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Is Cliffs Natural Resources out of the Woods?

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Nov. 20 2020, Updated 12:47 p.m. ET

Cliffs’s equity offering

On June 16, 2016, Cliffs Natural Resources (CLF) filed the S-1 form, which is the initial registration form for securities. The company is planning to offer $300 million worth of shares. The company will primarily use the proceeds to reduce its debt burden. High debt remains a concern for the company though it has resolved other issues.

On May 31, 2016, Cliffs announced a new ten-year agreement with ArcelorMittal (MT), which replaced the two contracts expiring in 2016 and 2017. This helped CLF stock gain positive momentum with a ~39% rise after the announcement. The expiring contracts had been a major overhang for Cliffs stock for some time.

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Continuing with the positive momentum, on June 9, 2016, Cliffs announced that it will be reopening its United Taconite plant in Northeastern Minnesota two months earlier than expected. The early restart is due to a contract with U.S. Steel Canada. The company also increased its production and sales guidance for 2016 to reflect this.

Share price performance

As of June 16, 2016, Cliffs stock has risen by a staggering 187% year-to-date. This dwarfs the gains made by other iron ore miners such as BHP Billiton (BHP), Rio Tinto (RIO), and Vale SA (VALE), as you can see in the graph above. The company’s shares have been helped by steady progress toward debt reduction, contract renewals, and stronger client order books. However, a general risk-on sentiment that’s favoring commodity-related (COMT) names has also pushed the stock higher.

In this series

In this series, we’ll be looking at Cliffs Natural Resources’ exceptional stock run and whether there could be more upside to its share price. We’ll also look at the details on the new share offering. Finally, we’ll see how the share offering could impact Cliffs’s fortunes in the short term as well as the long term.

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