Now it is clear Essar did not think this through, if you breech the contract you had better have another source of iron ore pellets lined up. It is clear they don't since they ran to the courts. Can they wait out court action? I doubt it very much and it puts CLF in control.
So this is simply a power play on CLF's behalf, LG would have not done it unless he felt it would benefit CLF in the long run.
One disadvantage in running a JIT inventory system, the steel company kind of loses their leverage in a dispute like this. And Essar's overruns in their mining venture is contributing to their loss of leverage.
I should have waited until Jeff (oht) posted before buying, would have saved 7 cents! Live and learn! But I am still happy with my purchase, looking for strong volume on the buy side heading into the close.
The last thing Essar want to do is to run out of pellets and have to shut down their furnace. That would be extremely costly!
If the volume holds up, it will be on the backs of shorts covering… need to see 15 million shares traded today.
Will the shorts use this as an opportunity to cover? The hedge funds tend to stop the short sell at 10:30 in their attempt to pull the price down for the day. Could be the trade of the day, buying the dip.
Essar is getting close to producing their own pellets and I think they are realizing that their cost is going to be higher than they can buy pellets from CLF. With the current high cost of developing a mine today, there is no way they can come in lower than what CLF charges for pellets today from their older established mines. Integrated operations only works when the price of iron ore is over $100.
just read my response, it is just simple business and CLF has the advantage being the lowest cost producer of iron ore pellets…. yes, even lower that what Essar can produce them for in their new mine operation. Trust me, Essar needs CLF more than CLF needs Essar.
Look, when I was building a house for a custom client and they refused to pay, I would simply stop building. Why give away my labor and cost when the customer refused to pay… Really it is just that simple and yes we have a contract, but the buyers refused to adhere to the terms of the contract. Trust me, best to cut them off at the start, they will come around when they discover the alternatives will cost them more.
Also, US steel demand is fairly constant, if Essar's production falls off, then another steel manufacturer will take up that slack….
What would not be hot is supplying Essaar ore and not getting paid! Better just to stop shipments as long as Essar will not honor their contract. Essar has a choice now, buy iron ore from CLF or pay more to buy iron ore from someone else, which includes their own high cost mining operations. CLF is smart to stop supporting them, let them go under with their high cost operations…. trust me, LG knows all the variables and is acting accordingly. But the absolutely wrong thing to do is to supply Essar under the current conditions!
Does he have to wait until earnings are released before he can announce his next offering to buy back bonds? The Board must know what his intentions are and is the reason they are accumulating shares now.
It appears that the heavily shorted materials stocks are experiencing short covering. If this buying volume continues, we will see a real short squeeze. Now would be the time to come out with an asset sale!
Just read the ipo prospectus, it is basically the "contract" that lays out all the specifics and risk associated with buying the shares.
Before make a statement like this, you really should read their SEC 424b5 ipo prospectus statement. The BL covenant you talk about does not exist and it spells out all the risk an investor buying the CLV is taking.