HIBBING, Minn.— Cliffs Natural Resources Inc. is banking on the Midwest, a forgotten niche in the global commodities market.

For more than a century, huge iron-ore reserves in this remote region have provided the raw material to make steel in blast furnaces that have populated the industrial heartland between Pittsburgh and Chicago.

Last year, Minnesota and Michigan produced 99% of all U.S. iron ore, shipping out $5 billion of steel’s main ingredient. Three-quarters of that ore went to American mills, which continue to make millions of tons of steel a year for car makers and gas drillers.

Cliffs, the biggest U.S. iron-ore producer, is more than 150 years old and still based in Cleveland. Its five iron-ore mines are the company’s top-performing unit, earning $461.7 million in gross profit in the first nine months of the year even as Cliffs booked an overall loss of $6 billion.

“This is what will save Cliffs,” says Chief Executive Lourenco Goncalves during a tour of the mineral-rich, windswept gray landscape, which once inspired native-son Bob Dylan to write “North Country Blues.”

Mr. Goncalves better be right. Cliffs’ share price has declined more than 70% in the past year. A boardroom coup, led by activist shareholder Casablanca Capital LP, resulted in Mr. Goncalves being named CEO in August to turn things around. Since then, many investors have lost patience, and Cliffs’ share price has dropped by more than half.

Some shareholders agree with Mr. Goncalves’s view that Cliffs can succeed by dominating a smaller market with little competition. “Everybody sees this as a company that’s going to be dependent on global iron-ore prices, but we don’t see it that way,” says George Cipolloni, who manages a stake of around two million Cliffs shares for Berwyn, Pa.-based Killen Group Inc. Global iron-ore prices have fallen almost 50% in the past year, while those in the U.S. are down 20%. “If Lourenco can execute his plan, we think it’ll be OK,” Mr. Cipolloni says.

But Mr. Goncalves’s confrontational style—on conference calls he has berated analysts who rate his stock poorly—has caused some concern. “We’re glad he’s showing confidence in the company, but sometimes his tone is a bit off,” Mr. Cipolloni says.

Mr. Goncalves, a veteran chief executive in the metals industry, has already moved quickly. Cliffs took a $6 billion charge related to a disastrous 2011 investment in a Canadian iron-ore mine and put iron-ore mines in Australia and coal mines in West Virginia and Alabama up for sale, leaving only the so-called Iron Range mines.

Even so, Cliffs shares have dropped, falling 7.9% Monday on the New York Stock Exchange, well below the average $25 a share Casablanca paid for its 5.2% stake. Mr. Goncalves has managed to sell only some assets in West Virginia this month for $175 million to Coronado Coal II LLC. Low global prices make such investments as the Australian mines unattractive to potential buyers. Casablanca declined to comment.

“The best-case scenario is they’re going to have to muddle through for a while,” says Phil Gibbs, a Keybanc analyst in Cleveland.

Initially, Casablanca planned to split the company into separate units, but Mr. Goncalves says he proposed instead to try to sell off everything but the Midwestern iron-ore mines, saying they had the ultimate advantage: a captive market. Shipping ore from Brazil or Australia costs more than $50 a ton.

Hibbing and its sister mines produce high-quality iron-ore pellets at a cost of $59 a ton. That iron ore is then sold to steelmakers for around $100 a ton, providing significant profits. U.S. iron-ore prices are stronger than global, or seaborne, prices, which have fallen by roughly half over the past 12 months, reaching a five-year low of $68 a ton this week. “No company,” Mr. Goncalves says, “is as immune to seaborne iron ore as Cliffs.”

Mr. Goncalves, known as both ebullient and abrasive, is counting on two things: cost cutting and the strength of the U.S. steel industry. He acknowledges that he has more control over the former than latter. “But we have faith in the U.S. steel industry,” he says, “and that we are the best-positioned supplier for that industry.”

Over the years, mine fortunes have paralleled those of the U.S. steel industry, which has been battered by imports. Mr. Dylan’s “North Country Blues” bemoans the fate of miners put out of work by foreign iron-ore competition. “They say that your ore ain’t worth digging,” he sings.

Rick Cannata, the mayor of Hibbing, a town of 16,000, remains confident. “The mines are cyclical, but they’re always here,” he says. “You’ll always need iron ore to make cars.”

Cliffs currently operates the mine and sends the eight million tons to buyers, includingArcelorMittal and U.S. Steel Corp. , which co-own the mine. ArcelorMittal, the world’s No.1 steelmaker, tries to source its ore regionally to save on transportation costs and avoid disruption, says spokesman Bill Steers. The U.S. steel industry has outperformed steelmakers in other countries, and U.S. Steel is headed for its best year since 2008.

On the cost side, Mr. Goncalves says he continues to squeeze, but unlike other miners he isn’t relying on driverless trucks, which he says have hidden costs, including breakdowns and inefficient use.

Walking through the clanking mill darkened by the presence of so much iron ore, Mr. Goncalves tells workers they “should be rowers, not passengers,” on his boat. “We have no need for passengers,” he adds.

Workers, familiar with downturns and layoffs, are nervous. The 770 jobs at the unionized mine pay well, averaging about $24 to $31 an hour. “I hope we’re part of the corporate solution,” a welder tells Mr. Goncalves.

“As long as we keep costs down, we’ll be fine,” Mr. Goncalves responds.

The CEO asks another worker, a man in his 30s, how often he inspects the equipment. “Every two months,” the worker replies.

Walking away, Mr. Goncalves tells the worker’s boss that he wants equipment inspected every three weeks. “If he says he’s doing it every two months, he’s actually doing it every four months,” Mr. Goncalves adds.

Frank Jenko, president of the United Steelworkers local, says Mr. Goncalves “is looking to keep costs in line, he’s looking for efficiency.”

If Cliffs can do that, Mr. Goncalves says, “we’ll be mining iron ore here for another 160 years.”