KeyBanc Warns Cleveland-Cliffs Stock Overvalued Despite Rare Earth Upside

Valuation and KeyCatalysts Fully Priced In

KeyBanc’s decision to downgrade CLF reflects its view that many positive developments—such as gains in automotive contracts, strengthened liquidity, non-core asset sales, and potential joint ventures—are already baked into the company’s share price. CLF’s up-over-47% growth over the last six months supports this claim. The analyst also raised concerns about higher expected costs, a lapse of its slab supply contract with ArcelorMittal in late 2025, and pressure on free cash flow, all contributing to a cautious near-term outlook for the stock.

Rare Earths Exploration: Potential vs. Uncertainty

CLF has stepped into rare earth exploration, conducting geological surveys across its U.S. ore bodies and tailings and identifying two promising sites—one in Michigan, one in Minnesota—with “key indicators” of REE mineralization. However, no technical data have been released on critical parameters such as grade, tonnage, extraction cost, or environmental permitting. Thus, while the REE opportunity aligns both with CLF’s strategic positioning and U.S. critical mineral policy goals, it remains speculative and should be viewed as an option rather than core earnings base at this stage.

Financial Performance and Steel Sector Conditions

CLF’s Q3 2025 results show modest revenue growth (~4%) — $4.73–4.74B compared to the same period in 2024 — powered by stronger U.S. automotive steel demand and supportive trade policy like U.S. steel tariffs. However, GAAP and adjusted net losses remain: -$0.50–-$0.51 per share, narrowing from prior quarters but still negative. Liquid assets stand at ~$3.1B as of September 30.

Cost pressures are evident: unit costs are coming in higher than expected due to richer product mix. The structural termination of slab supply contracts (e.g. with ArcelorMittal) adds risk to margins. Also, steel prices are expected to rise modestly in 2026 (KeyBanc forecast for hot-rolled coil at ~$880/ton), but demand growth is slow to lift off (flat in 2025, ~1% in 2026).

Strategic Implications and Key Risks

From a strategy standpoint, the REE initiative helps CLF tap into governmental incentives and favorable policy frameworks aimed at securing domestic supply chains for critical minerals. Alignment here could offer long-term competitive advantages and potentially higher margins if leveraged well.

Risks include: failure to establish economically viable rare earth operations (technical, permitting, environmental); volatility in steel demand and pricing; rising input costs; contract terminations; and market sentiment shifting if catalysts slow. For investors, tracking metrics such as REE assay results, free cash flow trends, contract renewal status, and cost inflation will be essential.

Open Questions Going Forward

• What are the REE grades, tonnages, extraction costs, and timelines at the Michigan and Minnesota sites?
• Will CLF manage to convert MoUs and preliminary discoveries into binding contracts, partnerships, or production facilities?
• How will expired contracts like the slab supply deal with ArcelorMittal affect margin stability in 2026?
• To what degree will cost increases from richer steel product mixes, labor, energy, and raw materials eat into expected margin gains from steel price appreciation?
• Could macro risk (tariff policy shifts, steel import dynamics, global recession) reverse demand momentum?