Cliffs Turnaround Plan Derailed by Iron Ore at 5-Year Low – by Sonja Elmquist (Bloomberg News – October 27, 2014)

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Other assets are being sold off quickly. The sale of a minority holding in a graphite
mining company was completed in August. Goncalves said he’s trying to sell a chromite
project in Canada’s Ring of Fire mining region “as soon as I can.”

Activist investor Casablanca Capital LLC’s plan to revive the fortunes of the largest iron ore producer in the U.S. is crumbling as the price of the commodity drops to a five-year low.

Casablanca went public in January with demands for Cliffs Natural Resources Inc. (CLF) to spin off or sell foreign mines and return more cash to investors. Casablanca won a proxy contest in July with the election of its slate of directors on the Cliffs board, one of whom was appointed chief executive officer.

With the iron ore market now in a worse state than it was at the start of the year, Cliffs may struggle to sell mines for a satisfactory price. Instead of raising its dividend, the Cleveland-based miner may have to eliminate the payout entirely, analysts at Citigroup Inc. and Nomura Holdings Inc. say.

A higher dividend “was something Casablanca promised before I joined,” Chairman and CEO Lourenco Goncalves said by phone in an Oct. 14 interview. “I’m not Casablanca.”

Iron ore prices have tumbled about 39 percent this year. Goncalves has had to adjust his strategy accordingly, said Lucas Pipes, an analyst at Brean Capital LLC in New York.

“A good way to put it diplomatically is strategy slippage,” Pipes said in an interview.

Cliffs is one of several iron ore producers struggling as a slowdown in Chinese demand and a surge of new supply adds to a global glut. Its credit rating was cut to junk by Standard & Poor’s this month. Fifty percent of available Cliffs shares have been sold short, the second-highest proportion of any U.S. mining company, according to data compiled by Bloomberg.

Idled Mines

The company is scheduled to report earnings after the close today, its first since the change in management. Third-quarter profit excluding one-time items will fall to a penny per share from 71 cents a year earlier, according to the average of 18 analysts’ estimates compiled by Bloomberg.

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