On Sep 24, we upgraded our recommendation on mining company
Cliffs Natural Resources
) to Neutral. While we account for the weak pricing environment,
we are encouraged by the company's cost management initiatives.
Why the Upgrade?
Both adjusted earnings and sales for second-quarter 2013,
reported on Jul 25, topped Zacks Consensus Estimates. However,
reported profit slid on hefty impairment charges and lower
prices. A double-digit decline in global iron ore pricing led to
a decline in the top line.
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 the
selling, general and administrative (SG&A) and exploration
costs targets for 2013 and cost reductions in the North American
However, Cliffs remains hamstrung by lower iron ore pricing,
partly due to oversupply in the industry. Commodity prices are
expected to remain under pressure due to the uncertain economic
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 which hurt its results in the
Iron ore prices remain depressed due to the lack of a strong
recovery in steel demand in China, the world's largest producer
and consumer of steel, and a persistently oversupplied market. As
such, the uneven balance between demand and supply is weighing on
Other Stocks to Consider
Other companies in the mining industry with favorable Zacks Rank
Gold Fields Ltd.
Lake Shore Gold Corp.
Denison Mines Corp.
). All of them carry a Zacks Rank #2 (Buy).
CLIFFS NATURAL (CLF): Free Stock Analysis
DENISON MINES (DNN): Free Stock Analysis
GOLD FIELDS-ADR (GFI): Free Stock Analysis
LAKE SHORE GOLD (LSG): Free Stock Analysis
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