We are maintaining our Neutral rating on mining company
Cliffs Natural Resources
(
CLF
). The company witnessed lower profit in first-quarter 2012 on
account of higher costs. However, sales improved 7% year over year
driven by higher volume across the board.
Moving ahead, the company is switching its focus from
acquisition-led growth to organic growth including developing
assets within its existing project pipeline. The company sees
steady end-markets for its customers on the back of a recovering
U.S. economy.
Cliffs is the largest producer of iron ore pellets in North
America. It remains optimistic regarding the prospects for cash
generation and the opportunities that will fund organic growth
proje cts and return cash to shareholders. The company also has a
significant presence in the Asia-Pacific region, where demand is
still robust, lending support to shipments.
Cliffs intends to increase its spending in 2012 (to roughly $1
billion) to boost its mining and transportation capacity globally.
Theprojected spending includes $300 million of sustaining capital
and $700 millio n of funds aimed at improving growth and
productivity.
Moreover, Cliffs recently announced the advancement of the chromite
project in Ontario, Canada, from pre-feasibility to feasibility
phase. The company plans to spend $75 million on the project in
2012.
The company also remains focused on providing maximum return to the
shareholders by way of dividend distribution while maintaining its
organic growth pipeline. The company, in March 2012, boosted its
quarterly dividend by 123% to 62.5 cents a share.
However, the prices for commodities have been under pressure due to
the uncertain economic environment. 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 the company's
operations and its results.
Moreover, Cliffs' North American Coal segment is under pressure due
to soft market pricing for coal products. The company saw flat
revenues per ton in this business in the first quarter.
Consequently, it has reduced its North American coal revenues per
ton forecast for 2012 to $130 from $135 factoring in the weak
market conditions.
Cliffs, which competes with
CONSOL Energy Inc.
(
CNX
) and
Alpha Natural Resources, Inc.
(
ANR
), currently retains a short-term Zacks #3 Rank (Hold).
ALPHA NATRL RES (ANR): Free Stock Analysis
Report
CLIFFS NATURAL (CLF): Free Stock Analysis
Report
CONSOL ENERGY (CNX): Free Stock Analysis Report
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