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On Dec 4, we maintained our Neutral recommendation on mining company Cliffs Natural Resources (CLF - Analyst Report). While we are encouraged by the company’s cost management initiatives, we remain on the sidelines considering weakness in its coal business and suspension of its chromite project.

Why Reaffirmed?

Cliffs saw higher profit in the third quarter of 2013, reported on Oct 24, riding on its cost reduction measures and higher iron ore pricing. However, its earnings missed the Zacks Consensus Estimate. Sales rose modestly and beat expectations.

Cliffs remains optimistic regarding prospects for cash generation and the opportunities that will fund organic growth projects and return cash to shareholders. It also has a significant presence in the Asia-Pacific region, where demand is still robust, lending support to shipments.

Moreover, Cliffs has taken up initiatives to drive organic growth including developing assets within its existing project pipeline. The company is also boosting its mining and transportation capacity globally. It sees steady end-markets for its customers on the back of a mending U.S. economy.

Management is also focusing on improving the cost structure amid a weak pricing environment, reflected by reduction in exploration costs target for 2013 and cost cuts in the North American Coal division.

However, Cliffs' North American Coal segment is under pressure due to soft pricing for coal products. Weak coal pricing lead to a 23% fall in the division’s revenues (per ton basis) in the third quarter.

Moreover, the recent move to indefinitely suspend the chromite mining project in Ontario represents a setback for Cliffs. The company has decided to discontinue all developmental activities indefinitely at the project which is located in the “Ring of Fire” region of Northern Ontario. In addition, the project’s uncertain timeline and risks associated with the development of infrastructure led the company to decide against investing any additional capital.

Other Stocks to Consider

Other companies in the mining industry with a favorable Zacks Rank are Rio Tinto plc (RIO - Analyst Report), African Minerals Limited (AMLZF) and Alderon Iron Ore Corp. (AXX - Snapshot Report). While Rio Tinto retains a Zacks Rank #1 (Strong Buy), African Minerals and Alderon Iron Ore carry a Zacks Rank #2 (Buy).

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