The main problem is their oil assets, just like every oil company out there, they lost 50% of their asset value as oil fell from $90 to $45. TCK is having the same problem.
If CLF has positive earnings in 2015 and 2016, they will have enough money from their DD and A deductions plus the profit off their current inventory build to buy all these bonds back before 2018. Their current inventory build is paid for with no debt, by just using the profits, they can maintain that inventory levels without borrowing funds in the future. Then once they get their debt down to $1.5 billion, they can pay off the remaining debt from the DD and A deductions and the money they will be saving on interest.
Of course, any asset sale will accelerate this debt reduction. Not expecting a BL sale, but I believe the rail and port facilities will be sold in CCAA. With WLT going bankrupt, don't expect CLF will be able to sell their met coal mines in the near future.
Saudi sour crude is not the same as the high grade sweet that is coming out of these fracking operations. These US operations are getting more profitable every day.
Thanks for this post, I use the thumbs down as an indicator I am on point as it hit a nerve in the bashers here. I am more concerned if I don't get a thumbs down!
Every miner needs to cut production and concentrate on expanding their local markets. At the current price of iron ore, it makes about the same sense to export gravel as it does to pay to export iron ore. When transportation cost eat up over 50% of your margins, time to stop shipping.
In home construction I could show people how they could make more money by building less, yet they all continued to expand production at any cost… then housing crashed and destroyed the industry for the small builders by doubling their financing cost because needing to use private lenders, labor cost have skyrocketed due to the lack of supply of skilled labor and materials cost has gone up as the supply chain has decreased. Steel prices have gone down, but yet it is not being passed down to the small builders as I am paying the same as I did a year ago.
In mining you are seeing the same thing, operations are being driven by egos, not common sense.
Past management did exactly what other miners are trying, weather the storm by diversifying and increasing volumes. FCX and TCK got trapped in high cost oil production. VALE, RIO and BHP are working themselves into a hole by over producing into China. All the coal producers have not shut down their high cost operations.
With falling prices, LG took the steps to change the face of mining. The percentage of cost going to transportation increasing, mining needed to change to supplying a local market. Miners need to shut down all operations that are losing money and eliminate the liabilities, if WLT would have shut down their high cost Canadian and UK subsidiaries, they would have maintained the cash flow to stay out of bankruptcy. Miners need to cut all cost to make operations profitable. Reduce debt, cutting 25% of debt in one year is a good start for CLF. Expand your local market, sell what you have on hand is a better strategy than expanding supply to generate sales.
Q2 earnings will prove what LG is doing is right, hope it will make the shorts look for greener pastures.
Do you realize most of the cost associated with transportation is in loading and unloading, trucks are the most expensive because of the small quantities per load.
You think transportation cost out of Canada is bad, there is no way with current infrastructure in Russia and China can they ever compete with the shipping cost from Australia.
And still, CLF's established mines are a lower cost than these. Also, steel companies are unlikely to buy ore from their competition.
I am finishing my house and decided to look for a job locally, finding $15 is the top of the pay scale! Really sad, was making more in 1980. Funny thing is when I need help for basic construction labor with no tools, I have to pay $15 an hour, with tools and skilled, I have to pay $30.
On FCX and TCK, their problem is going into high cost oil operations. These miners would have been wiser to do like CLF and cut back to just their profitable operations.