Image Source: Cliffs Natural Resources
What: Cliffs Natural Resources's (CLF 4.48%) stock rose an impressive 38.9% last month. It's now up a massive 80% or so for the year!
So what: Cliffs is one of North America's most important iron ore suppliers, providing the raw material for steel mills. Iron ore, however, has been in a funk for some time as new supplies of the metal have come on line just as China's growth has begun to slow down. China, for reference, is the world's largest consumer of iron ore, so this is a big deal.
That's pushed Cliffs into the unenviable position of losing money in three of the last four years. With a heavy debt load, the company has been reworking its portfolio to adjust to a new market environment. That's included selling off coal assets, among other things like cost cuts. It's been pretty bad. In fact, because of non-cash impairment charges, Cliffs' shareholder equity is negative. That's not something an investor usually wants to see.
So Cliffs shares have reacted favorably (that's an understatement) to the recent improvement in iron ore prices. Higher prices for what it sells is exactly what the company needs to make it through this downturn in one piece. It's done a lot of hard work cutting costs and selling assets, but at the end of the day, the price of the main commodity it sells is the linchpin to better days.
Now what: It's probably too soon to call Cliffs' a turnaround success story, there's still work to be done on the debt front and elsewhere. However, if iron ore prices keep moving higher the company's prospects will get better and better. That said, if iron ore prices head lower again, Cliffs shares will probably get hit anew. Investors who think better days lie ahead probably still have some time to jump aboard Cliffs, which is down over 95% since the start of 2011. But you'll want to make sure if you believe the glass is half full, be cognizant that the market may see it as half empty if iron ore prices stall.
