Analyst Actions: Credit Suisse North American Iron Ore Review; Upgrades New Millennium Iron Corp

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Number 1 - Lower lump and pellet premiums impact Cliffs Natural Resources Inc ( CLF ), Labrador Iron Ore Royalty Corporation (LIF-UN.TO) and NML.TO; UPGRADING New Millennium Iron Corp (NML.TO) to Outperform; Revising Estimates and TP.

In this, the maiden edition of 'North American Iron Ore Review', we update our earnings expectations and valuations for CLF, LIF-UN.TO and NML.TO as a result of recent changes to our house commodity price forecasts. We have downgraded our lump and pellet premium forecasts as illustrated in the full report. Headline 62% index fines forecasts are unchanged.

There is an increasing trend for steel growth markets such as China to build steel capacity with integrated agglomeration capacity (sintering or pelletising) attached to the steel mill. Given that the Chinese have ample sintering and pelletising capacity, they remain unwilling to pay a premium for higher VIU products such as lump and pellet.

CLF produces ~50% of total tonnage at Koolyanobbing (Australia) as lump and basically 100% of the US Iron Ore production is pellet. Wabush also produces pellet and represents about one third of Eastern Canadian production. Although our underlying valuation has come down slightly, we maintain our bottom-of-street US$72/sh target price and NEUTRAL rating.

IOC (and indirectly LIF-UN.TO) will be increasing concentrate capacity to around 22mtpa in early 2012 and has capacity to pelletise around 13mtpa of this. In 2011 total sales consisted of 4.87mt concentrate and 8.71mt pellet. Our LIF-UN.TO target price is reduced to C$45/share but OUTPERFORM rating maintained.

We don't expect any of the hematite from NML's 4.2mtpa starter project to attract a lump premium, but roughly 15mtpa of a total 22mtpa of the KeMag/LabMag project is conceptually going to be pellet. Although the raw DCF has been reduced, we maintain our C$2.95/sh target price on the basis that our risk multiples have increased. We are upgrading NML.TO to OUTPERFORM.

Neither ADV.TO (C$3.50/sh, NEUTRAL) nor LIM.TO (C$7.80/sh, OUTPERFORM) are expected to produce commercial lump or pellet but rather beneficiated concentrates, so the lump/pellet premium reduction does not impact them. Valuations and ratings are unchanged.

The Iron Ore section from our Commodity Teams' Forecast Update piece has been reproduced at the back of this report which contains our latest views on the commodity space.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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This article appears in: Investing , Commodities

Referenced Stocks: CLF

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