Excellent thread. When lots of smart people are at board, that's a good sign.
My big question is number 5.
1. Looks like this is a good quarterly formula:
"1.5M tons * last quarter's price * current royalty rate."
2. Looks like main variabiity is in tons shipped.
"Tracking shipments will give you advance notice of weirdness, like the shutdown in 2008 and the make-up shipping in 2010."
3. Looks like 2010 will be a flawed comparison.
QUESTIONS: Due to 2009 "too low" and 2010 "too high", their average for Q3 or Q4 will be closer to "just right" than 2010 values?? Or did 2010 become "more normal" at some point?
4. Annual formula extrapolates from the quarterly::
"investment decisions based on 5M tons * 7.5% annual average royalty * 2nd quarter price."
"This year, that's $2.40. (A little less than my $2.70 guess in June, when I thought we should get $90)"
5. QUESTIONS: Is there a "power in the channels" thing going on for price? For example, do bigger parties further down in the supply chain, such as Cliff's, push price in a direction that favors them? Or, is there a "world price" that gets followed?? adjusted to get a regional price??
Thanks in advance
JB, Shaggy's mom
<<QUESTIONS: Due to 2009 "too low" and 2010 "too high", their average for Q3 or Q4 will be closer to "just right" than 2010 values?? Or did 2010 become "more normal" at some point?>>
The main thing in 2010 was that Q2 included a bunch of tonnage that had been deferred from 2009. Q3 was a little more than 1.5M and Q4 a little less. Averaged over 2009 and 2010, shipments were still 5M/year. 5M/year or 1.5M/quarter (Q2-4 only) are historical averages, but I find them accurate enough for my purposes. Maybe +/- 20%.
2010 will make difficult YoY comparisons. Because the shipments were so front-loaded, MSB moved into the higher brackets of its progressive royalty schedule, so MSB got a greater share of the 2010 Q3 shipments. Because we have shipped <2M tons in 2011, much of Q3 will be due only 5% base royalty (some due only 3.5%).
<<. QUESTIONS: Is there a "power in the channels" thing going on for price? For example, do bigger parties further down in the supply chain, such as Cliff's, push price in a direction that favors them? Or, is there a "world price" that gets followed?? adjusted to get a regional price??>>
This is a complicated question. There is a sort of world price. It used to be that the major importers (Hebei, Baosteel, Wuhan, POSCO, Nippon) had annual price contracts with the major ore miners (Rio, Vale, BHP), negotiated each April, but they moved to a quarterly pricing system last year. North America really doesn't participate in that system - most of the ore sold in US/Canada is sold under decade-long contracts that only index international prices. CLF, for example, expects to average ~$120/ton this year across all of their contracts, while international prices are closer to $180. And, of course, ore is shipping out of Northshore/MSB at around $85. Northshore's price fluctuates with the international market, but only fractionally and is consistently less than CLF claims for their average North American IO. CLF does not release the details of their pricing arrangements, so although we know that most of Northshore's ore goes to Arcelor Mital mills, we don't know how much MT pays for that ore, nor whether CLF uses an internal sales model to determine the price of pellets shipped out of Northshore.
It used to be that you could look at the pricing received by MSB in Q2 and be confident this would be maintained for the rest of the year. Theoretically, that should have stopped in 2010 with the breakdown of the annual pricing contracts, but MT and CLF entered an arbitration that held 2010 prices fixed at 2009 level. Theoretically, there may be more fluctuation in pricing realized by Northshore/MSB this year, now that the arbitration has been settled, but I expect $85 to hold for the year.
The recognized shipments are in line with my expectations. As I've said LCA tends to over-estimate MSB shipments by 30+%, and summing the Soo Lock passages over-estimates LCA, unless one is very careful. MSB has averaged 1.5M tons per quarter for the past decade, and I haven't seen any indication that should change.
I'd expected to see pricing around $90. $85 is a little disappointing. It was fun to hope for $120, but that would also have been out of keeping with historical operations.
I am most disappointed not to see any trickle down of the MT settlement. The only way I can reconcile that is to believe that CLF uses an internal purchase model, where CLF-corporate buys ore from Northshore (at $85) then sells it on to their contract customers (at $120), thus allowing CLF to claim the whole of the MT settlement and not filter any down to the subsidiaries. If you look at CLF's earnings, they always describe a 'cost of iron ore,' which one might imagine represents their cost of operations. However, that number is generally closer to the price realized by Northshore for its tonnage, and I suspect that this 'Cost of Ore" is really the internal pricing given to CLF's mining subsidiaries.
So, all-in-all, a little disappointing. More so because there's been a lot of excitement on this board in particular, although the results vindicate those who've said we didn't have enough information. It will still be interesting to see if there's any uptick in trading over the next month or so. I think the present results fully justify current unit price, so I'm happy holding.
I was thinking that the 2011 dividends would exceed $2. Now this is a bit low. There are still 2 quarters that have to go over $1.35 to meet my targets.
I don't know if I will sell any or not. I bought 200 shares at $30.15 about a month ago. I like the idea of taking that back to cash ... I was/am hoping for a nice dividend pop to well over $35.
I think MSB should yield in the 6% to 8% range. That is $2.1 to $2.8 on the year for a $35 stock. October dividend is frequently the annual high.
I guess some might start the 2011 clock with the Jan dividend of $0.65. Then we are at $1.30 after 3 dividends. If October hits $0.80, then 2011 comes in at $2.10.
The current 4 quarter trailing dividend is at $2.21.
The dividend is disappointing, but I still think the yield is sufficient to keep me in MSB. I may continue to seek options that might add to the yield.
I'm a newcomer so it's easy from me to say: why should we be disappointed when the div goes for .05 to .60?
So we didn't meet expectations based on last year, but a gift is a gift. My guess was .65 based on current prices, demand, the challenges of last quarter, and knowing how these trusts always overestimate things. I'm pretty happy with it, I just hate seeing people overly disappointed with good news.
I spent a lot of time researching this, and thought I had a good handle on it. I must admit that I had it dead wrong. Thanks for your posts Ujok, you were a lot closer to the distribution target than I was.
It will be interesting to see if there is more activity after Yahoo and other trading sites (including TD Ameritrade) post $2.4 distribution per year from the $0.6 annualized. That would represent 7% annualized yield which seems OK. I dont see a lot of price upside for a while before the next ramp up to distribution occurs. On the other hand, it is quite disappointing to have a decrease of $0.2 over Q2 2010.
Ouch. Price per tonne was $85.54, and tonnage was 1,532,046 for the quarter. No mention of the arbitration in the press release. Looks like pricing is still using the older formula. I'm not going to lie I'm very disappointed.
Hummm...i was somewhat doubtful of the $117 price per ton, and calculated it with a $75 per ton which gave me about $0.80 but i miscalculated the tons shipped by about 300K. I was really looking at at least $0.80 to match last year but alas, that was wishful thinking.
Selling my small position at the open and will try to catch the positive adjustment from the settlement next quarter...
Starting this year it will be tough to estimate the distribution...will need to start to play with price ranges. I plugged in a couple of prices into my spreadsheet and came up with $0.6 at the low end to $1.05 at high end based on price of $75 to $117.