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(B)(N) CLF Cliffs Natural Resources Incorporated

April 17, 2013

Drama. The “Ring of Fire” is a nearly inaccessible, water-logged, and unforgiving terrain between Thunder Bay and James Bay in Northern Ontario (please see Exhibit 2 below) and it is said to contain vast resources of nickel and copper, some gold and platinum, and a massive deposit of the mineral chromite which is refined into ferrochrome and used to make stainless steel. Cliffs Natural Resources is betting over $3 billion, which is the current “market value” of the firm, that it can get in there to mine those resources, and it is planning to build a new smelter in Sudbury, Ontario, and a “road” between there and, well, you know where.

The question is, How can we, as “risk averse” investors – we want our money to be safe and to obtain a hopeful return above the rate of inflation –  regardless of our age and time horizons, invest in a “dream”? For example, the stock of Cliffs Natural Resources is $17 today, down from $90 two years ago (please see Exhibit 1 below), and it has an estimated downside due to ambient volatility of as much as minus (-$13), a trigger that anxious investors could pull, especially if they are buying on “margin”  (Reuters, April 16, 2013, Analysis: Miner Cliffs woes could douse hopes for Canada’s Ring of Fire).

On the other hand, Cliffs is expecting to pay a quarterly dividend of $0.15 per share, or $96 million per year on its 160 million shares outstanding, for a current yield of 3.4%, which certainly beats inflation. Moreover, the July put at $17 can be bought today for $2.27 and an offsetting sold or short call at $18 on our long position can be sold for $1.88, so that for a net cost of $17 for the stock and $0.39 per share ($2.27 less $1.88) for the “collar”, we can expect no less than $17 and no more than $18 for the next several months, and collect our dividends while we wait for more information to become available, and pray that our “dream” comes true.

Exhibit 1: (B)(N) CLF Cliffs Natural Resources Incorporated – Risk Price Chart

(B)(N) CLF Cliffs Natural Resources Incorporated - April 2013

Cliffs Natural Resources Incorporated is a mining & natural resources company, based in Cleveland, Ohio, producing iron ore pellets, fines and lump ore, and metallurgical coal.

(Please Click on the Chart to make it larger if required.)

It is a major player in that market and the company has total assets of $13.6 billion and a shareholders equity of $4.6 billion, somewhat offsetting its current and uncertain market value of $3 billion.

Exhibit 2: Ontario’s “Ring of Fire” – Courtesy of Ontario Nature

Ring_of_Fire_map

Marten Falls is the nearest town on the road to Sudbury which is 10 hours and 420 miles to the southwest, through Timmins, Ontario. For more on the prospects and excitement of mining in Ontario, please visit the website and journal of The Republic of Mining.

(Please Click on the Chart to make it larger, and again, if required.)

And for more on the “price of risk” and the travails of investors, please see our recent Post, What’s A Girl To Do, April 2013, and other references therein.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond™
“Alpha-smart with 100% Capital Safety and 100% Liquidity”
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.

Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.

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