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Why CLF Is A Better Option Than Gold Miners?

Updated on February 18, 2014

Cliffs Natural Resources Inc. (CLF) is the premier and leading iron ore mining Company in the world. Founded by Samuel Mather as Cleveland-Cliffs in 1846, it has grown exponentially to the point that it has become a major player in the global steel production. The primary operations of Cliffs Natural Resources stock are based in the United States, Asia Pacific, Canada, and North America. The company is part of the S&P 500 Index, which means that it has a global role in producing natural resources for the use of steel. Almost half of the iron ore in United States is being mined by Cliffs, primarily focusing on low-volatile and high-volatile metallurgical CLF stock coal. Through the diversification of the mining efforts of CLF estimates, it aims to sustain excellence in overall service and production, not only in the United States, but also in the entire world.

Iron ore industry previous year’s performance

In the year 2013, the iron ore industry had a very bumpy ride. The performance of Cliffs is not in good shape and had low CLF earnings. This is mainly due to the poor economic growth of the United States. The automotive and construction industry has slowed down. Adding to this dilemma is the decreased demand of steel by China, India, and other developing countries. As CLF stock analysis mentioned, this has lead to many problems for Cliffs.

Thankfully, in the opening of the year 2014, the iron ore industry made a robust recovery. Cliffs is now back on its feet with 8% CLF stock growth in January. The growth of the Company is mainly attributed to the improving US economy. The automotive industry is also making progress along with the construction sector leading to the increased demand for steel.

Gradual improvement in the industry of iron mining

Due to the environmental concerns raised in China, there had been increased demand on higher grade of iron ore from Cliffs. Because of this development, the CLF stock price in the market also increased leading to higher dividends. Other developing countries have better economic outlook within 2014 and thus, more and more people are looking for good investment. According to Cliffs Natural Resources stock news, there will be a 5% increase in iron ore consumption in the global market.

All these developments have led to the growth and development of Cliffs Natural Resources stock price. With growing demand and investment, the industry is predicted to take back what they lost in the previous year and even increase projected annual income.

Iron ore alternative

The condition of the iron ore industry last year has made many investors nervous. With the growing concern on the perceived instability of the Cliffs Natural Resources stock, many people looked for a better alternative aside from investing in iron ore. One of these alternatives that they identified is gold mining.

However, is it really true that gold miners can be a better investment than iron ore? What are the advantages and disadvantages of switching from iron ore mining to gold ore mining? What does the current CLF stock analysis has to say?

Gold Miners turned out to be an awful investment

During the previous year, gold is not also in good shape. While Cliffs Natural Resources iron ore mining industry has its own problem to take care of, gold is even in worse situation. In 2013, the price of gold has decreased up to 25% resulting to $1,240 per ounce.

To make things worse, 2013 is not the only year gold performed sluggishly based on Cliffs Natural Resources stock news. For about eight years now, from 2006, the gold industry did not enjoy favorable market. Gold mining companies suffer due to this problem, as stated by CFL stock news. However, the gold industry still manages to pull it off together after a few strategic planning, the same as CLF stock.

Persistent low pricing of gold

The problem with gold is its instability and unpredictable rising and falling of price, which is sometimes identical with Cliffs Natural Resources stock. Investors earn by buying gold with lower price, and hopefully, when the price increases, they can sell the gold for a higher price. However, the price of gold never or has little increase after 2006. This means that investors who bought gold in higher price before and after 2006 will not be able to have better return of income until now unlike CLF estimates.

From 2006, gold is priced very low as seen in Cliffs Natural Resources stock analysis. For most investors, they thought that this is the perfect time for them to invest while the price of gold is still low. However, 2007, 2008, 2009, and so on has passed, but the price of gold never came to the point that investors could have earned more than what they had spent. This is not the case with CLF stock price.

Failure of gold mining companies

Way back in 2006, there had been many reports that warning investors about companies that might exaggerate their promotion. Based on CLF stock analysis, these companies have tried to lure in more investors to buy shares from their companies, explaining that it is the right time to buy gold while its price is still low. At this point in time, CLF earnings are making very good records.

For example, the NovaGold has a large market capitalization which ballooned to $1 billion in 2006, which is almost at par with CLF stock. The company has convinced many investors to capitalize on their projects. However, for the last six or seven years, the projects of NovaGold never came even near to their forecasted income.

Another company with the same market capitalization of $1 billion is Crystallex International was not able to live to its promise as well. So the company simply delisted their shares, which is not the case with Cliffs Natural Resources. In addition to this, Mark McEwen, who was thought to be the next gold mogul has its share drastically fall by a whopping 80%.

Some reasons for depreciation of gold

According to Cliffs Natural Resources stock analysis, since 2010, gold mining companies had invested a great deal amount of money totaled $45 billion and still, these companies plan to spend another $15 billion for additional projects, exploration, and acquisition of properties. In spite of these efforts, the gold output decreases from 18 million to 17.4 million ounces. This is the opposite case with Cliffs Natural Resources stock price.

There had been speculation for the last decade about the decreasing power of gold and the increasing power of CLF stock price. Even the capitalization in North America is seen to be hopeless. One Cliffs Natural Resources stock analysis says that the problem lies upon the increase tax grabs, resource greediness, too much reliance on fund capital, over spending, and much acquisition of properties and projects that never really reciprocated any income. Furthermore, the excessive pay checks given to gold mining company CEOs are making the situation worse instead of better. Take Barrick Gold for example. According to CFL stock news, it is the largest gold producer of the world and when it hired its new CEO, John Thornton, Barrick Gold paid him $12 million as a signing bonus and $17 million pay package. Though not entirely because of this situation, the stock of Barrick Gold plummets by 56%.

The negative effect of Gold Exchange traded funds

Gold exchange traded fund is originally added to the market so that investors can easily be lured to put in more capital. Through allowing investors to be exposed to gold, the new policy has directly caused almost anyone to invest and invest while not really having a strong strategy to benefit from the investments made. Cliffs Natural Resources stock makes it a point to create a reasonable return of investment for all its stock holders.

Now, the gold mining industry is in dire strait while CLF earnings are increasing. Because of the 8 years negative performance of gold mining, many companies have taken great debt and even loaned some more money to stretch their budget until the elusive recovery of gold price will happen. These companies are now in trouble, along with their investors. To save faces, most gold mining companies are now using write-down to compensate with the loss according to Cliffs Natural Resources stock news.

There had been much CLF stock analysis that says the gold mining industry might still have a long way to go before it recovers. Even the Wall Street banks attest to the fact that projects made by gold mining companies will just lead to $1,300 an ounce of gold, something that’s different from CLF stock price. This pricing rate is not a bearable figure for most companies who have invested billions of dollars. The situation most likely will force companies to raise their equity just to fund their activities while not really knowing when the ideal gold price is reached. However, this can be more challenging than it may sound compared to CLF estimates.

A Company in great trouble

Based on CFL stock news, if the world scene will not change, there will be massive bankruptcy across gold mining companies. While there are other companies to look upon, it will be better to take the case of Barrick Gold, since it is the biggest gold mining company today. A quick look at the situation of Barrick Gold will give a general picture of what the gold industry is.

Unlike CLF, Barrick already raked around $15 billion of debt just within this first quarter of 2013 – a situation that seems to be worsening each day. In addition to this, it has a $2.3 billion cash balance that is supposedly needed for funding operation. With cash deficit in hand, the company will be forced again to borrow money from the Federal Bank.

As expected, there are some coping mechanisms that Barrick is doing right now. The company announced to lay off around 30% of its employees. There had been some estimates on how much Barrick should raise to get out of debt. It is said that they should have more than $9.8 billion profit this coming year to compensate with their losses – something that is too ambitious to think about, but not too ambitious for CLF earnings.

To minimize spending, Barrick has delayed its operation to its mining areas in Chile. The situation is becoming worse because of the increasing labor cost in Argentina where Barrick’s major operation is headquartered as Cliffs Natural Resources stock price continue to stabilize.

Iron ore mining or gold iron mining?

With all the reviews, analysis, and news about the gold industry, it is not difficult to realize how more advantageous it is to invest on iron ore mining, more specifically in Cliffs Natural Resources. The gold mining industry can be in big trouble now, while the iron mining is definitely in good shape after its miraculous recovery at the start of the year. Though, it is very important to note that there is really no sure investment to make. Even iron mining can be unstable at times, but not as unstable as gold. Every option when it comes to investment has certain risks. It only depends upon the investor to really weigh in the options and see where a win-win situation can be achieved with CLF estimates.

There are certain situations that will improve the gold standing. In most cases, when there is ‘war or rumors of war’, gold’s price is soaring high. Other reason for gold’s price to increase is when the global economy flourishes as mentioned in Cliffs Natural Resources stock news. These two conditions might be difficult to achieve and it will be too selfish to wish for wars to happen just to have your gold’s value increase.

Conclusion

Investing in gold can be a lot riskier compared to iron. The very value of gold is really subjective, unlike Cliffs Natural Resources stock price. You buy gold for a specific price and hoping for someone who thinks that your gold should be bought in a higher price would come along and buy your gold.

According to CFL stock news, most gold brokers will tell investors that gold is the only thing in the world that will not lose its value even if the US economy will stumble down. However, this can be nowhere near to the truth. The usefulness of gold is for electronics. According to Cliffs Natural Resources stock analysis, when one has more gold, but the industry of electronics fall, then that person’s gold is nothing, but some fancy rocks. To conclude, it is clear that it is wiser to invest in CLF iron ore. Steel production and demand is at its peak as world’s developing country will continue to need iron ore.

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