Cliffs to Take Charges of $6B in Q3 Due to Weak Pricing - Analyst Blog

Cliffs Natural Resources Inc. ( CLF ) said that it anticipates recording non-cash impairment charges of about $6 billion after tax, to write down the value of its seaborne iron ore and metallurgical coal assets in the third quarter of 2014.

Cliffs expects to take the charge due to lower long-term pricing and challenging market for seaborne iron ore and metallurgical coal vis-à-vis its more stable U.S. iron ore business. The company stated that the non-cash charge will not affect its cash flows from operations or any future operations.

According to Cliffs, with this adjustment, the book value of its long-lived assets will reflect the current market value. The company is also working with banking groups to do away with the 45% Debt-to-Capitalization agreement currently present in its revolving credit facility, as the non-cash impairment charge will increase the Debt-to-Capitalization ratio. The company expects the amendment to be in place by third quarter of 2014.

Cliffs is scheduled to release third-quarter results on Oct 27, 2014 after the close. The company released its second-quarter results in Jul 2014. Impacted by a double-digit decline in sales, Cliffs posted a net loss of $2 million, or a penny per share compared with a net income of $133 million or 82 cents per share earned in the year-ago quarter. The loss was narrower than the Zacks Consensus Estimate of a loss of 8 cents per share.

Sales for the quarter came in at $1,100.8 million, down 26% from $1,488.5 million in the prior-year quarter. It also missed the Zacks Consensus Estimate of $1,150 million. The decline was due to a significantly lower market pricing for iron ore and metallurgical coal, along with a 24% reduction in the company's iron ore sales volumes.

Cliffs currently carries a Zacks Rank #4 (Sell).

Other mining companies with a favorable Zacks Rank include Fortescue Metals Group Ltd. ( FSUGY ), Amerigo Resources Ltd. ( ARREF ) and Thompson Creek Metals Company Inc. ( TC ). While Fortescue Metals Group sports a Zacks Rank #1 (Strong Buy), both Amerigo Resources and Thompson Creek hold a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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