The IRS will not allow you to write off an asset for more than you paid for it and impairments only accelerate the depreciation. For example, you buy an asset for $1 billion and write it down to $100 million by taking a $900 million impairment. Then you sell it for $400 million. If you then write off the $600 million loss, you are taking a total write off of $1.5 billion. That doesn't work for the IRS, they will make you take a $300 million gain so at the end of the day your total write off is $1 billion.
Another source of income for CLF is the buying back all those bonds at a discount. The have to record the difference between the face value of the bond and what they paid for them. All of this income is taxable but CLF will not have to come up with money to pay for it since a good part of the impairment charges is amortized forward, their future tax benefits will be less.
This should help you out, from 2014 10K:
U.S. Iron Ore
Asia Pacific Iron Ore
North American Coal
Eastern Canadian Iron Ore
Total segment assets
Note, if CLF gets more than $305.8 million for their Canadian operations, they will have to count that as income since they took the huge impairment charges earlier.
They are doing this to get a supply of 62 Fe, soon they will stop taking the low grade ore that RIO and BHP is flooding the market with. When you factor in transportation cost from Brazil, 62 Fe will climb to $100.
Funny, Chinese futures show this selling for over $70. BHP and RIO ship and flooding the market with 57 to 59 Fe, really there is a lack of 62 Fe.
They are on the up and up, just does not have much influence over the operations at CLF. There are much bigger players in the game.
Yeah, I know. We have not heard about debt in a long time… they just move on and the market follows.
$30 above spot seaborne, $10 below spot US pellets… take your pick they are both the same that puts the current contract target for US pellets at $90 a ton.
to reject all of the motions and the rejection by Quebec on the Wabush "Dust" as a health problem points to how committed the government is to resolving and getting BL back up into operation.
This is why CLF is so healthy, they can undercut the current spot price of US iron ore pellets by $10 to $15 and still make good margins. Companies like Magnetation and some integrated steel pellet operations can operate at a profit.
Q2 earning released. Strong US iron ore sales, Asia Pacific is profitable and coal is cash positive.
With iron ore prices increasing, look for good guidance going forward.
CCAA bids identified.
Status of coal mines, sold or keeping them.
July should be a great month for information.
Because the stock is down, there should have been a sale of stock in the Russell rebalancing. I think what you are seeing here is the release of the motions in the CCAA that rejects the motions placed by the unions, pension holders and others that were trying to get money out of CLF. This is in fact great news and points to a clean reorganization.
Thanks! Spent the last 3 hours of my life sitting in the DMV getting my license renewed, nice to come back with CLF up and some good news.
Need to throw the Aunt under the bus too.
Saw the same thing happen to the homebuilders during the housing downturn and recovery. Everyone is an expert in real estate and it was easy for the shorts to drive down the builders on general market conditions and ignoring individual company performance. Then housing turned and the companies that performed the best during the downturn are now industry leaders and their stock is worth 7 time more than their lows. You will see the same thing in the materials.
CLF is a better company now with cost cutting, shutting down non performing operations, removing liabilities, paying down debt, selling assets, taking impairment charges to reduce future tax liabilities and to recapture tax payments paid in the past. And when iron ore prices go up, this company will keep the cost cuts in place and will not pay crazy prices for future assets. Unlike many of the materials companies, CLF has maintained positive cash and it is money that will make CLF go up in the long run.