Moody's Investors Service placed Cliffs Natural Resources (NYSE: CLF) Baa3 senior unsecured ratings under review for downgrade.

..Issuer: Cliffs Natural Resources Inc.

On Review for Possible Downgrade:

....Multiple Seniority Shelf Feb 11, 2016, Placed on Review for Possible Downgrade, currently (P)Baa3

....Senior Unsecured Regular Bond/Debentures, Placed on Review for Possible Downgrade, currently Baa3

Outlook Actions:

....Outlook, Changed To Rating Under Review From Negative

RATINGS RATIONALE

The review results from the expected further deterioration in earnings and debt protection metrics on the drop in iron ore prices, which we believe will be sustained at lower price points than previously anticipated through at least 2015. Since January 2014 spot iron ore prices (62%Fe) have fallen roughly 30% to around $94/tonne on July 24, 2014 on increased iron ore production and a steel market evidencing only sluggish production growth, particularly the important Chinese steel industry. While the downward price movement has slowed and prices have recently been trading between roughly $95/tonne and $105/tonne, we expect prices to remain within this range with risk to the downside. Although Cliffs performance is not directly correlated to price movement in the seaborne market given the contract nature of its US operations, movement in this market will have an impact on a lag basis. Cliffs' Canadian and Asia Pacific operations are more sensitive to the movement in the seaborne price. At iron ore prices averaging below $110/tonne over the next one to two years, we expect Cliffs' leverage, as measured by the debt/EBITDA ratio to exceed 4x.

The review also considers the uncertainty relating to the business direction and management of the company arising from the proxy battle with Casablanca Capital. The conclusion of the review could result in a downgrade of 1 or possibly 2 notches.

Moody's review will focus on expected volume levels and recovery from the lower levels caused by the adverse winter weather, levers the company has to further reduce costs, the net benefit or reduction in losses caused by the potential idling of the Pinnacle coal mine given the adverse metallurgical coal market conditions, and the level of earnings that can be generated in a sustained lower iron ore price environment. The review will also focus on Cliffs' customer base given the recent announcement by Essar Steel Algoma of a refinancing and recapitalization under a Plan of Arrangement under the Canada Business Corporations Act and AK Steel's pending acquisition of certain assets of Severstal North America, a subsidiary of Severstal OAO, including the steel assets located in Dearborn Michigan. In addition, the status of the phase II expansion of Bloom Lake and options for such development will be a consideration in the review as will the company's ability to maintain its production profile given the depleting nature of its reserve base. The outcome of the shareholder vote on board of director composition at the July 29, 2014 annual meeting and any potential changes in business strategy will also be evaluated.