Saying Cliffs Natural Resources (NYSE:CLF) isn't getting a lot of credit for a potential turnaround in 2011, Citigroup (NYSE:CLF) visited the management recently and came away believing Cliffs still deserve the "Buy" recommendation the financial institution has on them.
CLF trades at a low 8.2x 2010E EPS which reflects little earnings contribution from troubled net assets and suggests investors give little credit for a possible 2011 turnaround. Management was confidant CLF would lift PinnOak run-rate production by 2 million tons in 4Q11 and bring cash costs down to $80/ton by investing in a new longwall, upgraded prep plant, and new shaft.
Citi said management maintains their 27 million ton North American volume guidance even though there is a low-70s utilization for the American steel industry in general.
The difference between the two offer an opportunity in exports for CLF's 5 million ton Wabush mine and materially higher operating rates for blast furnaces vs electric arc furnaces.
In China the cutback of steel hasn't affected the mid-sized customers of Cliffs.
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