Potential Solutions
Cliffs Natural Resources Inc (NYSE:CLF)’ management team is clearly in crisis mode, and it has taken some concrete steps to shore up its balance sheet. It has partially or fully stopped production at two under-performing U.S. iron ore mines and halted operations at a key pellet-producing facility as well. Although its coal operations continue apace, further furloughs at its mines in West Virginia and Alabama are not out of the question.
Although Cliffs recently beat market-watchers’ reduced earnings expectations, it has run into a snafu at another of its Canadian facilities. Indeed, a dispute with Ontario’s premier over their Black Thor property threatens production there on a permanent basis.
Long-Term Outlook and Possible Plays
It remains unclear whether these important cost-cutting measures will be enough to turn around Cliffs’ fortunes. Most industry observers do expect iron ore prices to make a meaningful recovery during the next two years however out-year price forecasts remain soft due to unclear levels of demand for structural steel. Coal prices are another matter entirely. Since environmental regulations and competition both weigh heavily in this space, things could go either way.
If it proves unable to arrest its stock-price decline and provide shareholders with some indication that it has a clear plan for the future, Cliffs Natural Resources Inc (NYSE:CLF) could soon become a takeover target for a larger mining company. Given their size and relative health, Rio Tinto plc (NYSE:RIO) and BHP Billiton Limited (NYSE:BHP) look to be the two most likely buyers. Both companies operate in the iron ore space and enjoy substantial operational overlap with Cliffs. Regardless of which giant ultimately absorbed the smaller firm, consolidation would surely follow.
In sum, it is by no means assured that Cliffs will become an acquisition target for a larger firm however its current financial path is unsustainable. Although investors may wish to play its stock for a short-term bounce, such a move would be risky in light of continuing unease about the state of the global market for steel. Indeed, investors may wish to wait to buy in until receiving some definitive news about whether Cliffs Natural Resources Inc (NYSE:CLF) intends to remain independent.
Cliffs Natural Resources has grown from a domestic iron ore producer into an international player in both the iron ore and metallurgical coal markets. It has also underwhelmed investors lately, especially after its dramatic 76% dividend cut in February. However, it could now be looked at as a possible value play due to several factors that are likely to remain advantageous for Cliffs Natural Resources Inc (NYSE:CLF)’ management. For details on these advantages and more, click here now to check out The Motley Fool’s premium research report on the company.
The article Poor Decisions Are Sending This Company Downhill originally appeared on Fool.com.
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