Cliffs Natural (CLF) Closes 5.75% Senior Notes Offering

Zacks Equity Research

Cliffs Natural Resources Inc. CLF said that it has closed the offering of $500 million aggregate principal amount of 5.75% Senior Notes, due 2025. These notes are guaranteed on a senior unsecured basis by the company's material direct and indirect fully-owned domestic subsidiaries.

Cliffs plans to utilize the net proceeds from the offering of the notes, along with part of the net proceeds from its recent common share offering, to redeem all of its outstanding 8.00% 1.5 lien senior secured notes and 7.75% second lien senior secured notes, due 2020. Cliffs has issued the notices of redemption for each set of notes on Feb 13, and will settle them on Mar 15, 2017.

Cliffs has outperformed the Zacks categorized Mining-Iron industry over the past year, supported by its cost and debt reduction actions. The company’s shares have gained around 279% over this period, compared with roughly 194% gain recorded by the industry.

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Cliffs swung to a profit on a reported basis in the fourth quarter of 2016. Adjusted earnings and sales beat the respective Zacks Consensus Estimate. The company saw higher sales volumes across its U.S. Iron Ore and Asia Pacific Iron Ore units in the quarter.

Cliffs ended 2016 with cash and cash equivalents of $323.4 million, up 13% year over year. Long-term debt was at $2,175.1 million at the end of the year, down 19% year over year.

For 2017, Cliffs expects to generate net income of $510 million. The company expects sales and production volume of 19 million long tons for the U.S. Iron Ore segment for 2017. For the Asia Pacific Iron Ore unit, Cliffs projects sales and production volume of roughly 11.5 million tons.

Cliff’s remains focused on deleveraging its balance sheet and improving its cost structure. The company’s net debt fell around 25% year over year to around $1.8 billion at the end of 2016. Cliffs’ sustained commitment to reduced debt should lower its interest expenses in 2017. The company expects interest expense for 2017 to be roughly $175 million, compared with $201 million recorded in 2016.

Moreover, Cliffs is focusing on managing costs, reflected by a decline in overall cash costs in 2016. The company 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 has also entered into a contract with U.S. Steel Canada to supply pellets.

Cliffs currently carries a Zacks Rank #2 (Buy).

Cliffs Natural Resources Inc. Price and EPS Surprise


Cliffs Natural Resources Inc. Price and EPS Surprise | Cliffs Natural Resources Inc. Quote

Other Stocks to Consider

Other favorably placed companies in the mining space are BHP Billiton Ltd. BHP and Rio Tinto plc RIO each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

BHP Billiton has an expected long-term growth rate of 5.6%.
Rio Tinto has an expected earnings growth rate of 75.4% for the current year.

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