Citigroup Reiterates Buy On Cliffs Natural Resources

After spending a few days with Cliffs Natural Resources CLF executives, Citi analysts reiterate its Buy recommendation. CLF trades at a low 8.2x 2010E EPS which reflects little earnings contribution from troubled net assets and suggests investors give little credit for a possible 2011 turnaround. Management was confidant CLF would lift PinnOak run-rate production by 2 mln tons in 4Q11 and bring cash costs down to $80/ton by investing in a new longwall, upgraded prep plant, and new shaft. Management reiterated their 27 mln ton North American volume guidance despite a low-70s utilization for the US steel industry. The disparity reflects export opportunities for CLF's 5 mln ton Wabush mine and materially higher operating rates for blast furnaces vs electric arc furnaces. In Asia, China's steel curtailments have not impacted CLF's mid-sized customers. CLiffs Natural Resources closed Friday at $66.58