We have retained our Underperform rating on mining company
Cliffs Natural Resources
) following its tepid fourth-quarter 2012 results. Our view
reflects higher costs and a volatile pricing environment.
Cliffs' fourth quarter adjusted earnings from continuing
operations of 41 cents a share, reported on Feb 12, largely
missed the Zacks Consensus Estimate of 55 cents. The company
swung to a loss on a reported basis on sizable charges. Revenues
declined 4% year over year to $1,535.9 million on lower pricing,
but managed to beat the Zacks Consensus Estimate of $1,529
Cliffs remains hamstrung by weak iron ore pricing. Iron ore
prices remain depressed, in part, due to oversupply in the
market. Cliffs' North American Coal segment is under pressure due
to soft pricing for coal products. Moreover, it is witnessing
lower pricing for sea borne iron ore across the U.S., Eastern
Canada and Asia Pacific, which hurt its results in the fourth
quarter. Cliffs expects the pricing environment to remain
volatile in 2013.
International demand and economic conditions strongly affect the
prices of iron ore and coal. The current uncertain macroeconomic
environment, including the European sovereign debt crisis, may
impact Cliffs' operations and its results.
Cliffs is exposed to customer concentration risk. It also
contends with higher labor and mining costs. Cash costs are
expected to be higher in 2013 across Cliffs' U.S. Iron Ore and
Eastern Canadian Iron Ore segments, as reflected in its guidance.
Costs are expected to rise in Eastern Canada given the planned
maintenance work at the Bloom Lake iron ore operation.
Cliffs has also slashed its quarterly cash dividend by 76% to 15
cents per share from 62.5 cents considering the cash requirement
for its Bloom Lake expansion project.
Other Stocks to Consider
While we prefer to stay away from Cliffs, other companies in the
mining industry having favorable Zacks Rank are
Uranerz Energy Corp.
Paramount Gold and Silver Corp.
). All of them hold a Zacks Rank #2 (Buy).
CLIFFS NATURAL (CLF): Free Stock Analysis
PARAMOUNT GOLD (PZG): Get Free Report
UR-ENERGY INC (URG): Free Stock Analysis
URANERZ ENERGY (URZ): Free Stock Analysis
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