Cleveland Cliffs Inc (CLF)

[Saving Grace]

Cliffs Natural Resources (CLF): Is the Latest Dip In Share Prices Making It A Good Buy?

September 16, 2016 12:58 GMT
After experiencing a strong rally in the last two quarters, Cliffs Natural Resources’ (NYSE:CLF) share price plunged by nearly 32% within just a month. Since the start of August, Cliffs share price faced massive pressure amid the downward trend in iron ore prices.

Analysts say, iron ore has had some kind of a stellar run this year, but things are looking pretty rusty. It has had the longest losing streak within a five-month period and there is a prospect of a slump to below $50 a ton.

China, the biggest consumer of seaborne iron ore, is being blamed for the latest volatility in the iron ore prices.

Currently, iron ore’s price of $56.20 per dry metric ton is standing at its lowest level since July 25th, but the commodity is still up 52% from its lowest level of $37 per dry metric ton seen in the beginning of the year.

It is important to note that unlike Cliffs’ peer group, including Vale SA (VALE) and BHP Billiton (BHP), the company isn’t a big supplier of iron ore to China.

Cliffs Natural Resources is engaged in supplying iron ore pellets to U.S. steel industry from its five iron ore mines and pellet plants located in Minnesota and Michigan.

North American steel industry is looking to be in good shape and, as a result, has reduced the risk of the falling demand for Cliffs iron ore pellets. Strong growth in the automobile industry, higher tariffs on imported steel and improving industrial and manufacturing activities are the key drivers behind strong demand from the American steel industry.

In addition, CLF also appears to be in sound shape in terms of its financial performance and cash position to cope with any cyclical downturn. In the latest quarter, Cliffs generated EPS of $0.07, relative to the net loss of $0.28 per share in the second quarter of fiscal 2015.

The company’s strong cost cutting initiatives have provided support, leading to a return to profitability.

Its strong focus on reducing its cost structure led it to decrease its cost for goods sold to $405 million, representing a decline of 8% over the same period last year.

Its U.S. iron ore cash production costs dipped 17% to settle at $46 per long ton, while Asia’s Pacific iron ore cash production costs declined 17% to settle at $28 per metric ton.

Consequently, Cliffs’ breakeven point for iron ore is standing at around $46 a ton, whereas iron ore prices are standing at around $56 a ton. The dip in Cliffs’ share price is presenting a worthy buying opportunity, as a lower breakeven point and strong North American demand will allow it to offset any unexpected decline in iron ore prices.

http://www.economiccalendar.com/2016/09/16/cliffs-natural-resources-clf-is-the-latest-dip-in-share-prices-making-it-a-good-buy/