Exactly, government help will increase the value of the mine so that CLF can sell it for a fair price. If someone steps up and offers CLF $1 billion, that is a 75% discount to what CLF paid for it. Then factor in another discount for a government subsidy, the discount grows giving the buyer a much lower cost to produce iron ore. CLF will sell this mine, now it looks like they will get a fair price and a bigger impact on debt reduction. A deal on BL would push CLF's debt below $1.5 billion.
You have short sellers like yourself that are making a last ditch attempt to slow the rising price and the smart shorts are using the opportunity to cover now. Watching the sales and buys, the sale side is getting smaller from the high sale volume around 9:45 this morning.
Jeff, one other point, the shorts should really be concerned about CLF's bond buy backs, the 40% discount is going to magnify the effects of asset sales in reducing overall debt and increasing their liquidity. I really expect an increase in short covering ahead of Q4 earnings.
I am not really an expert on this either, but when they announced the bond buyback I noticed it was weighted towards the 2040 bonds. I would have thought they would go after the bonds due first, so then I got looking into it. The 2040 bonds have the greatest interest rate and could be held the longest in reserve. And as CLF's debt improves and US operations generate good profits, they are the bonds that stand to make the biggest move towards par and CLF's cash position grows further.
I take back all I have ever said about buy back common shares, buying these bonds at current levels is the absolutely best thing CLF can do.
Up over 8%, not bad, just some people taking nice profits into the close and will have a chance to get back in tomorrow at 10:15. Tomorrow we will see if there is any fear in the short positions, especially if oil is up in the morning.
My rule is never buy unless the stock is red, days like this I never make a dime day trading. And I do regret it and need to review my rules. On the bright side, it is good for my long positions.
Those bonds they buy will be held and can be resold back into the market if cash is needed. Plus they have a credit facility of $1 billion to add to their liquidity. I would like to see them maintain about $300 million in cash and continue to increase their bond purchases.
Buying back those 2040 bonds gives them the biggest interest savings and when 2018 rolls around and they need cash to pay off those bonds, they can just sell back some of those 2040 bonds. But to be honest, with the amount of cash they will generate from US operations and the reduction in their interest expense, they will have the cash to do so.
Think of it another way, if they can retire $1 billion of debt through selling $600 million in assets, they will save $60 million a year in interest expense. Over 3 years that $180 million will pay almost half of what is due in 2018.
The order book appears to have a floor at $6.72 where a pick up in sell volume can't seem to break. Low volume buys take it back to $6.80 and the cycle repeats. Something is going to break soon.
"In the week ending January 3, 2015, domestic raw steel production was 1,857,000 net tons while the capability utilization rate was 77.2 percent. Production was 1,787,000 net tons in the week ending January 3, 2014, while the capability utilization then was 74.5 percent. The current week production represents a 3.9 percent increase from the same period in the previous year. Production for the week ending January 2, 2015 is up 6.4 percent from the previous week ending December 27, 2014 when production was 1,746,000 net tons and the rate of capability utilization was 72.6 percent."
If there are layoffs in steel, it has to be in product specific, but the overall steel production is increasing!
No, US Steel supplies their own iron ore. You really need to look at the total steel production which is up year over year. Energy accounts for 10% of US steel demand whereas auto accounts for 28% and construction is 40%. Lower energy cost has caused increases in auto sales and construction which greatly outpace the losses in energy related markets.
Thanks for the break down. One thing we will see is a cost savings from lower energy cost and the tax gains from the previous impairment charges that will both result in increases in cash. We will also see some charges against earnings from the sale of assets, but these are non cash charges. There is going to be several ways these earnings are going to be spin in the media, but the key to everything is how much of their long term debt is retired.
There is so much they can announce once they get out of this quite period and I believe LG is like a kid at Christmas, just can't wait to get it out.
They pulled it when they realized they could use cash from asset sale to buy bonds in the open market at a bigger discount since they would not have to telegraph it. It is as simple as getting a better deal!
As Chinese demand increases, the value of CLF's AP operation goes up… may get well over $500 million for it.
The market has finally discovered that CLF's bond prices are rising and that CLF must be engaged in reducing their long term debt. It is debt that the shorts have hung their last hat on although some have moved to attacking CLF's primary US market as China spot prices are rising due to inventory builds. But the big players are watching the bonds and will elect to cover before earnings reveal the depth of bond purchases.