Cliffs Natural Resources Inc. (CLF) is an international mining and natural resources company. The company harvests metallurgical coal and iron ore and sells to steel producers. Currently the stock is trading around $52 a share, and has fallen $50 from the 52 week high of $102.
The main culprit of the fall is simply supply and demand taking its toll on the company. With the world economy weakening, and the decreasing natural gas prices creating a decreased demand for coal, Cliffs has seen its company's value drop. Cliffs announced recently that it plans to cut production of coal at its mine in West Virginia by 300,000 tons which will result in a total production of 800,000 tons annually.
Click to enlarge:
Although there is much negativity streaming from this company, Cliffs recently announced that the company was considering upgrading one of its U.S. coal mines into a gas mine. This move could be a terrific move for Cliffs because many energy producers are transitioning to using natural-gas fired power plants instead of coal to take advantage of the low cost of natural gas. In addition to cost, natural gas also burns much cleaner than coal.
The most significant reason why shares of Cliffs have tumbled though is because the price of iron ore continues to fall. Chinese demand of iron ore for steel making is down and people worry if this could be a sign of an economic slowdown. Either way, this situation will probably be the long-term indicator of whether or not iron ore producers like Cliffs, Rio Tinto (RIO), Vale (VALE), and BHP Billiton Limited (BHP) will move anywhere soon.
The balance of supply and demand always corrects itself. Even though iron ore and coal prices seem to be plummeting endlessly right now, eventually the price will bottom out and begin to trek back up as more buyers step in to take advantage of the low cost. Cliffs Natural Resources is a good play on energy and natural resources when it finally bottoms out. The difficult part is not knowing exactly how strong the world economy is and when that bottom will occur.
Disclosure: I am long CLF.