Seeking Alpha

CMI Research

View as an RSS Feed
View CMI Research's Comments BY TICKER:
Latest  |  Highest rated
  • Powder River Basin Coal - 2013 Forecasts [View article]
    skelly73 made some excellent points. In regards to ILB coal keeping PRB west of the Mississippi, this could happen but only in degrees. ILB mine plans and project forecasts show some significant underground growth (a slight decline in surface); so yes, those producers will pick up some of the plants previously supplied from App and possibly some supplied by PRB (the far eastern ones; as I mentioned, PRB coal has been shipped to plants all the way to Florida). However, PRB coal is still cheaper in terms of $/MMBtu. In addition, it's lower in sulfur (any ILB coal going to Europe is typically blended with PRB to get below 1%).

    There's no doubt, the risk/reward is long-term. If an LNG export terminal comes on line we could see a 8% pop in PRB prices (Navigant Consulting forecast from a few months ago). If a Northwest terminal comes on line, we'd see a much larger jump. In the meantime, Cloud Peak has a lot of cash on hand and no major debt to roll over until 2017/2019 - so it's a relatively safe place to park some money if you're interested in a potential long-term payoff.
    Mar 28 11:22 AM | 1 Like Like |Link to Comment
  • The Future Of Iron Ore [View article]
    Aricool, thanks for the comments - some excellent points.

    Forecasting iron ore prices a couple years out is difficult at the best of times; these days it's next to impossible. In the article I linked to from last week I mentioned some of the recent forecasts for iron ore prices going out to 2015. I tend to follow the combined logic of various sources which currently stand at $80-$100 by 2015.

    I was primarily focusing on the supply side in this article; demand would take another (likely several) article(s) but I'll try to address some of your points.

    - I don't think there is much that could stop the new mines from coming on line. They were/are a significant investment and will have lower cash costs than many current suppliers. The more likely scenario is that the new capacity will push out higher-cost mines.
    - China is still investing heavily in their domestic production; despite it being, as you correctly pointed out, of lower quality and (typically) having low ore grades. Cash costs for China are hard to pin down, I typically see $120/tonne (which everyone formerly considered the price floor) but it certainly does reach up to $150.
    - I'm still unsure of what the situation will be in Goa a couple years from now. Even with it coming offline permanently, most figures I've seen still show an oversupply in the next couple years (I'll try to look them up and post tomorrow).
    - I agree that China wants their steel capacity utilized as much as possible, the infrastructure stimulus proves that. Still, if the demand isn't there to maintain 80%+ utilization the Chinese government will have a difficult time propping it up indefinitely.

    Thanks again for the comments, it's what makes SA so much fun.
    Mar 27 10:37 PM | Likes Like |Link to Comment
  • Cliffs Natural Resources And The Future Of U.S. Iron Ore [View article]
    pgw5353, thanks for the info - I'll have to check that out. I'm guessing they are referring to mining costs/tonne, or maybe C1 cost? There are a lot of ways to view "cost" (e.g. not applying overhead, transport, etc).
    Mar 27 05:25 PM | Likes Like |Link to Comment
  • The Future Of Iron Ore [View article]
    Johan, I would agree - Cliffs serving a good chunk of US capacity is probably one of the best things going for the company. I would also agree that implosion is not imminent but that Cliffs Canadian (and to a lesser extent, even Australian) iron ore mines will be a drag on the company.

    Personally, I agree with the second paragraph of James' second comment (above):
    "In my opinion Cliffs should admit error and divest all of it's non core assets including Consolidated Thompson, the Chromite properties, Wabush, and the Coal mines. The core business should be US iron ore."
    Mar 27 04:39 PM | Likes Like |Link to Comment
  • The Future Of Iron Ore [View article]
    James, great point - I probably didn't make myself as clear as I should have. I agree that Cliffs US operations, along with all US iron ore producers, have a obvious advantage in shipping to US customers. In fact, nearly all US production is consumed domestically. My concerns with Cliffs are the Canadian mines, which account for roughly 1/3 of their North American production. The recent announcement of cost reductions at the Wabush mine to $95-100/tonne is a clear indication of how far off-base they are in regards to the export market. In addition, some of their other projects/mines concern me (e.g. App coal, the level of investment required for the Ring of Fire - on which I'm currently writing a joint article).
    Mar 27 12:47 PM | 2 Likes Like |Link to Comment
  • Powder River Basin Coal - 2013 Forecasts [View article]
    BermudaHigh, I would almost need to write an entire article to address your question, but I believe the short answer is contained in the first graph of this article. If PRB coal is 'in the money' at current natural gas prices, then at a natural gas price of $4.65-4.75/MMBtu we would see something that hasn't happened in quite some time - PRB producers would finally be able to raise their prices! If, at the high end, PRB coal costs $3.25/MMBtu, then they could potentially raise their prices by up to ~40% - so I would guess in the $14-15 range.
    Mar 26 03:02 PM | Likes Like |Link to Comment
  • Cliffs Natural Resources And The Future Of U.S. Iron Ore [View article]
    Johan, it sounds like you are trading on a much shorter time horizon than I was focusing on in the article. I agree that iron ore has maintained solid pricing thus far this year (in the last graph of the article you can see that both Goldman and the ABREE are forecasting prices at profitable levels for Cliffs in 2013). However, the next couple years are cause for concern. If prices drop to, say, $100/tonne - then Wabush/Scully and Bloom Lake would most likely be operating at a loss (with the US mines at razor thin margins).
    Mar 25 05:02 PM | Likes Like |Link to Comment
  • Cliffs Natural Resources And The Future Of U.S. Iron Ore [View article]
    You should have a message in your inbox...
    Mar 24 08:33 AM | Likes Like |Link to Comment
  • Cliffs Natural Resources And The Future Of U.S. Iron Ore [View article]
    Jimmy, great additions to the article! I'll ping you in regards to working together on an article on the Ring of Fire.
    Mar 23 11:32 AM | 1 Like Like |Link to Comment
  • Cliffs Natural Resources And The Future Of U.S. Iron Ore [View article]
    A couple clarifying notes:
    - A lot of their iron ore is indeed consumed in North America, although the Chinese 62% fines price drive the price basis here due to export parity and as a general industry benchmark.
    - As I mentioned at the end of the article, there are some things in Cliffs favor; I just happen to think that the NA iron ore issues are too much to overcome. That being said, iron ore is only 60% of their business and some of that is at lower cost (they are expanding their Ausralian operations).
    - They are making efforts to lower NA costs. They recently idled the Pointe Noire pellet plant at the Wabush mine which should lower production costs from $100-105 down to $95-100. Still not great in my opinion.
    - The Chromite project has great potential (perhaps the topic of a future article).
    - The Ring of Fire has some infrastructure problems that may be difficult (or at least time consuming) to overcome.
    Mar 22 09:29 AM | 1 Like Like |Link to Comment
  • Powder River Basin Coal - 2013 Forecasts [View article]
    Fair point about Arch but it all really depends on your risk tolerance and time horizon. A few things stand out about CLD over ACI:

    - CLD is a pure PRB play. While it seems like the bleeding has stopped from Arch's CAPP mines, there's the risk of investing in an area with ever increasing strip ratios and thinning seams.
    - CLD has a lot of cash on hand, some day (I hope) they will pay a dividend.
    - CLD is the best positioned PRB producer in regards to exports. Admittedly, this won't occur for quite a number of years (if the most recent regulatory delay of the Port Morrow project is any indication) but when it does, they have the contracts in place to take advantage of it.
    - CLD's Spring Creek mine is one of the few higher-BTU mines in the west (with reasonable production costs).
    - CLD finally cleared up it's issues with Ambre Energy in a way which I think will pan out well for the company.
    Mar 19 10:50 PM | 1 Like Like |Link to Comment