They can make the interest payments off the cash available from DD and A. But they still will be making $20 a ton on USIO pellets. Figuring all the other pellet manufactures in the US will have to stop making pellets because they will be at a loss, CLF's volume will increase by 50% which will give them the same amount of total profits.
Again, all I am doing is reading the financials that are available to every one and showing where the money is available to pay off this debt without selling assets. CLF has come out and said that their debt is right where they want it and it is manageable which caused me to take a closer look. Maybe if they would come out and explain this to the markets, it would help. Me explaining it on Yahoo gets to about 5 people and has zero impact on the price of the stock.
It can only go down to a bottom of $70 which will still generate earnings. Still, I just pointed out how they can pay off the debt you are so worried about with out earnings, asset sales, tax refunds… The future is not that bad for CLF, they are the lowest cost producer of iron ore pellets which means others will go under before CLF which will only increase their future sales.
Depends, but if they are booked at cost, CLF has much more money available because they have more inventory to sell than in my case. It would push their profits on that inventory to $200 million per year. I had them figured at retail to give me a safe minimum number to present just in case someone brought this argument up.
Just pointing out the facts, if you can come up the facts why the stock price is going down I will review them. Just don't base your argument on the stock price because that has absolutely now basis on the performance of the company. If you say debt is the reason why the stock price is going down, please explain the problem with debt by outlining where CLF will default. I just clearly outlined out where the funds will come from to pay this debt off without selling assets, using earnings or taking on additional debt. Address that and we can have a serious discussion here.
Thought I spelled it out.
DD and A is a non cash charge against earnings that reduces taxes but leaves that money in the bank.
Inventories are booked at retail price and does not reflect the cost to produce it. Therefore the cost for CLF to replace that inventory is around 30% less. So if they sell that $400 million in inventories, it will cost them $250 million to replace it. Basically the $150 million per year represents the profit on that inventory. So from the sale of $400 million of inventories, CLF can use $150 million to pay debt and $250 million to replace the inventories they sold.
2018 bonds outstanding that needs to be paid is $435 million.
8 quarters of earnings available to pay this amount which makes it $54 million needed per quarter. At the current price of bonds, CLF need to come up with $27 million a quarter.
$30 million a quarter in DD and A which is available cash to use to pay against this debt.
$400 million in inventories that cost $250 million to produce per year. Leaves $150 million per year or $37 million per quarter to pay against debt.
Without touching earnings, asset sales or tax refunds, CLF has $67 million per quarter to pay off debt before the due dates. This is why CLF has insisted that their current debt is totally manageable.
Even at $20 a ton margins, without Canadian operations losses and liabilities pulling them down, they will be fine. Also CLF has a floor of $70 a ton for USIO pellets which will hit when seaborne prices go under $40 a ton.
On contract negotiations in the future, these steel companies will find that other suppliers of iron ore pellets will cost them more than what CLF can sell them for. The current US spot price for pellets in the US is $85 a ton. If it gets down to $70 a ton, CLF will be the only source for pellets in the US as other operations will not be profitable, even some of the integrated operations will have to shut down.
That is the trouble with you sometimes, you look at things too simple. Look at that 15% increase in volume from one sector of the business and project it across all the sectors in USIO. That WILL make a difference. On the 2018 bonds which there is about $435 million left to pay, at the current market price of those bonds CLF only has to pay out $35 million a quarter to pay that off by the due date. I really think that is totally manageable using the profit margins off their current inventories, keeping the cost of producing that inventory to replace it in the future.
Well then, you should be happy that CLF's royalty percentage to Mesabi has decreased. The volume to Mesabi is not the issue here, it is an indicator of CLF's overall increase in volume by projecting the percentage growth of this one sector of CLF's business across the whole company. Maybe that is a little difficult for some here to grasp.
Furthermore you have to understand that CLF will grow other mines before they resort to increasing volume that involves paying a royalty. So that 15% increase in volume at Northshore could mean a 20% increase overall which is in line with the Great Lakes iron ore shipping for Q2.
You say they are in huge debt, the company says debt is completely manageable. The company has paid down debt by almost $1 billion since Mr. Gonclaves took over. Outside of earnings, CLF currently has enough money coming in where they can retire another $1 billion in debt without selling a single asset. Throw in $500 million in asset sales, they would be down to the $900 million in secured long term debt (they have not sold all of the bonds that they issued).
Like any construction project, you start it, then stop it, it is going to take a lot more to finish it. What happens is contractors will cost you another set of margins when they take over a partially completed project and construction cost are much higher today.
" In the second calendar quarter of 2015, Northshore credited Mesabi Trust with 1,315,630 tons of iron ore, as compared to 1,113,443 tons during the second calendar quarter of 2014."
This shows that CLF's iron ore volumes will be up for Q2 as they only increase ore from this source when they have trouble keeping up from the other mines that they don't have to pay royalties.
I know why, maybe you can tell us and you better have something to back up your position, not accepting these meaningless short statements.
The mine may not sell, but they will get good bids on the rails and port. Along with elimination of liabilities, this would be the best outcome for CLF. They could really use the iron ore in the future with the growth into DRI.
Exactly, double iron ore production locally, not by exporting into the seaborne market. The US pellet business provides excellent margins, even today!
Jeff, you keep coming up with totally baseless statements. Compare non GAAP earnings, servicing debt, bond due dates, free cash flow, current assets, current liabilities… you will find that WLT could not service their debt from operations and liquid cash could not support them. CLF on the other hand does not have a problem servicing debt and maintains profits and positive cash flow. CLF has enough liquid cash now to pay future obligations. Furthermore CLF has been able to reduce debt over the last year while WLT added to debt.