Consolidated Thompson Mine

Profit From High Iron Ore Prices With Cliffs Natural Resources

Cliffs Natural Resources is a largest iron ore producer in North America, but growth is still in the double digits. While Cliffs increased production by 50% last year, a major portion of Cliffs' fast growth is due to higher spot prices. These sustained high prices have helped Cliffs make numerous acquisitions in the past few years, thus further expanding production. Given the decreasing quality of iron ore mined and the increasing demand from the emerging markets, higher prices may be the new normal. The market, however, is skeptical that these higher prices (and with them, Cliffs' high profitability) will continue, and so Cliffs is trading at only seven times the last 12 month's earnings.

The majority (62%) of Cliffs' revenue comes from the North American iron ore segment. In the latest quarter, this segment was split into American iron ore and Canadian iron ore as a result of Canadian acquisitions, but as these did not affect the past year's results, this split will be ignored for the time being. Production in 2010 was 26.2 million long tons, and Cliffs has reserves of 906 million tons that will back this production level for another 35 years. Revenue in this segment doubled last year, with 63% of the increase coming from higher volume and 37% from higher prices.

Cliffs has seven major customers for this segment, the top five of which account for 81% of segment revenue. While this may seem like a massive risk to Cliffs, the relationship is symbiotic. Cliffs is North America's largest iron ore pellet supplier, with 45.3% of production capacity. As a result, Cliffs says "in many cases, we are the sole supplier of iron ore pellets to the customer." In light of this mutual need, Cliffs lack of customer diversification does not seem to be a major threat to profitability barring severe weather or customer bankruptcy. While North American iron ore is Cliffs' core, it is looking to expand in Asia to be closer to China.

Profit from high iron ore prices with Cliffs Natural ... - MINING.com

Cliffs Natural Resources is a largest iron ore producer in North America, but growth is still in the double digits. While Cliffs increased production by 50% last year, a major portion of Cliffs' fast growth is due to higher spot prices. These sustained high prices have helped Cliffs make numerous acquisitions in the past few years, thus further expanding production. Given the decreasing quality of iron ore mined and the increasing demand from the emerging markets, higher prices may be the new normal. The market, however, is skeptical that these higher prices (and with them, Cliffs' high profitability) will continue, and so Cliffs is trading at only seven times the last 12 month's earnings. The majority (62%) of Cliffs' revenue comes from the North American iron ore segment. In the latest quarter, this segment was split into American iron ore and Canadian iron ore as a result of Canadian acquisitions, but as these did not affect the past year's results, this split will be ignored for the time being. Production in 2010 was 26.2 million long tons, and Cliffs has reserves of 906 million tons that will back this production level for another 35 years. Revenue in this segment doubled last year, with 63% of the increase coming from higher volume and 37% from higher prices. Cliffs has seven major customers for this segment, the top five of which account for 81% of segment revenue. While this may seem like a massive risk to Cliffs, the relationship is symbiotic. Cliffs is North America's largest iron ore pellet supplier, with 45.3% of production capacity. As a result, Cliffs says "in many cases, we are the sole supplier of iron ore pellets to the customer." In light of this mutual need, Cliffs lack of customer diversification does not seem to be a major threat to profitability barring severe weather or customer bankruptcy. While North American iron ore is Cliffs' core, it is looking to expand in Asia to be closer to China.

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