Why Cliffs Natural Resources Inc. Shares Fell 10% in May

Cliffs Natural Resources went along for the iron-ore ride last month, and it ended on a sour note.

Reuben Gregg Brewer
Reuben Gregg Brewer
Jun 7, 2017 at 9:03AM
Energy, Materials, and Utilities

What happened

Iron-ore miner Cliffs Natural Resources Inc. (NYSE:CLF) saw its stock drop a little over 10% in May. That follows a trend that had been in place since early February. It's been a rather dramatic move since that point, with Cliffs' share price having been cut in half since hitting a high in the shortest month of the year.

So what

Cliffs reported earnings at the end of April and the news was, generally speaking, OK. Although the company lost $0.11 a share, that was driven by a one-time charge of $0.27 a share related to the company's debt-reduction efforts. Total debt at the end of the first quarter was down by more than 35% compared to the year-ago period. Revenue, meanwhile, was up more than 50% on increased demand. It was clearly not a perfect quarter, but important progress was made on the balance sheet amid signs of a strengthening demand environment.

Female mining engineer

Image source: Getty Images

That, however, was clearly not enough to overcome the commodity trend. The price of iron ore has been heading lower since February and taking Cliffs shares along with it. Commodity prices are one of the things over which Cliffs has no control; it can only go along for the ride. After driving a huge price advance into early February, the trend is now pushing the miner's shares notably lower.

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Now what

Cliffs has been working hard to get its balance sheet in order -- something it can control -- and, as noted above, has been making notable progress. It's also been shedding noncore assets and streamlining its operations. Cliffs today is a better-positioned company than it was a year ago.

But it still has to deal with the ups and downs of iron-ore prices. That commodity is making dramatic moves lately, and there's nothing iron-ore-focused Cliffs can do but ride the wave. At this point, conservative investors looking for iron-ore exposure might prefer a more diversified miner like BHP Billiton or Rio Tinto.