1. US steel companies operate on a JIT inventory and long term contracts, unlike China that operate on stockpiling and buying at spot prices. US steel companies will not take a Chinamax sized shipment.
2. If your cost to mine 62% is $40 a ton, cost to pelletize is $30 a ton and the cost to ship ore directly to the US steel mill (not some US port) is $25 a ton, their cost is $85 a ton and would need to get about $120 a ton, which is about the current spot price for US iron ore pellets.
3. CLF knows these cost and based their long term contracts on the cost of these overseas providers, not the current spot price of iron ore. This is why CLF have about 50% of the US market. CLF uses their advantage of being local, their low cost of the US core operations and their ability to service their customers with the product and quantities they need.
4. Not all pellets are created equal and all CLF's customers have specific requirements which does not work well with these big players that need standardization
5. Finally, US steel production is about 5% of the world's supply, these big players need the volume and will concentrate on China and India.
But hey run some ideas by them, I am sure they will really pay attention to someone off a Yahoo message board. But the only idea that will work for them is to buy CLF out now while prices are low.
Vale's cost to get 62% ore to China is about $60, add the cost of pellet production and then the cost of shipping small quantities of ore to US steel mills to maintain a JIT inventory, their cost would be north of $90 a ton. I asked this very question over a year ago and came up with the conclusion it was cost and that CLF's cost was so low that no overseas operation could compete with them. And that spread has increased with the increased cost of shipping.
Iron ore has become a localized market, Australian miners will provide China, US miners will supply the US market and Vale should supply South America. What RIO and BHP is really trying to achieve is to knock out Vale out of China. Which brings me to one other point, CLF's Asia Pacific operations have great value for anyone that wants to supply the Chinese market. And the only way Vale can enter the US market is to buy CLF out.
Read the last Q3 income statement, it is all there. Furthermore with the lower cost of energy, that cost will come down.
Yes, the US pellet spot price is published and is currently $117 a ton. I do not pull these numbers out of thin air and provided pellet spot pricing several times on this message board.
with the Republicans taking control of the Senate, the future looks much better for coal. CLF has sold one mine and should be able to get comparable deals for their remaining coal assets. They should be able to come out with at least $600 million in cash that can be used to buy back bonds at a 35% discount and retire about $800 million in debt.
CLF does not need to sell BL now, but it does need to shut it down. It should be easy to negotiate a settlement on the rail contract to keep it out of bankruptcy as well as other liabilities. I would think these parties would be happy with a 25% settlement of the money owed. In a bankruptcy, these parties would be lucky to get 10% as the parent company is the largest lien holder on the Canadian subsidiary.
Because AP is still profitable, CLF has the best chance to get a fair price for that operation. In today's market, they could get $400 to $500 million which could retire another $700 million debt. That would get CLF down to the magic number of $1.5 billion in debt. And they would still have BL, Wabush, Ring of Fire that they can sell when the market improves.
First of all you must compensate for iron ore pellets vs 62% seaborne spot prices. US spot pellet prices are about $40 more than the current seaborne spot prices and CLF normally sells pellets $20 less than spot pellet prices.
If they bankrupt BL, all those fees would be put in as a claim and they would be a fraction of the high estimates. Knowing bankruptcy is possible, most of those claims would be reduced through negotiations. The truth is it is not going to be $700 million, it is a number that the shorts have lock onto to without revealing the entire scope of the matter.
Package up your posting and email it to CNBC, Bloomberg, Yahoo Finance and any others that come to mind. Excellent questions and interesting responses.
They are buying at the last minute before they can't make purchases ahead of earnings. They know something that everyone should be able to see, their hedges have them locked in at $87 a barrel and it does not matter what the price of oil is. HK should be trading at a price range it was when oil was at $87 which was between $5 and $7.
To retire $1 billion in bonds, the most CLF would have to come up with is $700 million, at current bond prices they would need $600 million. The coal mine sale and $25 million from cash from continuing operations in Q4, they have $200 million. Two more coal mines could give them the $400 million more they need. When they bankrupt BL, the parent company of CLF will have the biggest claim against it and could net a couple hundred million out of it and be clear of all liabilities. Do the same with Wabush could give them $50 million. So without even touching Asia Pacific and the Ring of Fire, they could easily clear $1 billion of debt off the books, maybe even clear close to $1.5 billion.
Absolutely no other CEOs have been in front of the camera more than Steve Jobs and Meg Whitman… both are household names. They don't get that well known unless they are in the public eye. Thanks for those two examples, that is exactly what CLF needs!
You will find it on their annual report 10K 2-14-2014, exhibit 21. Bloom Lake is a limited partnership and they have another subsidiary under Quebec Mining and Wabush.
I do, beginning to think it has as much impact as posting here on Yahoo. If we could get all the longs to pay in $100, we could afford to buy ourselves a couple analyst. Just too bad CLF could not find a dynamic CEO that would feel comfortable in front of the camera like the CEO for AA.
First of all, look at their inventory levels, it is still much higher then their average as they did not liquidate that much in Q3. Then you want to factor in a tax benefit to offset the increased amortization amount due to the impairment charges. Which leads me to the high rate of depreciation, depletion and amortization which comes off earnings but adds to cash.
Bottom, from QuantumOnline:
"The preferred shares are mandatorily convertible on 2/1/2016 into a variable number of Cliffs Natural Resources, Inc. (NYSE: CLF) common shares based on the then current price of the common shares for 20 consecutive trading days immediately prior to the conversion date. The conversion settlement rate will be 0.7037 shares per depositary share if the then current market price is equal to or greater than $35.53 and 0.8621 shares per depositary share if the market price is equal to or less than $29.00"