the model of CLF basing their future on China did not work and they should not go back to it, so basing CLF's future on that model would be wrong because they just are not going down that road again. The future for CLF is in the US and they need to concentrate on that. If they can work out the transportation issues with DRI, their US profits could double.
When the dust settles and they are earning $4 to $5 a share, all of this will go away. Future growth is going to come from DRI pellets, plain and simple, blast furnaces will move from coal to nat gas and electric due to strict air quality regulations. No need to waste their time digging and trying to sell iron ore dirt with the big boys, go for the high value added product outside of China. And even China will move towards nat gas as they are sitting on huge reserves and the need to improve air quality.
In any case, the US market will be the one that will make the first move to DRI and all CLF has to do is address the transportation and distribution issues. There is no need to place future growth on seaborne 62% or chromite.
CLF's advantage is their DRI plant is located next to their mine. Other providers have to ship the ore into their plant and then turn around and ship it out to the customer. With every shipping turn adding 20 to 40 percent, you can see the advantage of cutting out this one set of handling and transportation.
The last wave of shorting has been driven by these announcements from CLF that do not materialize. The shorts have been working this angle over the last 3 weeks. Short covering will start with CLF's first win and move from there.
Debt is the last part of the short's attack against CLF. LG know this and is working to sell assets to generate cash to buy bonds back. Once he retires $1.5 billion in long term bonds at face value, debt will no longer be a point of fear. With CLF not tied to seaborne iron ore prices, established as a low cost iron ore pellet producer, a plan to pay off the remaining $1.5 billion with tax benefits and continuing to build long term US contracts, there will be nothing left for the shorts to attack.
All this rest with LG's ability to sell off the remaining coal assets and Asia Pacific. A deal on BL, Chromite and Wabush would be just a bonus that would decrease debt even further.
The Logan Coal Mine is scheduled to close before year end and I am sure CLF put in some type of penalty if it doesn't as it is really important to get this off in 2014.
Nothing mindless about it, US iron ore operations can earn CLF $4 a share at current iron ore prices. Sale of coal assets and Asia Pacific with buying bonds back at a 30% discount can easily trim $1.5 billion of debt off the books. All points to a solid US iron ore operation as the commodity prices recover and hope they never return to Canada again.
Part of an article on CBC about the need to build a third rail line from the area and outlines the competition between IOC and MIT rail lines. Lots of money on the line and is one of the reasons they are looking at a third line. Unlike you, I don't pull these out of thin air.
The key here is the Bloom Lake Railway. If CLF shuts it down, iron ore from that area will have to go down Mittal's railway and RIO's rail system will be cut off from the mines of the region. This could cost RIO billions in lost revenue over 5 years. This is big money for RIO as transportation out of the area accounts for 40% of the total cost of iron ore.
You can bet there are talks and negotiations going on right now!
I say do everything it takes to reduce long term debt to $1.5 billion. Sell off all excess inventories, cut dividend, sell assets, use cash from continuing operations and any other cuts they can dream up. Then buy back bonds with every extra dime at a 30 to 40 percent discount. At $1.5 billion in debt, CLF can pay off this amount with the tax benefits they will get for the next 10 years from the impairment charges and tax losses from asset sales.
I believe he will have a direction of where he is headed with BL along with the remaining coal assets. In Q1 one thing will be clear, CLF will be buying back $200 million in long term bonds at 40% discounts.
The media can be all over CLF's $60 a ton cost on US iron ore and NEVER distinguish between 62% and iron ore pellets! At least, once CLF sheds BL, they will no longer tie CLF to the $100 cost of that operation!
Think about it, sell those hedges and they could cove interest on their debt for four years. It would be like extending their hedges another 2 years.
Thanks, I saw on CNBC where suppliers and labor have cut prices to these companies by up to 50% which should make $50 oil cash flow positive.
CLF was going to buy shares and then bonds through borrowing money to do so. LG cancelled that when he realized he was going to have money available from selling assets, excess inventories and cash from continuing operations. Better to wait and spend cash than to jump into borrowing more. His intentions are not made clear, wants his actions to speak for him, trouble is it just takes time.
I lived in Mooresville, NC on Lake Norman. Enjoyed the fishing but my wife hated the humidity so we moved back west. Now we live in Nevada backed up to the CA boarder and 10,000 foot peaks. We have deer, bear, mountain lions, bobcats, coyotes, quail and those damn chipmunks. Once I get my house built (doing most of the work myself) I plan to start fishing and I do love smoked salmon and steelhead. I don't hunt anymore, but I can still hit a chipmunk at 50 yards. After 100 chipmunks, I still don't have enough for a small rug.
Have a great holiday with your family.
Oh, I was thinking about you the other day, the biggest mule deer with largest forked horn set of antlers I have ever seen walked across my back yard. We are going to get snow above us and I look for more deer to come down tomorrow. There is absolutely no hunting pressure except for the few mountain lions, so they come down to allow for great photos.