Here’s Why We’ve Lowered Our Price Estimate For Cliffs Natural Resources To $6

-12.05%
Downside
22.74
Market
20.00
Trefis
CLF: Cleveland-Cliffs logo
CLF
Cleveland-Cliffs

Cliffs Natural Resources has prioritized debt management and cost reduction amid a subdued iron ore pricing environment characterized by an oversupply situation. Rising iron ore output from major iron ore mining companies such as Rio Tinto, Vale, and BHP Billiton in the face of weak demand from China, the world’s largest consumer of iron ore, has led to a global oversupply of the commodity. With the weakness in iron ore pricing expected to persist in the near term, Cliffs’ management is looking to lower the company’s debt burden, in order to give it the financial flexibility to operate in a subdued pricing environment. In connection with this objective, the company retired notes maturing in January 2018, which represented $284 million in principal amount, during the course of the third quarter. [1] The company financed the early redemption of its notes through an equity offering during the course of the third quarter. As a result, the company’s shares outstanding increased by roughly 25% between the declaration of its Q2 and Q3 results.

CLF Change In Common Shares Outstanding

In addition, we have updated our pricing, margin, and capital expenditure forecasts following the release of the company’s Q3 results. The modifications to the various assumptions in our model for Cliffs has translated into our new price estimate for the company.

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Have more questions about Cliffs Natural Resources? See the links below.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Cliffs Natural Resources

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Notes:
  1. Cliffs Natural Resources Inc. Calls for Full Redemption of Senior Notes due January 2018, Cliffs Natural Resources []