By Michael Nielsen | June 5, 2014 |

Casablanca Capital took a large position in Cliffs Natural Resources (NYSE: CLF ) at the beginning of 2014. Since then, it has created a plan to restructure Cliffs Natural Resources, issued letters to shareholders, started a proxy battle over seats on the board, and created an accusation-filled website.

The executives at Cliffs are not having it. Cliffs has rejected every effort by Casablanca to make changes to the company. Recently, the correspondence between the two companies has gotten ugly.

Even with the discourse between Cliffs' management and Casablanca Capital, there is still some serious growth potential in the stock that may seem attractive to some investors.

There are some things you should know before you buy shares of Cliffs Natural Resources.

What Casablanca thinks Cliffs should do
Casablanca believes the dramatic decrease in Cliffs' stock price has principally been due to the mis-management of its assets.

Casablanca Capital, a 5% stakeholder, has created an elaborate plan it believes will help get Cliffs back on track. To make sure the plan gets implemented, the company has submitted proxy filings that promote six new members be elected to Cliffs' board of directors.

What Cliffs' management thinks Cliffs should do
Management at Cliffs Natural Resources has decreased costs by $400 million so far in 2014 and recently announced $100 million more cost-cutting.

The board strongly believes the company's recent initiatives have been in the best interests of Cliffs shareholders.

In a proxy statement filed on May 23, 2014, Cliffs briefed shareholders on its nomination of nine of 11 available seats on the board. In a recent proxy filing, Cliffs' board voiced its concerns about the upcoming board election: "The Board of Directors does not endorse the election of any of Casablanca's nominees and strongly urges you to vote FOR ALL of the nine nominees recommended by the Board of Directors."

What investors need to know
If you are a current or prospective investor in Cliffs Natural Resources, there are a few things you should know.

1. Regardless of who gets nominated to the board of directors, the most important thing driving the health of Cliffs Natural Resources is the market price of iron ore.

2. There are conflicts of interest within the current board of directors and executives. The current board of directors at Cliffs has an insignificant amount of skin in the game. The sum of all the shares owned by the 11-member board of directors and eight executives is only 0.3% of the total shares outstanding. In contrast, Casablanca is the fifth-largest shareholder in Cliffs Natural Resources, owning 5% of the outstanding shares. It seems as though Casablanca's interests are more in line with those of the shareholders. The company's executives might be motivated more by job security than value creation for shareholders.

3. Cliffs Natural Resources' management frequently refers to the initial plan issued by Casablanca Capital as a poor alternative strategy for the company. However, Casablanca has revised its plan since it was initially released; Cliffs management should take the revised plan seriously.

4. When the price of iron-ore goes down, Cliffs is going to feel it. Its sales go down, its margins shrink, and its stock falls. Casablanca uses Cliffs' management as a scapegoat for the stock's poor performance. Although the company's acquisition of Consolidated Thompson in 2011 was very questionable, much of the company's lacking performance has been attributable to weak iron ore prices -- a number completely out of the hands of the board and management.

5. There are some serious risks associated with Cliffs stock. Cliffs Natural Resources' performance is incredibly reliant on the price of iron ore, which hasn't showed signs of strength in months.

Alternatives to Cliffs Natural Resources that have more upside than downside
If you would like some exposure to a possible rebound in iron ore prices but don't like the risks associated with Cliffs, consider companies such as Vale SA (NYSE: VALE ) or BHP Billiton Limited (NYSE: BHP ) . Both companies are far larger and more diversified than Cliffs.

Vale operates the largest iron ore mine in the world. Vale is much less vulnerable to the iron ore market. While Cliffs loses money when the price of iron ore is in the $90s, Vale can profitably operate even if it drops into the $50 range.

Companies such as BHP Billiton and Vale will benefit from a bounce-back in the iron ore market, just as Cliffs, but they don't face nearly as much risk if iron ore prices continue to fall. You can read more about these investment opportunities here.