Cliffs Natural Resources: Do the Right Thing

Last week, Cliffs Natural Resources (CLF) made changes. Big changes. Very big changes. Huge changes.

AFP Photo/Rio Tinto

Cliffs Natural Resources appointed a new CEO; it cut costs; it postponed its expansion of Bloom Lake; it even beat earnings for the fourth consecutive quarter. It still might not be enough, say Wells Fargo’s Sam Dubinsky and Amir Chaudhri. They write:

Cliffs Natural Resources reported upside to Q4 earnings, but the main focus for shares is the new CEO implementing cost cuts ahead of what could be a challenging iron ore backdrop. While we believe management is making the right movies (particularly the discontinuation of Bloom Lake Phase II in Canada), we remain cautious on shares due to our bearish outlook on iron ore pricing, in addition to customer specific risk (Essar has poor liquidity).

While we believe management is doing everything in its control to improve operations, our cautious stance on iron ore and Essar concerns are hold ups. Should iron ore prices improve on greater China growth, we could turn more positive.

Shares of Cliffs Natural Resources have dropped 1% to $22.92 today at 3:14 p.m., even as base-metal giants BHP Billiton (BHP) and Rio Tinto (RIO) gain. BHP Billiton is up 2.8% to $70.20 after beating earnings forecasts, while Rio Tinto has advanced 1.7%. Vale (VALE) has dropped 1.2% to $14.48.