Cliffs Natural Resources Inc. is banking on the Midwest, a forgotten niche in the global commodities market.
For more than a century, huge iron-ore reserves in this remote region have provided the raw material to make steel in blast furnaces that have populated the industrial heartland between Pittsburgh and Chicago.
Last year, Minnesota and Michigan produced 99% of all U.S. iron ore, shipping out $5 billion of steel’s main ingredient. Three-quarters of that ore went to American mills, which continue to make millions of tons of steel a year for car makers and gas drillers.
Cliffs, the biggest U.S. iron-ore producer, is more than 150 years old and still based in Cleveland. Its five iron-ore mines are the company’s top-performing unit, earning $461.7 million in gross profit in the first nine months of the year even as Cliffs booked an overall loss of $6 billion.
“This is what will save Cliffs,” says Chief Executive Lourenco Goncalves during a tour of the mineral-rich, windswept gray landscape, which once inspired native-son Bob Dylan to write “North Country Blues.”
Mr. Goncalves better be right. Cliffs’ share price has declined more than 70% in the past year. A boardroom coup, led by activist shareholder Casablanca Capital LP, resulted in Mr. Goncalves being named CEO in August to turn things around. Since then, many investors have lost patience, and Cliffs’ share price has dropped by more than half.
Some shareholders agree with Mr. Goncalves’s view that Cliffs can succeed by dominating a smaller market with little competition. “Everybody sees this as a company that’s going to be dependent on global iron-ore prices, but we don’t see it that way,” says George Cipolloni, who manages a stake of around two million Cliffs shares for Berwyn, Pa.-based Killen Group Inc. Global iron-ore prices have fallen almost 50% in the past year, while those in the U.S. are down 20%. “If Lourenco can execute his plan, we think it’ll be OK,” Mr. Cipolloni says.
Source: The Wall Street Journal
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