What To Watch For Next From Cliffs Natural Resources

Chris Lau, Kapitall: Analysts have begun upgrading the miner Cliffs Natural Resources, but does this mean the firm has rebounded?

Miners and those who rely on them for resources have experienced significant volatility this year. From swings in the price of gold to political change in resource-rich Australia, mining stocks can be easily influenced by a variety of factors beyond their control.

[Read more from Kapitall: Small Island, Big Economy: Investing in UK Stocks]

Take the price of iron. Downward pressure on iron ore prices resumed in early September – with rates at  $137.10 for Tianjin port deliveries earlier this month - jeopardizing the rebound of mines and miners alike. Despite the setback, the high inventory for the metal is declining steadily, thanks in part to China.

At a macroeconomic level, basic miners could benefit from the insistence of monetary authorities in the United States to continue with stimulus efforts. Cliffs Natural Resources ( CLF ) is one of many companies investors could add to their watch list.

High bearishness

Short float is a whopping 32.3% on shares of Cliffs. Bears are betting that the costs for Bloom Lake Phase II and operations in Wabush are not under enough constraint. Another extended drop in iron ore prices could put pressure on the company’s balance sheet. And debt can also be seen as a worry. Long term debt rose from $525 million in fiscal 2009 to $3.96 billion by fiscal 2012. But Cliffs did manage to reduce its debt to $3.3 billion in the quarter ending June 2013.

Comparison

Cliffs is much smaller than peers like  Vale ( VALE ) and BHP Billiton ( BHP ) in terms of market capitalization. Vale wants restrictions in China for supersized cargo ships lightened. Investment firm JPMorgan set a $25 price target for the company citing cost-cutting and higher iron ore prices as reasons to be positive.

Click on the interactive chart below to see data over time. Sourced from Zacks Investment Research. 

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BHP is currently spending on expansions. The company decided in August to invest in a potash project in Canada – which could cost around $15 billion.

Bottom line

Cliffs is scheduled to report earnings on October 21, 2013. Investors will need to look for improving cash flow from operations, further debt reduction, and review the status of the development projects before deciding to take this company seriously.

 

(Written by Chris Lau, a Kapitall Writer. Analyst ratings sourced from Zacks Investment Research, all other data sourced from Finviz.)

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