Nomura On Cliffs Natural Resources: Focus Shifts To USIO Execution

Curt Woodworth of Nomura on Wednesday commented in a note that Cliffs Natural Resources Inc's (NYSE: CLF) USIO and Asia Pacific businesses will remain under "significant pressure" due to sustained fundamental iron ore weakness.

Woodworth does note that the company may see its projected cash flow profile of the business improve in the coming years given the improved prospect of selling its remaining coal assets. The company also expects to receive a $190 million tax benefit in 2015, while its cash tax rates remain low at around 10 percent.

However, given spot iron prices of $63/t, Woodworth estimates that the company would generate an EBITDA of approximately $225 million, or 50 percent below current consensus expectations. The analyst does add that with a solution to Bloom Lake on the table, the market's focus will shift from Bloom Lake to fundamentals of the U.S. and seaborne iron markets.

Woodworth has updated his estimates to reflect lower iron prices ($71/80/t in 2015/16 versus $85/90/t previously), the deconsolidation of Bloom Lake and the impact of the recent impairments. The analyst moves his 2015 estimated EBITDA to $350 million from a previous $371 million and fiscal 2015 earnings per share from ($1.57) to $0.12.

Shares are Reduce rated with a $5 price target.