Yeah, I take that back. CLF is making a low silica pellet that is used to make DRI pellets. Since silica requires higher temperatures to remove the impurity, its removal is key in the DRI process. Because the unstable nature of DRI, transporting the low silica pellet and letting the steel company make the final conversion to DRI near the steel plant on a JIT inventory makes sense.
You don't know much, the DRI facility was built a couple years ago and CLF has been producing low silica pellets. Check!
Furthermore, CLF continues to earn money and has paid down $1 billion in debt over the last year when iron ore prices hit their low. Checkmate!
Like all contracts, the specifics are not public, all we have is the word of the CEO that they are supplying Nucor with these low silica iron ore pellets.
My research is that CLF has been making these low silica pellets for years, but now with falling nat gas prices in the US, the price of these pellets have come down. These pellets require less energy and processing to make them into DRI pellets and it appears that the total cost makes them viable for Nucor to use. This Nucor - CLF relationship is what is needed to make the program work for both parties.
CLF will not be building a new plant, they are supplying the existing plant with a custom pellet designed specifically for Nucor.
Read the Daily Media Report, CLF is sending a customized pellet to the Nucor DRI pellet plant now. I don't know the specifics, but it sounds like this pellet is converted to DRI since it is being shipped to the DRI plant, not the steel mill. If CLF has worked out a pellet that can be economically converted to DRI at the steel mill, they just solved the major logistic problem associated with the DRI supply chain.
According to CLF, they will be supplying a customized, low-silica pellets to Nucor Corp.’s direct-reduced iron (DRI) plant in Louisiana. It sounds like they will be transporting a pellet to the plant that can be easily transformed into a DRI pellet for use in their furnaces. Know any specifics?
Daily Media Report June 11, 2015:
"NEW YORK — Cliffs Natural Resources Inc. aims to supply customized, low-silica pellets to Nucor Corp.’s direct-reduced iron (DRI) plant in Louisiana, according to the miner's top executive. The move represents a departure for the Cleveland-based company, which has traditionally made iron ore pellets for blast furnaces, Cliffs chairman, president and chief executive officer Lourenco Goncalves told AMM June 10 at the Steel Success Strategies XXX conference in New York."
Should I continue?
From Investorhub 7/23/2015:
"Goncalves has stated that CLF will supply Nucor (NUE) with DR pellets (#msg-115154401), presumably after CLF builds a DR pellet facility somewhere on the great lakes, possibly in Minnesota.
Importantly, unlike STLD (#msg-115584532), NUE considers an active DRI presence an important hedge against a possible (perhaps likely) rise in scrap and pig iron prices (see CC quote below).
CLF would not be the only source of DR pellets for Nucor. Indeed, NUE has recently constructed an in-house DRI facility in Louisiana and has been running an HBI facility in Trinidad for several years.
The question remains whether NUE would be willing to collaborate with CLF in developing the DR pellet facility envisioned by Goncalves (i.e. will NUE supply funds for capital expenditures)? It is difficult to predict the answer to this question… However, I interpret NUE's CEO statements in yesterday’s CC to mean that he is open to further investment in DRI infrastructure (see CC quote below), albeit he gives no hint as to whether such investment would be a collaborative project with CLF or any other entity. "
That operation is running at a loss for Nucor in part due to the large amount of ore that needs to be shipped at one time. At first look, the VALE operation seemed to be the lowest cost, but in reality, the operation is much more expensive than what CLF can provide pellets for.
bottom, from page 37 2015 Q1 10Q:
"Subsequent to deconsolidation, we utilized the cost method to account for our investment in the Canadian Entities, which has been reflected as zero in our Statements of Unaudited Condensed Consolidated Financial Position at March 31, 2015 based on the estimated fair value of the Canadian Entities' net assets. Loans to and accounts receivable from the Canadian Entities are recorded at an estimated fair value of $112.1 million classified as Other current assets in the Statements of Unaudited Condensed Consolidated Financial Position at March 31, 2015 ."
They don't have to borrow money to buy back shares. Knowing they have a tax refund coming in, they can use existing cash which should be in excess of $400 million at the end of Q2 and then replenish cash with the refund.
Also, they currently own majority interest but do no have controlling interest? It is kind of a technical issue, the CCAA has control over BL, but CLF owns it until their claim is paid out through the CCAA process.