CLF is a low cost producer with their US iron ore pellet market and will benefit from RIO and BHP's actions when iron ore prices rise. CLF is finally taking the right action by not selling valuable assets at a loss.
Since the bond downgrade from S and P, I believe CLF's offer is above market. But I agree with you, if I owned bonds, I would not sell them. But a lot of the bond holders have short positions against CLF as a hedge and when they sell their bonds, they will cover their shorts and have a net profit. So look for a fair short covering rally.
We need a viable US pipeline that will reduce the cost to produce this oil by $15 a barrel. That will take this push to lower prices by Saudi Arabia off the table.
Thanks for this post! Puts everything on the table. HK is sitting in a great position, the US oil industry in for consolidation and HK should be a prime target for a buyout.
Short term! They will not be able to hold it down for even a year. That is why the smart shale companies hedge. HK's hedges into 2016 is more than enough to wait this event out and makes it attractive for a buyout.
Low cost oil and the US taking over the largest energy producer is bringing back manufacturing to the US as the cost of shipping has taken off the benefits of overseas manufacturing off the table. This is exactly why CLF needs to be in the US market only and forget about China. There will need to be an adjustment in the world economies as imports to the US will continue to decline. And OPEC is as good as dead.
Based on the tender offer, if CLF spends $1.1 billion on a buy back they will be left with $1.568 billion in old long term bonds and $1.1 billion in a new secured bond that expires in 2020 for a total of $2.686 billion long term debt. They plan to replace their credit facility with $500 million.
The bond buy back, if they can buy the entire offering, will reduce their debt by almost $400 million which at an average interest rate of 5%, they will save $20 million interest per year.
I agree, commodity prices have now bottomed with oil and we will see a strong rebound in oil prices that will take the rest of the commodities up as the dollar weakens.
These analyst said most of these drillers are hedged into early 2015. HK is hedged into 2016 which will allow them to outlast their competition and oil prices will go up as their competition exits the market and supplies are cut. With these hedges, HK is a prime target for a buyout as consolidation is needed in the industry.
The accounting of hedges is a little confusing, it appears the hedge sits on the books as a liability and that liability increases with the value of the hedge. Then when the hedge is settled, the liability is decrease and cash is increased. Someone on this board explained it much better than I did and it appears the market doesn't understand it as well.
"Whether this slump proves as calamitous as 1986 depends how long it lasts. Many U.S. producers bought derivatives that protect them against declining prices. That insurance has its limits, and for some companies it will run out after the first half of 2015."
HK is hedged into 2016 and can outlast the Saudi's attempt to hold oil prices down like they did in 1986.
I have never seen so many trades under 500 shares, just retail traders locked into a tight range. On the other hand, SDRL has been hit hard and volume is through the roof, may have to take a closer look.
Looks to be a slow day, only one premarket trade so far, a sell generated order at $9.25.
Good luck in filling your $9.05 and have a great Thanksgiving.