It appears the major funds care less about the dividend and more about overall earnings and the direction of the company's debt position.
The dividend cut has nothing to do about saving cash as it is clear they have enough to pay down their debt by $400 million. Cutting the dividend has everything about using the money to buy back bonds at a 20% discount which compounds their savings. Buying back bonds now at a discount makes much more sense than carrying them to term where they have to pay full face value.
Without the impact of China ore sales at a loss, CLF generates cash which allows them to increase their debt payments beyond the money they get in from selling assets. It is this future cash and debt reduction that will take the shorts out of this stock.
What is also know is that the best way for CLF to increase income is simply to decrease interest expense and that is why they will continue on this debt reduction path until they get to zero debt.
Here is the deal, the future of US iron ore operations is known. Long term contracts have revenue locked in and as long as oil stays low, their cost will go down. It is extremely easy to look at the current income statement and project where CLF's profits will be as they stop providing iron ore to China.
CLF's US operation generates lots of cash and management now sees there is no better place to place that cash than in debt reduction as expanding mining into other markets is off the table. You will see capital spending in the future to expand into other US markets, but you will not see CLF spending another dime on expanding into other markets.
Dividend will be gone as long as CLF has debt on the books as it will be used for debt reduction. The point I am trying to make is that the eliminating the dividend is not that important, debt reduction is and the shorts fear this move more than anything and trying hard to misdirect the focus of their attack. Even when they bring up the dividend cut, they do not bring up the fact the money is used to pay down debt.
I don't recall that, I am always about the income statements. I did say that US steel production does not hinge on energy production and that part of the business does not have that much of an impact on their bottom line and AKS results prove that. Energy represents 10% of steel demand in the US whereas construction is 40% and auto is 20%. I did say that lower energy cost reduces demand for energy related steel were as lower energy cost increase the demand for housing and autos. Work the percentages out and it is clear construction and auto will trump the fall in energy related demand.
They should not reinstate the dividend until their debt is down to zero. The shorts do not fear the dividend, they do fear this move to reduce their debt and is the key reason they are totally ignoring this $400 million reduction. They have finally tipped their hand and CLF needs to beat them to death with this action.
At some point, the market will realize the size of the debt reduction and with the help of policy changes like eliminating the dividend, the market can see CLF's commitment to continue the same level of debt reduction into the future.
If you want to know where CLF is headed, watch their bonds. Over the month they have moved from $60 to $80. With their $400 million debt reduction, by the end of Q1 they will have eliminated the debt that is due in 2018 and moving onto 2020.
When their bonds get to $90, S and P will make a move to upgrade their debt from junk.
Bob is a tool, but for a short I have to give him credit for providing some facts and not just throwing out baseless statements. I do read his post and do respect his views.
Only if you sell. They got $175 million from the sale of a coal mine and managed to pay down $400 million in debt in one quarter, that is really impressive.
in debt reduction! Shorts continue to focus on the dividend cut. CLF management really need to get out in front of this in the media. Really, $400 million is a much bigger deal than a $23 million dividend cut.
I never said to double the dividend. I did say a stock buy back made sense until I realized that buying back bonds at 40% discount was a better choice. I also said CLF is not affected by the price of seaborne iron ore and that it will generate consistent earnings off their US operations.
So here is where CLF is headed, total elimination of all seaborne businesses, debt reduction to $1 billion and $800 million annual earnings off US iron ore.
FCX is a prime example, companies can no longer just dig dirt out of the ground and ship it around the world. Miners need to be localized and provide a value added product. CLF's US operations is going to show the industry the real face of mining in the future.
Bob, you really need to look at the reason for the cut. It is not because the company can't afford to pay it, they can! It is just that by cutting the dividend and using that money to buy back bonds, they get value added to by buying those bonds below face value.
You also said that CLF cannot service their debt and yet in one quarter they paid down $400 million on top of the $300 million they paid down in Q3. Is this ability to service the debt worrying you? It seems like the shorts are focused hard on this $23 million dividend cut and not the more important number of the $400 million debt reduction.
By the end of 2015, CLF will have reduced their debt to $1 billion and have quarterly earnings of $180 million based on part the benefit of this dividend cut.
You know the shorts are close to the end of their rope when all they got now is to accuse the CEO of lying. Kind of like kids on the play ground resorting to name calling… So very sad.
sold and CLF trims debt by $400 million. Selling off the other two coal mines, BL, Wabush, Asia Pacific and Chromite, plus the savings from cutting the dividend and interest savings, Cliff could get to Zero Debt within 2 years. Now at current iron ore prices, you can take their current earning on their US operation and see the company can easily earn $6 a share.
This is the direction CLF is moving towards and the dividend cut was just a part of this master plan.
It is funny how people are just brushing away the $400 million debt reduction! Just think, two more coal mines sell and we could see an additional $800 million reduction. And finally, getting debt down below $1.5 billion, the interest savings alone will pay off the remaining debt before the due dates of the bonds.
Yet everyone is hung up on this dividend cut. No one is pointing out the $90 million + savings will retire $120 million in debt over the year. Add in the interest savings and CLF could get to that $1.5 billion debt level without selling Bloom Lake, Wabush and Asia Pacific. Now I feel they need to sell those assets now which will move CLF to zero debt within 2 years.