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When the shareholders of Montreal-based Consolidated Thompson Iron Mines Ltd. sold their company to Cliffs Natural Resources Inc. in the spring of 2011, they weren’t offered the high-flying shares of the U.S. acquirer as payment. They had to settle for cash, instead.
That proved to be fortuitous, as Cliffs’ shares have since, well, fallen off a cliff. At recent trades around $25 (U.S.), they are down by more than 70 per cent.
Cliffs’ plunge may suggest that it’s a buying opportunity – but if so, it’s an opportunity only for the brave. While the shares could conceivably double from current levels, there’s also a good chance they could approach zero.
Investors seeking upside in the sector have safer options in the three international giants BHP Billiton Ltd., Vale SA and Rio Tinto Group. But they should be aware that the clouds hanging over the iron-ore sector show no signs of clearing any time soon.
Cliffs’ fall from favour provides a dramatic demonstration of how quickly circumstances have deteriorated for miners. Only a couple of years ago, raw-materials producers were riding high, largely on the strength of China’s building boom. To investors and mining CEOs, it seemed clear the Asian country’s white-hot growth would require an endless supply of materials, from iron ore to copper to previously little-known rare earths.
