Cliffs Natural Resources (CLF) filed notice to close its Pinnacle coal mine. Wells Fargo’s Sam Dubinsky calls the move “prudent” but doesn’t do anything about its much larger exposure to iron ore. He explains:
Reuters We view the exit as a mixed bag as the mine was lower than average cost, but also had high exposure to the seaborne market, which has significantly more pricing volatility than the domestic market…
We estimate iron ore represents ~85% of revenue and is in a multi-year structural downturn due to ramping global supply, which is expected to outpace incremental steel demand by over 3:1 over the next few years. With new supply coming online at <$50/MT and Chinese steel production slowing at a fast pace, we see no reason why iron ore pricing will recover and expect Cliffs to burn cash. The only saving grace in our view would be the sale of high cost Canadian operations, but we are not convinced the company can find a buyer during a downturn.
Shares of Cliffs Natural Resources have gained 0.6% to $14.28 at 3:02 p.m. today.
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