion for a discount to book value of over 50% Not only that but thanks to a $1 billion goodwill write down in the fourth quarter of 2012 the company’s book value more closely approximates its tangible value. Opportunity may be knocking, again.

Best bet on a recovery

A bet on Cliffs is a bet on continued global recovery, particularly in the steel industry. Cliffs Natural Resources Inc (NYSE:CLF) is not the only option available to investors, however.