Falling off a Cliff — What Does it Mean?

By Travis Johnson, Stock Gumshoe, February 15, 2013

Cliffs Natural Resources (CLF) got absolutely clobbered this week, with their stock falling 20% after they announced they were cutting the dividend quite drastically (partly because of funding pressures, partly because of their high-cost acquisitions in the past, partly because of lower expectations for future production — there’s a good note on that here from the Motley Fool).

Add that together with the recent decision to scrap a feasibility study for a new railway to serve the Labrador Trough iron ore area, and the dots connect to reinforce the concerns investors are having about future iron ore prices … and, therefore, future iron ore projects. The Labrador Trough is the iron ore area where several big miners have major projects, including Cliffs’ major Bloom Lake mine, and it’s also where Alderon is trying to start construction of its Kami mine by the end of this yeaer.

That’s important for those of us who own Altius Minerals (ALS.TO, ATUSF), which is a major shareholder of Alderon (AXX) and reliant, for its current valuation, on the development of Kami and of more iron ore projects in the future in the Labrador Trough, where it is the largest prospect holder and has several deals for future royalties on exploration projects.

Alderon fell 10% on the CLF news, though it did recover a bit — so why hasn’t Altius dropped? It may well still do so, of course, it could just be a delayed reaction and Altius has seen its share price spike dramatically so far this year thanks both to optimism over iron ore early in the year, and to renewed attention, I’m told, from a couple of the Stansberry newsletters that have recommended the stock. I do think we’ve got a good chance to see some weakness in Altius shares that might present a buying opportunity in the low $11s later this Spring or Summer, but if Alderon continues to move forward with the Kami construction timeline that has them starting development late this year, that should really support the share price even if iron ore weakens a bit. Altius’ massive royalty on that mine is the major upside potential for their shares over the next two or three years, and could be a company maker if the mine is developed as expected and produces $50+ million in profits for Altius annually as is currently forecasted. I’m holding ...

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