Cliffs Cut to Junk by S&P After Plunge in Iron Ore Price

Cliffs Natural Resources Inc. (CLF), the largest U.S. iron miner, was cut to junk by Standard & Poor’s after the commodity price tumbled and an activist prevailed in replacing the board of directors and chief executive officer.

S&P lowered Cliffs’ credit rating three steps to BB- from BBB- with a negative outlook after the price of iron ore fell 40 percent this year, it said in a statement today.

Cliffs is among global mining companies contending with falling iron prices as rivals including Rio de Janeiro-based Vale SA, London-based Rio Tinto Group and Melbourne-based BHP Billiton Ltd. boost output even as the World Steel Association sees global steel consumption this year slowing to 2 percent growth from an April forecast of 3 percent.

Cliffs shares fell 5.8 percent to $7.77 in New York, the lowest since 2004. The Cleveland-based company’s stock has dropped 70 percent this year and its $500 million of 3.95 percent bonds due January 2018 dropped to the lowest on record, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The securities yield 11.1 percent.

Cliffs is looking to sell iron-ore mines in Canada and Australia. In July, activist investor Casablanca Capital LP pushed through the election of six new board members and installed Lourenco Goncalves as CEO.

Since then, Cliffs has sold a minority holding in Canadian miner Zenyatta Ventures Ltd. and decided to divest a stake in a nickel project being developed by Vancouver-based First Point Minerals Corp.

Cliffs also has announced a plan to buy back as much as $200 million of shares and agreed with lenders to amend a credit facility, allowing the company to proceed with the stock repurchases. The share-repurchase program signals that the board could signal “more aggressive financial policies than in the past,” S&P said today.

To contact the reporter on this story: Sonja Elmquist in New York at selmquist1@bloomberg.net

To contact the editors responsible for this story: Simon Casey at scasey4@bloomberg.net Steven Frank