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Investment Overview for Cliffs Natural Resources (NYSE:CLF)
Below are key drivers of Cliffs' value that present opportunities for upside or downside to the current Trefis price estimate for Cliffs Natural Resources:
North American Iron Ore Division
- North American Iron Ore Revenue Per Ton: The revenue per ton generated by Cliffs' North American iron ore division has increased from $104 in 2008 to $122 in 2012. This can be attributed to the increased Chinese demand for iron ore and a continuous rise of international sea freight which pushed up iron ore prices sharply during this period. Strong prospects for Chinese growth suggest higher prices in the years ahead. If iron ore prices continue to grow at 3% every year from 2014, then it would mean that the revenue per ton for the division could reach $144 by the end of the Trefis forecast period. This represents an upside of nearly 10% to the Trefis price estimate.
- North American Iron Ore EBITDA Margin: Cliffs' North American iron ore division had EBITDA margins around 34% in 2008. Higher costs caused margins to drop to 24% in 2012. We expect margins to expand as iron ore prices may rise. Going forward, if Cliffs' is not able to deliver the iron ore profitably to its growing customer base, then the margins could be hit. If margins don't rise as much as we anticipate or even fall,to 2010 levels of 31.9% till the end of the Trefis forecast period, this would represent an 8% downside to the Trefis price estimate
For additional details, select a driver above or select a division from the interactive Trefis split for Cliffs Natural Resources at the top of the page.
Cliffs Natural Resources is an international mining and natural resources company. They are the largest producer of iron ore pellets in North America and a major supplier of iron ore out of Australia. They are also a significant producer of coal in North America.
Most of their operations are in North America, with six iron ore mines and two coal mining complexes spread across the US and Canada. They have a substantial presence in Australia through two iron-ore mining complexes in Western Australia. They are in the process of setting up North America’s only ferrochrome production operation at Black Thor..
We believe that North American Iron Ore division is the company’s most valuable segment for the following two reasons:
Consistently higher revenue generation
The North American Iron Ore division has been in existence since the establishment of the company and even today accounts for more than two-thirds of the company’s total revenue. With the integration of the Consolidated Thompson mines in early 2011, the capacity has increased to nearly 34 million tons.
Long term purchase contracts with some of the world’s biggest steel producers
Cliffs's major customers are ArcelorMittal, Algoma and Severstal which provide for significant chunk of the company’s revenue from sale of products. Long term contracts with these customers ensure the sale of a substantial portion of the firm's mineral produce.
Increasing demand from the developing markets
Iron ore is the principal raw material in the production of steel. The global steel production industry has grown substantially in the last decade on the back of the rapidly growing infrastructure needs of developing countries - primarily China and India. While the growth in demand has declined a bit, we expect the demand to pick up in the years to come. Cliffs is preparing to run its iron ore operations close to full capacity and is poised to extract maximum benefit from this rising demand.
China's impact on global coal prices
China currently consumes half of the global production of coal, and its demand for coal is only expected to increase in the near future. To further aggravate this situation, the Chinese government intends to limit the amount of coal that is produced in the country to ensure that the reserves are not depleted very quickly. These factors would significantly raise global coal prices in the years to come.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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