Cliffs Natural (CLF) To Build HBI Production Plant In Toledo

Cliffs Natural Resources Inc. (NYSE:CLF) has selected a location in Toledo, OH, for the development of its first hot briquetted iron (HBI) production plant. The company has selected Midrex Technologies for design, engineering and procurement of necessary equipment for the new facility, which will produce 1.6 million tons of HBI per year.

The new production facility is estimated to require roughly $700 million investment and Cliffs is presently in discussions with some financial partners for arranging the necessary funds. The company expects the construction to begin by early 2018, and production of commercial tonnage of HBI is expected to initiate in the middle of 2020.

The company has selected the brownfield location at the Port of Toledo because of its relative proximity to several future customers, logistics advantage, availability of affordable gas and also easy access to multiple rail carriers.

Cliffs aims to be the sole producer of high-quality HBI for the EAF steel market in the Great Lakes region and this investment marks a strategic milestone for the company. The company expects the new product line to generate strong margin and earnings for the shareholders, moving ahead.

Cliffs’ shares fell 26.6% in the last three months, underperforming the Zacks categorized Mining-Iron industry’s decline of 17.2%.

For 2017, Cliffs expects to generate roughly $380 million of net income. The company expects its full-year SG&A expenses to be around $100 million of which $25 million is expected to be non-cash expenses. Also, the company's interest expense for 2017 is anticipated to be roughly $175 million, of which $20 million is expected to be non-cash.

Cliffs remains focused on de-leveraging its balance sheet and improving its cost structure. Cliffs should also gain from its supply deals with other companies. The ArcelorMittal (NYSE:MT) deal enables Cliffs to supply up to 10 million tons of pellets to ArcelorMittal USA. The company also entered into a contract with U.S. Steel Canada to supply pellets. The agreement exceeded the company's original sales expectations. Also, the company is likely to gain from an expected increase in steel demand in the U.S.

However, Cliffs remains exposed to a challenging operating environment. The company has also cut its profit guidance for 2017 due to lower expected iron ore pricing. Cliffs now expects net income of roughly $380 million, down from its earlier view of $510 million.

Cliffs currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked companies in the basic materials space include The Sherwin-Williams Company (NYSE:SHW) and Potash Corporation of Saskatchewan Inc. (NYSE:POT) . Both stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

Sherwin-Williams has expected long-term earnings growth rate of 11.4%.

Potash Corporation has expected long-term earnings growth rate of 6.5%.

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