Cliffs Natural Resources: Fighting Falling Iron Ore, Losing

Cliffs Natural Resources (CLF) is trying hard. Really, it is. It beat earnings forecasts. It’s cut costs. It’s suspended an expansion of Bloom Lake. It’s even considering an MLP in the U.S. But no. Its still lost more than a quarter of its value in 2014.

Reuters

And don’t expect Cliffs Natural Resources’ shares to recover anytime soon, thanks to falling iron ore prices. Wells Fargo’s Sam Dubinsky and Amir Chaudhri, who downgraded Cliffs Natural Resources to Underperform from Market Reform, explain:

Global spot pricing is weakening due to a slowdown in China, excess inventories, and ramping supply from low cost miners. While we like the new CEO and see value in shares if management sells high cost assets, we are not yet convinced efforts will be enough to keep shares afloat…

Under our base case of $100 iron ore (vs. $118 today), we believe Cliffs' shares could be worth $5 under today's cost structure and ~$17 under a deeper restructuring. With CLF shares currently trading at $19.55 vs. our $12-14 range we believe an Underperform rating is appropriate

It can’t just be iron-ore prices that got Cliff’s Natural Resources down. Its shares have dropped 27% this year, while Rio Tinto (RIO) is little change, BHP Billiton (BHP) has ticked up 0.7% and Vale (VALE) has dropped 7.9%.

Shares of Cliffs Natural Resources have dropped 2.1% to $19.14 at 3:27 p.m. today, while Rio Tinto has gained 1.2% to $56.45, BHP Billiton has risen 0.9% to $68.63 and Vale has advanced 0.8% to $14.03.