Cliffs Plunges After Cutting Dividend 76%

Cliffs Natural Resources Inc., the biggest U.S. iron ore producer, fell the most in more than three years after cutting its quarterly dividend by 76 percent and announcing a share sale to repay debt.

The shares slid 18 percent lower to $29.87 at 10:16 a.m. in New York. Earlier the declined as much as 19 percent, the most intraday since May 2009.

Cliffs reduced the payout to 15 cents a share, the Cleveland-based company said in a statement after the close of trading yesterday. That erases the increase made in March, when Cliffs raised the dividend to 62.5 cents from 28 cents and said the company would shift its strategic focus from mergers and acquisitions to organic growth while returning capital to shareholders. Since then, iron ore prices plunged and the company reported delays at a Canadian mine project.

“Though the dividend cut was a prudent one in terms of cash management, the move to lower it after making a large increase in 2Q12 and defending it on recent conference calls is likely to generate much shareholder angst,” Anthony Rizzuto, an analyst at Dahlman Rose & Co. in New York, said in a note today.

Cliffs plans to sell as many as 10.4 million common shares, valued at $378.9 million at yesterday’s closing price, it said yesterday in a separate statement. It also intends to sell depositary shares that represent about 575,000 convertible preferred shares. JPMorgan Chase & Co. and BofA Merill Lynch are managing the sale.

‘Risk Mitigation’

Cliffs also said it won agreements from lenders to suspend the limit of its ratio of debt to earnings before interest, taxes, depreciation and amortization this year and temporarily use covenants based on total capitalization and minimum tangible net worth instead.

“You’ve got to think about this balance sheet work we’re doing right now as risk mitigation, not future forecasting of iron ore pricing,” Chairman and Chief Executive Joseph Carrabba said today on a conference call.

Iron ore for delivery at the Chinese port of Tianjin, a global benchmark, fell 14 percent to average $120.58 a ton in the fourth quarter, after touching a three-year low of $86.70 in September, according to data compiled by Bloomberg from Steel Business Briefing.

Cliffs reported a fourth-quarter loss of $1.62 billion, or $11.36 a share, compared with net income of $185.4 million, or $1.30, a year earlier. Earnings excluding a $1 billion writedown of assets and other one-time items were 62 cents a share, beating the 51-cent average of 20 analysts’ estimates compiled by Bloomberg.

Sales fell 4.2 percent to $1.54 billion, trailing the $1.53 billion average of 14 estimates.

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

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

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