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Cliffs Natural Resources (CLF) Downgraded To 'Sector Perform' By RBC Capital, PT Lowered

 December 05, 2012 02:48 PM

(By Balachander) Cliffs Natural Resources Inc. (NYSE: CLF) shares were downgraded to "Sector Perform" from "Outperform" and price target lowered to $32 from $45 by RBC Capital Markets.

"We lower our rating on the shares because of our more subdued outlook for iron ore in 2013 and 2014, the loss of growth at Bloom Lake, our expectation of further negative guidance revisions at year-end, and a possible dividend cut," RBC wrote in a note.

"We believe much of the bad news is already reflected in the share price," the brokerage said. "However, we expect upside for the shares to be limited over the next 12 months."

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Cliffs announced mid-November that it is curtailing production in U.S. Iron Ore and putting Bloom Lake Phase II on hold. Cliffs is delaying the completion of Phase II until at least early 2014.

RBC said the growth at Bloom Lake was a significant part of its investment thesis.

"With Bloom Lake sales guidance from Phase I lower than the previously stated capacity of 7.2 Mtpa, we believe costs are unlikely to reach the $60–65/tonne level by year-end and will be higher than we were previously expecting in 2013," the brokerage wrote.

Cliffs must draw $450 million from its $1.75 billion revolver in 2013 on top of the $250 million already drawn as of Q3/12 in order to maintain its dividend and a positive cash balance. RBC believes a dividend cut is possible in 2013.

The stock, which has been trading in the 52-week range of $28.05 to $78.85, gained 1.19 percent to trade at $29.75 on Wednesday.

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