Monday, March 23, 2015

Cliffs Natural Resources: Look Out Below

Rio Tinto (RIO) is up today. So are BHP Billiton (BHP) and Vale (VALE). But Cliffs Natural Resources (CLF) has dropped nearly 10% today despite being in the same business. The reason: The Cleveland-based iron miner took a $6 billion charge today.


The Minnesota StarTribune has the details on Cliffs Natural Resources’ charge:

Cliffs Natural Resources Inc…said it would write down the value of its coal and iron ore assets by $6 billion due to weak prices, putting it in breach of debt covenants and sending its shares down around 7 percent.

Cliffs said the non-cash charge would increase its debt-to-capital ratio over the 45 percent threshold set by its credit facility, and it was working with bankers to amend the covenant.

Wells Fargo’s Sam Dubinksy considers the pros and cons of Cliffs’ write-down:

On the negative side, these markdowns in our view call into question the ultimate sale price of non-core assets (i.e. media reports have estimated Australia alone could be worth $1B, which we view as highly unlikely). On a positive note, we’re assuming the asset markdowns could result in lower depreciation expense and tax NOL, which may help EPS (but have no impact to EBITDA).

Shares of Cliffs Natural Resources has dropped 8.1% to $8.73 at 3:15 p.m., while Rio Tinto has gained 0.7% to $50.17, BHP Billiton has risen 0.9% to $59.24 and Vale has advanced 1.7% to $10.94.

No comments:

Post a Comment