Why Cliffs Natural Resources, Inc.'s Shares Popped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of miner Cliffs Natural Resources, Inc. (NYSE: CLF  ) jumped as much as 13% today after an activist investor bought a stake.

So what: Casablanca Capital announced it has taken a 5.2% stake in the company and called for change across the board. In a letter to management, Casablanca said it wants to spin off Bloom Lake and other international assets, convert U.S. assets into an MLP, and a number of cost-cutting measures and divestitures as well.  

Now what: Cliffs Natural has swung back to a profit recently and it's probably true that management could do more to save money and unlock value. But I'll also point out that the MLP spinoff is a very popular and predictable thing for a hedge fund to ask for right now with questionable value-add for shareholders. I don't think this alone is a reason to buy Cliffs and the assumption that shares could be worth $53 assumes that the separate parts are worth more than the whole, which may or may not be true.

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  • Report this Comment On February 03, 2014, at 4:42 PM, Oreninc wrote:

    If Cliffs is split up, in the next economic downturn, the US assets will be sold to Mittal for 5 cents on the dollar. They will wait for Cliffs to get weak, because they are the only buyer of the US assets. No one else is going to take them. The fact is, the only way to get long-term shareholder value is to keep the company together. Keep in mind that all the iron ore business is linked and, no matter what you think, EVERY part of Cliffs is exposed to China.

    I like complex tax structures for low cost oil companies, but I think Cliffs is a high-cost, marginal iron ore producer and if you wrap it in new clothing, it still will be that, but it will be much easier to destroy.

    https://www.youtube.com/watch?v=_SA471-8pnA

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