It's not even a case of two steps forward, one step back. The Dow Jones Industrial Average is running in place, advancing a few dozen points one day, falling back by a like amount the next, and all the while hugging close to the 14,000-point mark. The president's State of the Union address coupled with bland retail sales weighed on the market.
Now, don't go running over the cliff with them like a bunch of lemmings: This could just be a temporary situation. Let's first see whether they had good reason to fall, as panic-fueled routs can sometimes lead to excellent buying opportunities.
On the precipice
A day after reporting a fourth-quarter and full-year loss and announcing what it termed a "meaningful reduction" in its dividend, Cliffs Natural Resources lost a fifth of its value in trading in one day last week. Yeah, slashing your payout 76% might be considered "meaningful."
Although sales volumes were up in its eastern Canadian and Asia Pacific iron ore markets, pricing weakness continued to pressure the revenues per ton realized by the miner. Worse, the U.S. iron ore market -- Cliffs' largest segment -- saw both lower revenues and lower volumes, which fell to 6.2 million tons from 7.8 million tons a year ago. Revenues per ton were 7% lower.
Coupled with the 19% and 23% decline in revenues per ton from Canada and Asia, respectively, and lower revenues in its coal business (despite much higher volumes for its met coal output), the miner finds itself digging behind the couch cushions for change. It has just $195 million in cash and equivalents in the bank but owes almost $4 billion in long-term debt.
As a result of its shaky finances, Cliffs had little choice but to take a meat ax to its dividend, cutting it from $0.625 all the way down to $0.15 per share. The geographical diversity that I thought would benefit the miner hasn't played out as anticipated, however, and it becomes difficult to recommend the stock at this juncture.
This stock got winged
Drug developer Peregrine Pharmaceuticals announced phase 2 results for its pancreatic cancer therapy bavituximab last week, and while the news initially gave the stock a big boost, further reflection showed that the drug might not be the world-beater it was originally thought. Peregrine said median overall survival improvement was only "modest," so it was going to be considering what steps it should take next. Modest improvements aren't exactly the looked-for outcome in a cancer treatment, which might make finding a partner for the drug more challenging, assuming it decides to move forward.
The stock was already depressed following the coding snafu by a third party hired to calculate the results for the biotech for earlier clinical trials, and while shares were slowly climbing back up, they remain almost 70% below the highs they hit last September. At the start of the year, I didn't see much hope for Peregrine and thought short sellers might be on to something as traders bid up the stock, but now I'm more convinced that the company will have an increasingly difficult hurdle to get over.
A silver lining
Silver miner Coeur D'Alene Mines is taking a run at Orko Silver's La Preciosa silver project in Mexico, offering to buy the miner for $383 million and trying to outbid First Majestic Silver (NYSE: AG ) , which originally offered to takeover Orko in December, but for 25% less than what Coeur D'Alene offered. The La Preciosa mine is one of the largest undeveloped primary silver resources in the world, with as much as 110 million ounces of silver indicated.
Analysts were surprised by Coeur D'Alene's offer, noting that no one had made a move other than First Majestic last year, as Orko went through a formal process. So at this late date, if it still wants control of the Mexican silver project, it might very well offer a larger cash component to match the counteroffer.
Coeur D'Alene is the largest U.S. silver miner and already has a silver project in northern Mexico, as does First Silver, whose La Parrilla and Del Torro mines are in the same state as La Preciosa. Some think they might not want Coeur D'Alene to get a foothold in the region, but it has only until Feb. 19 to make a follow-up offer.
Ready for a resurrection
Cliffs Natural Resources has grown from a domestic iron ore producer into an international player in both the iron ore and metallurgical coal markets. It has performed well, relative to many competitors, in a very cyclical industry because of several factors that are likely to remain advantageous for Cliffs' management. For details on these advantages and more, click here now to check out The Motley Fool's brand-new premium report on the company.