I read the contract, it goes through to Dec 31, 2016 with the option if both parties agree it can be extended for 1 year. Bottom line here is that CLF can supply MT with iron ore pellets at a cost to MT that is less than they can produce them out of their Canadian mines.
According to the last income statement, CLF has several currency hedges, what is the impact having them?
Not really, the wild card is how much Quebec is going to contribute to the deal to keep the mine in operation. I would think $250 million would be a small payment to protect the job base in the area. That means someone could pick up a lot of iron ore for $250 million and in an auction, that sum could jump even higher really quick.
If they get $500 million for BL, they will have their net debt down below $1.5 billion and there will be no need to sell a single other asset. At that level of debt, CLF can easily pay off their remaining debt from interest savings and future tax advantage cash over the next 5 years.
He just changed direction that is better overall for the company. Upon completion of the bond exchange and the purchase of additional bonds with the $500 million bond issue, LG will have trimmed CLF's net debt from $2.9 billion when he took control 8 months ago to $2.1 billion. A $800 million decrease and he only sold a $175 million asset. If you ask me, that is some smart financial work at that is what is real.
At the end of the bond exchange and the purchase of bonds with the issue of the $500 million secured bonds, LG will have CLF's net debt down to $2.1 billion which is $800 million less since he took control of the company 8 months ago. And the only asset he sold was a $175 million coal mine. How fast do you think he should pay down debt? He is working on it and I bet by his 1 year anniversary date CLF's debt will be down to $1.5 billion.
And others are missing my point, iron ore may never get to $90, it is in CLF's best interest that it doesn't. US iron ore's only competition is the ore from Canada that is owned by steel mills and CLF must be able to sell their ore for less than their cost.
As long as iron ore stays below $90 a ton, iron ore companies operating a local supply chain holds the advantage.
It will not help CLF. Right now it cost MT more to supply ore from their Canadian operations than what they can buy it from CLF. But once it hits $90, it is in their best interest to supply their own ore. So CLF must keep a lid on their pellet prices at $100 to keep their contract. However, on the bright side CLF can charge steel mills more that don't own an iron ore mine. Again, like in the past, CLF will charge steel mills a price that the major ore companies can't match when you add shipping and handling.
This is what is great about supplying a local market from low cost established mines. By making good profits by setting prices on what their competition's cost are, they will remain profitable in down cycles and make a little more in up cycles. And by concentrating on local markets, they can achieve further cost reductions in supply chain adjustments and operational overhead to increase profits.
RIO, BHP and VALE are big and can ship a lot of ore, but it is CLF's localized business model with a value added product line that will be the way iron ore is processed in the future. And that is the word CLF management needs to get out into the media.
Vip, you may be right. If he didn't have something up his sleeve he would be out there working the media to build support.
The $1.25 is a 2nd lien, while the $500 million is a 1st lien.
Since BL is headed into bankruptcy, none will be applied to it. The coal assets could be and in that case, any buyout would have to be paid against this debt which CLF would have done anyway.
Anyway, the wild card in all of this is an asset sale, throw that into the mix and you could see debt under $1 billion or money thrown at a stock buyback. And as debt is paid down, interest expense is lower and debt reduction will move faster.
These refunds are from previous taxes paid and from taxes owed that actually puts cash in the bank. In my construction business during the downturn was able to generate cash from NOL's that gave me real money to pay for my habits.
As lishe pointed out that after the bond exchange and bond purchases, their net debt will be near $2 billion. Even if they don't sell a single asset, the tax benefits they will get in 2015 and some cash from continuing operations will give them enough to buy back an additional $500 million in bonds which will cost them $400 million.
Funny you say this, I am just about done building my house and I will have to go out and get a real job to keep me busy. Saw a job for a milker at the State prison. It pays $40,000 a year, if I get an interview, the first question I will have is, what exactly do I have to milk?
Smart? Not really. Tried in the past to estimate earning and have come close on tons sold, revenue and basic cost, but I always get hammered on charges to earnings. So any number I would come up with would be a simple guess. Whatever the number for Q1 is, it will be the lowest number that CLF will post in 2015 so if we see a profit, it will point to a good year for earnings and debt reduction.
You are right about the time frame to build a mine from scratch. Essar bought that land in Minnesota when iron ore was high and with the cost over runs they are now in a position when the mine is complete, it will not be profitable. So there will not be any new mines started, companies in the future will just buy these mines like Essar's for a fraction of what they have into it. Same with BL. Even MT is going to have to address continuing to use high cost ore from their mines in Canada or being able to get ore for less from the local market.
It will be a long time for iron ore prices to break over $100 again. What is going to change is the way iron ore is supplied to the steel mills. Iron ore companies will only supply their local market and if they want to expand into other markets, they will have to buy out an existing company. Supplying iron ore will be much like supplying cement. CX was able to ship low cost cement to the US when prices were high, but when the price of cement fell, CX changed to buying out US cement manufacturers to build their US position.
CLF is changing the way they do business and is adapting to current and future market conditions.
Unfortunately, I believe CLF will wait until they get their debt down to $1.5 billion before they start using cash to buy back shares. Debt reduction impacts profits, share price does not.
Losing money on investments is one thing, but having labor contract commitments taken away is wrong. If CLF sells the coal mine you worked in, does the new owner assume your pension liabilities? Were you part of the union?
I believe most of the reason CLF is down is based on the negative press from the Bank of NS lawsuit. CLF should counter sue the bank now.
When my in-laws died they had many debts and one filed a suit against us for payment of debt that we were not connected to. The cost of filing a lawsuit is not that high and they just thought I would buckle with the written lawsuit. So I counter sued them for trying to extort money from us and we settled out of court with them paying me for all of my legal expenses. The point here is they all are willing to file, not willing to follow through with the actual suit. The Bank of NS will not get a dime of the BK settlement of BL while the suit is pending, those funds or assets will be frozen until a settlement is reached in the US. So are they willing to gamble and wait a couple years while this gets hashed out in court? I doubt it.
LG is not going to defend this company in the world of public opinion, he is going to do it through results. As much as I would like for him to get more proactive to turn the stock around now, it just isn't going to happen. We just have to wait for the next deal, the next earnings release and the next bond purchase.