Cliffs Natural Resources (CLF) Stock Spikes on Potential Quebec Investment

NEW YORK (TheStreet) -- Cliffs Natural Resources (CLF) shares are up 11.38% to $6.53 in afternoon trading on Tuesday after a Quebec official said that his government is prepared to purchase a rail line and port facilities that service a now shuttered iron ore mine that Cliffs owns in the Canadian province.

The Quebec government taking over the transportation infrastructure at the Bloomfield Lake mining site is expected to lower the mine's operating costs by as much as $20 per ton, according to Bloomberg. Economy Minister Jacques Daoust said that the government is also considering purchasing a 20% stake in the mine itself.

Cliffs shuttered the mine, which the company purchased in 2011, in January, sacrificing 600 jobs in a region in Quebec that is experiencing 10.7% unemployment. Falling oil prices and the mine's lack of profitability led the company to close the mine earlier this year, Bloomberg reported.

With the purchase, the government would own a 20 mile rail line that connects the mine to a mainline railway. 

TheStreet Ratings team rates CLIFFS NATURAL RESOURCES INC as a Sell with a ratings score of D-. TheStreet Ratings Team has this to say about their recommendation:

"We rate CLIFFS NATURAL RESOURCES INC (CLF) a SELL. This is driven by several weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, poor profit margins, weak operating cash flow and generally disappointing historical performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Metals & Mining industry. The net income has significantly decreased by 980.8% when compared to the same quarter one year ago, falling from -$70.30 million to -$759.80 million.
  • The gross profit margin for CLIFFS NATURAL RESOURCES INC is currently lower than what is desirable, coming in at 25.52%. It has decreased significantly from the same period last year. Along with this, the net profit margin of -170.35% is significantly below that of the industry average.
  • Net operating cash flow has significantly decreased to -$228.20 million or 178.29% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • CLF's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 66.48%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • CLF, with its decline in revenue, slightly underperformed the industry average of 18.4%. Since the same quarter one year prior, revenues fell by 27.5%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • You can view the full analysis from the report here: CLF Ratings Report
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