Just when I thought that Cliffs Natural Resources (NYSE: CLF) could have run out of short-term positive catalysts and its shares will become more dependent on iron ore and the strength or weakness of the dollar (NYSE: UUP), another positive catalyst showed up.
Cliffs just announced that it will be restarting operations at its United Taconite mining facility in August compared to the previously scheduled restart in October.
More importantly, the company is revising its full-year sales guidance to 18 million tons from the previous guidance of 17.5 million tons. The increase of sales guidance is accompanied by the increase in production guidance from 16 million tons to 16.5 million tons. The new tonnage was ordered by U.S. Steel Canada, which is another confirmation that demand is picking up.
Assuming costs of $55 per ton and realized prices of $75 per ton (a fairly conservative assumption), the company will have extra $10 million of cash at its disposal.
A number of positive things happened with Cliffs lately, but its debt level remains high and the company will continue to deal with this problem in the future. Frankly, the debt is, perhaps, the most important factor that bears might point out unless iron ore prices fall through the floor.
Cliffs' shares have enjoyed a nice run in the last few weeks and some investors might wonder if it is a good time to take some money off the table.
In my view, the rally in Cliffs' shares has both fundamental and speculative catalysts.
Another factor that played out was the recent weakness of dollar, which got hit after a dismal jobs report. I believe that the dollar does not have much room to fall from current levels and that the Fed will raise rates in the coming months, which could be a headwind for all commodity stocks including Cliffs.
The data from China is muted, so, most likely, we won't see another serious rally in iron ore prices this year. Current iron ore prices are comfortable for Cliffs and the shares won't be negatively impacted unless there is additional downside on this front.
Some people are reluctant to trade their positions in parts because of the broker commissions, but this is a flawed logic with volatile stocks.
A 10 cent move to the downside costs you $10 if you have 100 shares, and $10 is above the amount the greediest broker will charge you for a trade. With 1000 shares, a 1 cent move makes this difference.
All in all, I believe that is often a good idea to take some money off the table in volatile stocks like Cliffs, which, as I stated multiple times here on SA, is better bought on dips rather than breakouts.
However, there is also no need to invent problems where there are no problems, so, while the stock rises and the positive catalysts keep coming, there's little to worry about.
It makes sense to keep an eye on the dollar in the coming days, as its strength may harm the sell the dollar/buy commodities trade and fuel profit-taking in Cliffs shares.
Disclosure: I am/we are long CLF.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.