Is Cliffs Natural Resources Out of the Woods?

Cliffs Natural Resources (CLF) announced second quarter ended March 31, 2016 total revenue of $496.2 million, slightly below $498.1 million of consolidated revenue during the same period last year.

Cliffs Natural Resources declared second quarter of 2016 net income of $29.5 million or $0.07 per diluted share, down 55 percent year-over-year from $65.2 million or $0.39 per diluted share in second quarter of 2015.

Focus on operations

The global natural resources mining company reported continued year-over-year decline in both its top and bottom lines primarily due to the ongoing weaker global commodity demand and pricing environment somewhat offset by the continuing slow but steady improvement in worldwide commodity demand and pricing conditions.

Cliffs Natural Resources recently declared the strategic and complete redemption of consolidated senior notes having maturity as of January 2018 and thus, the company is expected to make a total payment of about $301 million in total coupled with unpaid and accrued interest to all the key holders of these notes.

Further, Cliffs Natural Resources has reached a cautious deal with the United Steelworkers (USW) regarding an innovative 3-year labor deal effective since October 1, 2015 which is expected to cover nearly 2,000 USW-characterized workers at the Empire and Tilden mines of Cliffs in Michigan, and the company’s Hibbing Taconite and United Taconite mines in Minnesota.

The natural resources mining company seems focused on attracting and maintaining high-value delivering workforce through unique payments by full redemption of total senior notes while increasingly covering more and more United Steelworkers (USW).
Is Cliffs Natural Resources Out of the Woods?
Image by ferdinandkozeluh0 / Pixabay
Moreover, the innovative labor agreement is believed to be extremely equitable and fair to both sides while providing Cliffs with a highly-competitive cost structure to deliver continued long-term success.

A smart move

Cliffs Natural Resources has strategically entered into a 10-year contract with the global steel giant ArcelorMittal for supplying iron-ore pellets that uniquely saves the natural resources provider from going bankrupt amid continuing tough global commodity demand and pricing environment due to continued low-cost iron ore and other core metals supply from China.           

The shares natural resources mining major grew significantly by 36% in the recent trade and making it the highest percentage points gainer registered on the exchange, after the global metals mining company declared an attractive 10-year commercial deal to supply iron ore pellets to Arcelor Mittal USA LLC. Particularly, the stock achieved a trading volume of 18 million shares in just initial half hour of the trade as against the complete-day share trading average of nearly 12.5 million shares as per the FactSet estimates.

According to Cliffs Natural, the innovative contract defines seven million long tons of the least tonnage of pellets, which is expected to be greater than the joint minimum points of the contracts that are set to expire during December 2016 and January 2017. Therefore, Cliffs Natural stock has almost tripled year-till-date, whereas the S&P 500 index has grown 2.8%.

The life-savior contract of Cliffs Natural for supplying iron ore pellets to the global steel giant Arcelor Mittal is expected to drive sustainable long-term growth for the former while allowing it to continue to expand its high-quality iron ore production and emerge strongly from the ongoing global downturn.

Cliffs Natural has recently signed an innovative 20-year energy contract with WEC Energy Group for providing Tilden mine with affordable, reliable and lasting source of electric power across Michigan.

Conclusion

Overall, the investors are advised to “Hold” their position in Cliffs Natural Resources Inc. considering the company’s significant long-term growth prospects with PEG ratio of 1.06 but, currently weaker financial position with significant total debt of $2.56 billion against weaker total cash position of $108.2 million only, restricting the company to make future growth investments. The profit margin of 3.80% appears impressive.
Published on Sep 8, 2016
By Yaggyaseni Mittra

Copyrighted 2016. Content published with author's permission.

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