On Dec 4, we maintained our Neutral recommendation on mining
Cliffs Natural Resources
). While we are encouraged by the company's cost management
initiatives, we remain on the sidelines considering weakness in
its coal business and suspension of its chromite project.
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Cliffs saw higher profit in the third quarter of 2013, reported
on Oct 24, riding on its cost reduction measures and higher iron
ore pricing. However, its earnings missed the Zacks Consensus
Estimate. Sales rose modestly and beat expectations.
Cliffs remains optimistic regarding prospects for cash generation
and the opportunities that will fund organic growth projects and
return cash to shareholders. It also has a significant presence
in the Asia-Pacific region, where demand is still robust, lending
support to shipments.
Moreover, Cliffs has taken up initiatives to drive organic growth
including developing assets within its existing project pipeline.
The company is also boosting its mining and transportation
capacity globally. It sees steady end-markets for its customers
on the back of a mending U.S. economy.
Management is also focusing on improving the cost structure amid
a weak pricing environment, reflected by reduction in exploration
costs target for 2013 and cost cuts in the North American Coal
However, Cliffs' North American Coal segment is under pressure
due to soft pricing for coal products. Weak coal pricing lead to
a 23% fall in the division's revenues (per ton basis) in the
Moreover, the recent move to indefinitely suspend the chromite
mining project in Ontario represents a setback for Cliffs. The
company has decided to discontinue all developmental activities
indefinitely at the project which is located in the "Ring of
Fire" region of Northern Ontario. In addition, the project's
uncertain timeline and risks associated with the development of
infrastructure led the company to decide against investing any
Other Stocks to Consider
Other companies in the mining industry with a favorable Zacks
Rio Tinto plc
African Minerals Limited
Alderon Iron Ore Corp.
). While Rio Tinto retains a Zacks Rank #1 (Strong Buy), African
Minerals and Alderon Iron Ore carry a Zacks Rank #2 (Buy).