"We believe that CLF could monetize rail and port stakes in Canada. Bloom Lake has 7mt of spare rail capacity on the QNSL, which is valued near $65mm based on their take or pay...We see Mittal and Alderon as potential partners...MT has discussed plans to expand its Mont-Write mine by 6mt but currently has a bottleneck at the Port Cartier...
We believe MT could spend $25mm to build a rail link to the QNSL near Bloom Lake and then ship under CLF rail contract and utilize its spare port capacity. Alderon has also committed to a major extension and recently noted it could absorb all of the displaced Wabush employees. Note that Alderson is located near CLF's Scully Mine and is preparing to construct an 8mt operation with 4Q-15 startup ($1.3bn cost). The ability to restructure the rail take or pay or sell down its exposure wold be a major positive for CLF, in our view, and allow it to more cost effectively restructure its Canadian operations"
I agree with you both that retail is likely a small part of the overall short position on CLF. However, if retail shorts are scared out, I wonder if the impact on money flows (given low volumes) would be enough to trigger the algos. I cant imagine big boys are adding significantly to their positions post-earnings. Looking at the volumes and price movements over this week, seems more like they are slowly getting out of their position. I am assuming short interest has came down since Jan month-end, and will be interesting to see what the reports show for 2/15 and 2/28.
JPM's Lee just listed CLF as their 16 trade ideas for cyclical stocks set for rebound. Wonder if that has anything to do with their role as CLF's financial advisor. If the game is being played unfairly, rather have it played from both sides.
Given that the revolver is paid down, CLF doesn't need to and seems to not be targeting any further debt reductions in 2014. Additionally, they are looking to get to a net debt position (cash-debt) of $2.4 billion. I believe mgmt mentioned they were looking to double their cash position to $600mm-$700mm.
Based on current IO price levels and accounting for Q1 seasonality, I think that they could get there within the next 2 quarters. Once this level is reached, it seems to me that Halverson would lean towards either a div increase or potential buyback.
Jump of 3,597,324 from 2 weeks ago.
1. Japan Iron Ore Imports May Increase in 1Q on Improving Economics -
Japanese iron ore imports (10% to 13% of the seaborne market) may increase in the months ahead given improving economic indicators. Steel hot metal output rose 8.6% yoy in December and Japan's PMI also reached a record 56.6 in January. Automobile production, important to Japanese steel demand, climbed 15.9% yoy in December. In the meantime, Japan might take advantage of the lower iron ore price to import more, helping global demand.
2. Strong Chinese Steel Demand May Fail to Absorb Iron Ore Glut -
Strong Chinese domestic iron ore output may pressure prices during the first quarter. An additional 18 million (gross) tons were delivered in 4Q vs. 3Q this year, while the prices were mostly static in 4Q. CISA predicts 810 million metric tons of steel production in 2014, 3.1% growth vs. 2013. Iron ore growth was 8.5% yoy in 2H. Continued high iron ore production growth may over-supply the Chinese steel market.
3. Indian Iron Ore Exports Still Low in 2013 Due to Export Ban -
Indian iron ore exports, historically a source of almost 100 million metric tons of seaborne supply, continued
to decline in 2013, due to a mining and shipment ban in Goa, the country's largest iron ore mining district. Indian exports were down 68% ytd through October, to 13.6 million tons. Reduced exports might continue to
keep seaborne supplies tight, while any lifting of the ban to increase export currency may hurt iron ore markets.
Thank you for the information, do you track China domestic hot rolled steel prices as well? I am currently seeing 3439 CNY / metric ton, and wanted to see if that was in line with what others are showing. Per Bloomberg, (CDSPHRAV Index), China hot rolled steel avg prices are at the lowest level since 5/31/13.
Per Fidelity this morning
Check out UBS filings after market close today - a number of UBS AG Trigger Phoenix Autocallable Optimization Securities (unsecured debt linked to stocks)
They Issued a ton of these in addition to CLF, other stocks include YHOO, GNW, FB, DAL - Most of them with 18 month maturities
CLF linked issuance is $205,000 and matures August 11, 2015 - Pays 25.89% annual coupon rate (pays $0.6473 per $10 security on a quarterly basis)
Coupon payment contingent upon CLF staying above trigger price of $13.17 (70% of CLF initial price - defined as today's closing price of $18.82)
Autocall feature in place if CLF is above $18.82 on an observation date (each quarter - first observation date is 5/5/2014).
If the Securities are not called and the final price is equal to or greater than the trigger price and coupon barrier, UBS will pay you a cash payment per Security on the maturity date equal to your principal plus the contingent coupon otherwise due on the maturity date.
If the Securities are not called and the final price is less than the trigger price, UBS will pay you a cash payment on the maturity date of significantly less than the principal amount, if anything, resulting in a loss of principal that is proportionate to the decline of the underlying equity, for an amount equal to $10 + ($10 x underlying return).
I went through the Schedule A of the Schedule 13D filing and found the information quite telling:
11/14/13-1/9/14 - Casablanca acquired 7,466,520 shares of CLF from between 11/14/13 through 1/9/2014 at a total cost of $192,305,944, which results in an average cost of $25.76 per share. The total position held was 4.876% of total float, which was deliberately under 5% threshold to avoid having to disclose.
On 1/27/14 - Casablanca bought an additional 440,000 shares for $8,478,056, at an average cost of $19.27. Their resulting aggregate position was 7,906,520 and the avg cost was lowered to $25.39. Their resulting position was then 5.2%, thus forcing them to disclose their stake along with the letter.
What would you do if you were them?
If stock remains difficult to short for retail investor, I would assume further increases in borrowing rates. However, this does not provide the whole picture since bigger players have different level of access.
The incredible fade yesterday seemed to leave shorts with little ammo going into today. I saw 220k shares available to short on Fidelity, which i think someone else mentioned as well. I would expect the smart money that is short the stock to get out now and wait for a better entry point after a runup to get back short.
Will put additional pressure on mgmt to take action soon. As the market has shown, the plans of an activist investor will not fully convince shorts this stock is ready for a turnaround.