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Cliffs Natural Resources Inc. Message Board

  • showmegreen showmegreen Apr 26, 2011 8:37 AM Flag

    Positive CLF comments in Seeking Alpha article today

    Cliffs Natural Resources (CLF)
    The iron ore and metallurgical coal miner trades with a forward P/E of 6.97, a PEG ratio of 0.77 and EV/EBITDA of 8.17. The company has some customer concentration with ArcelorMittal (MT), Algoma and Severstal representing 19%, 11% and 11% of total sales in 2010. Because of the consolidation in the steel industry over the last decade, this is not surprising. Cliffs also provides iron ore to China and Japan via their Australia operations. In the short run, this segment could be hurt by the disaster in Japan, but longer term, the company could benefit from Japan's reconstruction.
    Investors should watch for additional updates on the acquisition of Consolidated Thompson Iron Mines which will give the company an interesting relationship with a Chinese based steel mill. Wuhan Iron & Steel owns a 19% stake in Consolidated and following the acquisition, Wuhan will receive guaranteed iron ore output. This deal should significantly increase Cliffs Natural's international revenues.
    While Cliffs Natural has been an acquirer, they could eventually be viewed as an attractive acquisition target, especially if iron ore supply remains constrained and the US dollar continues to weaken. Management stands to reap significant profits in a buyout and this could ensure their eagerness to sell Cliffs Natural. In addition to CEO Joseph Carrabba's 177,240 shares beneficially owned as of December 31, 2010, he also stands to earn $31,999,979 under a change of control. Between Carrabba's large stake and sizable potential change of control package, shareholders should stand to benefit.
    The company trades cheap based on trailing earnings, but investors should be mindful that Cliffs Natural is very sensitive to underlying commodity prices. In 2009, when iron ore and steel prices were lower, the company's revenues were 50% less and production tonnage was around 30% lower. Investors who are bullish on iron ore and steel demand should take a closer look at Cliffs Natural.

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