We are reaffirming our Neutral rating on mining company
Cliffs Natural Resources
(
CLF
). Second quarter earnings of $1.81 per share topped the Zacks
Consensus Estimate of $1.75. However, profit slid 37% year over
year on account of lower pricing and higher costs. Revenues slipped
10% year over year and missed the Zacks Consensus Estimate.
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
projects 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.
The company is switching its focus from acquisition-led growth
to organic growth including developing assets within its existing
project pipeline. It sees steady end-markets for its customers on
the back of a recovering U.S. economy.
Cliffs is expected to spend roughly $1 billion in 2012 to boost
its mining and transportation capacity globally. The projected
spending includes $300 million of sustaining capital and $700
million of funds aimed at improving growth and productivity.
In Eastern Canada, the company has decided to commence the
production of a lower silica, premium grade iron ore concentration
product at its Bloom Lake iron ore operation, which is expected to
lure new customers and boost the mine's profitability. In addition,
a number of projects are currently underway at the Wabush mine.
Cliffs has also advanced the chromite project in Ontario, Canada,
from pre-feasibility to feasibility phase.
However, Cliffs' North American Coal segment is under pressure
due to soft market pricing for coal products. Moreover, the company
is witnessing lower pricing for sea borne iron ore across the U.S.,
Eastern Canada and Asia Pacific, which hurt its results in the
second quarter.
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.
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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