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Cliffs Natural Resources Inc. Message Board

  • blakejbutler blakejbutler Jan 25, 2013 11:46 AM Flag

    Why CLF is a good buy

    CLF makes the overwhelming majority (over 90%) of its revenue from iron ore.

    50-60% of their iron ore is from North America and goes to steel makers in North America. CLF is the dominant player in NA, taking up about half the market share. North America also has higher margins at about 50% and costs of around $68 per ton. The great thing about America is that it’s partially sheltered from spot price volatility.

    Next, Asia makes up about 20-25% of iron ore sales. Asia too has higher margins at about 50% and costs around $65-70 a ton.

    Where CLF gets into trouble is in Canada. There are two mines of note: Bloom Lake and Wabush. CLF recently acquired ownership in both of these companies driving up costs for the company as a whole. Canada makes up about 15-20% of iron revenue.

    The capital spending is being spent to increase output and lower costs at Bloom Lake. The company repeatedly says it thinks Bloom is the future of the company. Costs in the last quarter were around $88 a ton and expected to go down to $76 this quarter with future costs expected in the 60’s. That means Bloom will be in line with other mines and will increase iron ore output significantly.
    The problem child is Wabush. It is an expensive mine and is driving up costs for the rest of the company. CLF management is reviewing it’s options with Wabush and will make a decision in the coming months. But considering it is a minority of revenue it’s bad, but not alarming.

    CLF will be well positioned for 2013 and will likely do ok as long as iron ore prices stay above say $80 thereafter. I think CLF was wise to raise its dividend and I expect they will keep it. The dividend alone may beat the SP500 in 2013.

    Sentiment: Strong Buy

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    • This is a good analysis. Bloom Lake was a move to position for the Asian (and European) markets, but CLF's core is still selling to the American steel industry. Everyone is watching the spot prices, but what is going to really move CLF is a growing steel industry in the U.S. And there have been positive signs lately coming out of that sector.

      Sentiment: Buy

    • There has been rumblings at Wabush over the last week or so about big news coming down the road very soon. It isnt rumors as this info is coming directly from Senior management in key positions. They are as concerned as the rest of the workers. Some capital spending projects have been cancelled/shelved/axed/delayed and the patchwork fix has begun that got Scully into the mess it is today. Contractors doing mill maintenence have been sent packing along with an engineering firm doing a study on what infrastructure spending would be needed to bring Wabush at or near full capacity. Should be news on budgets for manpower and spending soon...the Manager recently travelled to Cleveland for this along with a list of other local issues.
      I work here and want to continue to do so. Having said that things do not look good for either the short term and definately not the long term. The old plant cannot produce and to shut it down to do the repairs needed isnt financially feasible either. Where does it leave Wabush? I think the writing is on the wall...and it ain't pretty folks!

    • I doubt if this high dividend can be maintained. They need to preserve cash. If dividend is reduced drastically, the share price can nose dive to $25 2 cents worth !!

    • By North America I meant the U.S. sorry. U.S. Iron ore, Asia, and Canada.

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