The Rising Influence of Rising Affluence

[Democritus_of_Abdera]

Re: CLF FY2012 Q2 earnings release...

Two items caught my attention in CLF’s earnings release.... (see: http://finance.yahoo.com/news/cliffs-natural-resources-inc-reports-210000453.html )

Due to the year-to-date spot price for 62% Fe seaborne iron ore averaging $142 per ton, Cliffs is modestly decreasing its average full-year 2012 seaborne iron ore spot price expectation to approximately $145 per ton (C.F.R. China) from its previous expectation of $150 per ton.

This is either a very bullish expectation, or an overly optimistic one (the latter in my opinion).... The average spot price for July likely to be approximately $130/MT. That means that the average price over the next 5 months will need to be approximately $153/MT (using CLF’s stated average for the first 6 months of $142/MT).

Due to the Company's revised outlook, Cliffs is decreasing its full-year 2012 cash flow from operations expectation to approximately $1.3 billion, from its previous expectation of $1.7 billion.

Cliffs is maintaining its previously disclosed 2012 capital expenditures budget of approximately $1 billion, comprised of approximately $300 million in sustaining capital and $700 million in growth and productivity-improvement capital.

This expectation will allow cash flow to exactly cover the anticipated FY2012 dividend expenses (i.e. $300M) after CapEx is subtracted.... What I find notable is that the dividend is not mentioned in the PR.... I have been expecting the dividend to form a floor for the stock price. If the commitment to the dividend wavers, the risk of stock ownership increases, even from the current approximate $41/share (in my opinion).

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I am anxiously awaiting to see how the market reacts tomorrow... the after hours quotes suggest a modest uptick in prices (so far).