The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.



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Cliffs Natural Resources

(CLF) - Get Report

is a leading mining and natural resources company in the U.S., and is also the largest producer of iron ore pellets in North America.

It competes with other international mining and natural resources companies like


(VALE) - Get Report


BHP Billiton

(BBL) - Get Report


Rio Tinto

(RIO) - Get Report


The North American Iron Ore division accounts for more than two-thirds of the company's total revenue and around 60% of Cliffs' stock value, by our estimates. Long-term contracts with customers like


(MT) - Get Report

, Algoma and Severstal ensure substantial sales of the firm's mineral produce.

Cliffs' iron-ore sales to ArcelorMittal have ranged from 9 million tons to 10 million tons between 2005 and 2008. However, sales declined to 7.7 million tons in 2009, as ArcelorMittal put limits to steel production to counter declining demand during that period. We expect a gradual reduction in the quantity of steel sold to ArcelorMittal, given that the renewal of umbrella agreement between ArcelorMittal and Cliffs seems unlikely, and also as ArcelorMittal focuses on expanding its iron-ore production capacity globally.

While we anticipate Cliffs iron-ore sales will reach 8 million tons by the end of our forecast period, Trefis members predict the sales reaching closer to 9 million tons. We currently have a Trefis price estimate of $103 for Cliffs Natural Resources's stock, about 12% above the current market price of $90.90.

ArcelorMittal has been the single biggest customer for Cliffs since 2007, contributing 40% of the revenues for Cliffs' North American iron ore division. According to the umbrella agreement signed between the two companies, ArcelorMittal has been buying almost 10 million tons of iron ore pellets from Cliffs annually. The agreement hasn't been renewed since it expired at the end of 2010. That means supply will be limited by ArcelorMittal's requirement.

Moreover, ArcelorMittal has indicated that it will improve its self-sufficiency in making steel due to increasing iron ore costs. Its share of iron-ore mining operations across the world currently contributes to about half its requirements, but the company intends to increase this to around 65% by 2015.



, this could mean a significant reduction in its sales to ArcelorMittal.

Our complete analysis for Cliffs Natural Resources's stock is



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