Cliffs Natural Resources Inc. (CLF – Free Report) recently announced the initiation of production of the new Mustang superflux pellet at its United Taconite mine. The commencement of the new production equipment, including the supporting infrastructure, was on schedule.
The company invested $75 million in cash to build the new storage facility, silos, a limestone crusher, conveyors and rail infrastructure to support the production of the Mustang pellet.
Cliffs has outperformed the Zacks categorized Mining-Iron industry over the past one year. The company’s shares have rallied around 121.8% over this period, compared with roughly 105% gain recorded by the industry.
For 2017, Cliffs expects to generate roughly $380 million of net income. The company expects its full-year SG&A expenses to be around $100 million of which $25 million is expected to be non-cash expenses. Also, the company’s interest expense for 2017 is anticipated to be roughly $175 million, of which $20 million is expected to be non-cash.
Cliff’s remains focused on deleveraging its balance sheet and improving the cost structure. The company’s net debt fell to roughly $1.3 billion at the end of first-quarter 2017 from around $1.8 billion at the end of 2016. Cliffs is also committed to increase shareholders returns through dividends and share repurchases.
Moreover, Cliffs is boosting its mining capacity and is expected to benefit from its pellet supply contracts with its U.S. iron ore customers. Cliffs is also focusing on managing costs, evident from a decline in overall cash costs in 2016.
Cliffs should also gain from its supply deals with other companies. The ArcelorMittal (MT) deal allows Cliffs to supply up to 10 million tons of pellets to ArcelorMittal USA. The company also entered into a contract with U.S. Steel Canada to supply pellets. The agreement exceeded the company’s original sales expectations. Also, the company is expected to gain from an increased steel demand in the U.S.
However, Cliffs is still faced with a challenging operating environment. The company has also cut its profit guidance for 2017 due to lower expected iron ore pricing. Cliffs now sees net income of roughly $380 million, down from its earlier view of $510 million.
Cliffs Natural Resources Inc. Price and Consensus
Cliffs currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Better-ranked companies in the basic materials space include BASF SE (BASFY – Free Report) , The Chemours Company (CC – Free Report) and Kronos Worldwide Inc (KRO – Free Report) . All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
BASF has expected long-term growth of 8.6%.
Chemours has expected long-term growth of 15.5%.
Kronos has expected long-term growth of 5%.
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