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Cliffs Natural Resources Inc. may be down after announcing it is indefinitely suspending the Chromite Project in Northern Ontario’s Ring of Fire, but at least one analyst sees the news as a positive.
H. Fraser Phillips at RBC Capital Markets told clients that the international mining company’s decision to pull out of the Ring of Fire by the end of 2013 removes an uncertainty lurking over its shares.
“It has been our view that the project would take years to developed if it could ultimately be developed at all,” Mr. Phillips said. He noted Cliffs can now focus on allocating its capital and resources to its core iron ore assets such as the Bloom Lake mine in Quebec.
Based on estimates from the company’s July 2012 investor day, the Chromite Project required ferrochrome prices of US$1.40 per pound to produce an internal rate of return between 14% and 17%.
But with prices closer to US$1 today, Mr. Phillips believes the project economics were “questionable at best.”
The analyst rates Cliffs at sector perform based on RBC’s forecast for higher iron ore supply and lower prices beginning in 2014, the delay of growth at Bloom Lake, and the dilution from capital raises.
“We are maintaining our cautious stance until the product and marketing issues at Bloom Lake are sorted out,” he said.
For the original version of this article, click here: http://business.financialpost.com/2013/11/21/cliffs-natural-resources-makes-right-move-with-ring-of-fire-pullout-rbc/