Rising prices and strong demand are pushing Cleveland-Cliffs Inc.'s (CLF) performance. Robust industrial growth in China has triggered demand for steel, resulting in higher demand for iron ore. The company's portfolio of established and recent iron ore and metallurgical coal assets positions it to capitalize on global industry dynamics in 2008 and beyond.
Moreover, the merger with Alpha Natural Resources (ANR) will help Cliffs to meet the increasing global demand for coal, consolidate the supplier base and generate substantial free cash flow. We also believe the strong commodity price regime should significantly boost revenues for Cliffs. As a result, we rate the shares a Buy with a target of $130.00.
Prices for iron pellets are moving up in 2008. Cliffs has incorporated reported settlement increases of 65% for iron ore fines and 87% for iron pellets into its estimates for pricing projections. Cliffs' managed iron ore pellet production in North America is expected to be 35.6 million tons in 2008. The company's share of this production is expected to be 23 million tons. Further, the company expects to increase this share over 24 million tons in 2009.
In 2008, sales are estimated at 24 million tons, with revenue per ton of $85. Asia-Pacific Iron Ore segment's expected production volume is 7.8 million tons and sales volume is 8.0 million tons. The company expects Asia-Pacific revenue per ton to be $102. This estimate assumes 80% and 97% increase in the 2008 international settlement price for fines and lump respectively. Cliffs is also taking initiatives to penetrate new markets. The merger with Alpha expects to generate annual synergies of at least $200 million beginning in 2010.
Read the full analyst report on CLF
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