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Investors’ Sentiments Pointing Towards Splitting Cliffs In Two

Updated on February 19, 2014

Cliffs Natural Resources Inc is the largest iron ore mining company in the world. It represents more than half of the iron ore production of the United States and is a major player in the global steel production industry. In addition to this, Cliffs (CLF) is one of the favorite investment companies for many stock buyers and sellers in the New York Stock Exchange. The Operation of Cliffs expands throughout the world and can be seen in the North America, Asia Pacific, Eastern Canada, and United States.

The ore mining industry is seen to be in good shape, according to CLF stock news, after a disappointing run in 2013. Because of various factors such as increasing cost of steel production, the demand for iron has been reduced as seen in CLF stock analysis. Thankfully, at the close of 2013, the industry quickly bounced back from the difficult situation. With the improving automotive industry in the United States, continuing high demand of steel from developing countries such as China and India, and the overall steady growth of the industry, there is no doubt that Cliffs Natural Resources Inc will recover exponentially this year. This is a good signal for all investors to make their move in the first quarter of the year.

A Suggestion to compartmentalize Cliffs

Because of the growing trend last year in the iron mining industry, there had been a suggestion that CLF stock should divide itself into two different companies. The recommendation was made by Casablanca Capital, one of the major investors of the industry. Recently, Casablanca was able to acquire CLF estimates of 5% stake in the mining industry and when Casablanca talks, everyone in the industry listens, as stated by CLF stock news. So this is really a serious matter.

Cliffs International and Cliffs USA

The suggestion is more likely to include having Cliffs International and Cliffs USA. Base on Cliffs Natural Resources stock analysis, this proposed separation is said to help Cliffs focus on two major areas of their company and at the same time increase its dividend.

There have been many factors that led to this proposal. On February 6th of 2014, CLF stock price is up and running again to hit 8% increase in growth. This happened mainly because of the move of Casablanca to take 5.2% stake of the company last January 28 of the same year. The market immediately had a great comeback after this development and led to the sudden increase in the Cliffs Natural Resources stock price. However, the initial price surge of iron was not sustained and went down to $122.40. The fear would be that the Cliffs Natural Resources stock will continually decline and thus, Casablanca is forced to seek a solution to address the issue.

Pros of the decision

At the surface, the recommendation of Casablanca may be plausible, if not admirable. There are a lot of benefits and advantages that can be derived from this move if ever CLF will give in to the proposition based on CLF stock analysis. Splitting the Company into two to increase its concentration to various areas can be a great step to ensure growth and development of the company as a whole. It will result to increased dividend, profit, and investment. At least, that is the ideal scenario.

The reasoning of Casablanca greatly relies on the fact that the international market is based on the seaborne iron ore. This market is highly competitive and the company who can give the least iron ore cost without compromising on quality is deemed to be the winner. Because of this, the stream of income is greatly diminished due to the fierce competition in the Asia Pacific.

Relying to the US Economy

On the other hand, the United States properties and assets of Cliffs Natural Resources stock are getting more robust due to the high-level recovery of the local construction and automotive industry. For this reason, the international market can drag down the US market of Cliffs. Or on the positive note, the US market may improve the situation in the International market. However, to make sure that no negative effects may happen, Casablanca would like to settle on the idea that Cliffs will be split into two.

Based on Cliffs Natural Resources stock news, at this point in time, it should be noted that the Company has to deal with BHP Billiton and Rio Tinto – two of the largest iron ore international companies and also the biggest competitors of Cliffs.

Because of the developments beyond the sea shore of the United States, Casablanca can see how CLF earnings would recover by focusing on their market locally. It is further suggested by Cliffs Natural Resources stock analysis that the company should invest more on the Bloom Lake Project located at the Eastern Canada, which has been neglected for the last few months.

In addition to this, the US-based CLF stock price iron ore production is seen to reciprocate more income. This is highly due to the recovering US economy that will encourage higher demand for iron and steel.

Cons of the decision

However, stepping back to see the whole picture of CLF stock may present certain problems to this recommendation. There are many risks involved in this step.

While it is true that the Asia Pacific markets are highly competitive, leaving this into a separate compartment will lead to a weaker position for Cliffs Natural Resources stock price. This will make the Company less competent and might have a hard time coping up with the competition.

Furthermore, leaving the international market now can be devastating for the CLF earnings potential. Market analysts say that there will be a 5% increase of global steel consumption in 2014. Besides, putting all the company’s hopes to the US economy can be very risky. This is especially true as what CLF estimates have seen last year with the unstable US economy.

Conclusion

There had been many recommended ideas brought on the table of Cliffs. There are advantages and disadvantages to be considered. Whatever the stance the Company will take, it will surely affect the overall performance, both now and in the future. Investors should be alert for Cliffs Natural Resources stock news to be updated.

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