Have you seen a copy of the sale agreement with the Bank of NS, it shows the it was a contract between Bloom Lake Partnership and has the equipment listed as security, nowhere is CLF listed on the purchase agreement. This lawsuit could have a negative effect on the Bank as they have put in a claim against the Bloom Lake partnership. The Canadian court could come out and say if you are trying to collect from CLF, then you can't put a claim in Canada, in which case they stand a chance to lose everything.
I will go with your 25 cents. I think they will sell 3 million tons of pellets in the US and the gains from APIO will offset the losses with US coal. So 3 million tons times $20 a ton gives you $60 million. Subtract out $10 to $15 million for charges to build inventories, and you would be at about 25 cents a share. In the past, this inventory build throws the numbers out and they end up making that money back as inventories are sold. Basically, CLF produces 5 million tons and sells 3 million tons in Q1. Most of the time they draw from their credit facility to pay for the inventory and then payback the credit line as they sell the inventory in later quarters.
This is the basis for the new iron ore supply chain that LG has been working towards.
1. Localized to minimize transportation and inventory cost.
2. Low production cost.
3. Expand local markets.
4. Reduce cost to their customers.
5. Expand value added product line.
6. Expand margins through cutting overhead cost like interest administration cost from overseas operations.
There will be a halt prior to asset sale announcements making it really difficult for shorts to cover.
in the world market, they must get their cost down and there is no other company that can supply them with iron ore pellets at a lower price, imported or domestically supplied. Even steel companies that have their own mines have a higher production cost than what CLF can sell them for as most of these steel companies started to develop these mines when iron ore was selling for $150. And the scrap based mills just need to move to iron ore pellets to reduce their cost and reduce the high cost of scrap steel. No tariffs are needed, just plain cost cuts and the realization that operating their own iron ore production is not smart at the current prices for iron ore. CLF's supply chain is the right one for business today and into the future.
ANYONE that purchased land during the iron ore peak, developed a mine over 5 years under current cost cannot compete with an existing mine like CLF has. Cost are just too high and the reason Essar took and extended their pellet contract with CLF that goes beyond the date they expect to be complete. CLF can sell Essar and MT pellets for less than their cost of production. And there is absolutely no way these mines can sell to others for less and maintain a profit.
in the US will push materials higher. US home sales and higher rents are pointing to increased household formation which we have not seen until now since the big housing downturn. With existing house prices rising and household formation increasing, new construction will make move higher going into the strong spring and summer months. Get housing units levels increasing to 1 million a year and this Great Recession will finally come to an end.
You know, LG could learn a lot about the experience. If you pull out a pistol and shoot, all you will do is tick the bear off. But if you yell and throw your arms around, they will run for cover. LG needs to use the media, not threaten the shorts with a gun in his night stand.
Noticed VALE turned positive as well. More details out of China about stimulus spending tonight will send the sector up.
Matt, I agree. When iron ore was selling for $25, RIO's cost was a little over $10. Now RIO's cost is closer to $30. When you compare prices with 2000 selling price, you need to look at the cost of production as well.
Armed with a garden rake, I managed to get him out. Got me thinking, LG doesn't need a gun to drive the shorts out, he just needs to grow a pair and take them on face to face.
Shorts attacking CLF on two fronts, low seaborne iron ore prices and debt. LG is reducing debt and Chinese demand will increase with stimulus spending. More than earnings in Q1, we need some announcement of asset sales that will make a sizable dent in debt.