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Douglas E. Johnston  

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  • Cliffs Natural Resources: Stuck In A Quagmire [View article]
    @dmshachory - another thing to consider is that USIO segment's realized price is based on the TTM IO price so they realized $106.8 in Q2 down 2% from Q1 even though the 3m avg of IO was down almost 15%. Going forward the realized IO price will continue to decline without an upswing in IO prices. At $85 IO and 12m forward basis, i see rev-cogs at ~200mn assuming they can ratchet costs down another 10% to $65 (w 125mn DD&A). Other costs have been about 10% of cogs but say we use 7% for some cost savings then EBIT would be ~100mn. Then say 50mn for share of interest and 20% tax rate, you end up with maybe $40mn in earnings.

    So net I think your numbers are high based on using H1 information.
    Sep 9, 2014. 08:40 AM | Likes Like |Link to Comment
  • Cliffs Natural Resources: Stuck In A Quagmire [View article]
    i think u pretty much hit the nail on the head. I do think the price will go lower because earnings will continue to get worse. So i am more tempted to go short on a price pop than vis-a-versa. Want-to-be Longs should take a wait and see regarding reliquifying balance sheet. Might miss the first 10% but best to be prudent IMO....thx
    Sep 9, 2014. 08:26 AM | 1 Like Like |Link to Comment
  • Cliffs Natural Resources: The Sell-Off Begins [View article]
    "debt is not a major concern at this point either."

    not sure their bankers would agree with you
    Sep 9, 2014. 08:21 AM | 2 Likes Like |Link to Comment
  • Cliffs Natural Resources: Stuck In A Quagmire [View article]
    @dmshachory - not sure but it looks like you are just taking rev-cogs. Are you applying any corp. overhead/interest/misc... to your USIO earnings number? and, if so, how did you divvy it up per segment. ttyt
    Sep 8, 2014. 05:40 PM | 1 Like Like |Link to Comment
  • Update: Barrick To Eliminate Its Corporate Development Division [View article]
    good - who needs acquisitions...they have enough to do with their existing properties...good riddance....we got back in today sub $17...we'll see.
    Sep 8, 2014. 04:39 PM | Likes Like |Link to Comment
  • Update: Barrick To Eliminate Its Corporate Development Division [View article]
    "It is an admission of bad judgment" jeez - where have you been the last two years....
    Sep 8, 2014. 04:38 PM | Likes Like |Link to Comment
  • SandRidge Energy: Does The Announced Stock Repurchase Contradict The 'Grow Into Debt' Plan? [View article]
    seems this is a popular strategy...CLF just announced a $200mn also and the stock is down almost 10%...total hogwash
    Sep 8, 2014. 04:34 PM | Likes Like |Link to Comment
  • Update: Barrick Gold Announces Disbanding Of Corporate Development Team [View article]
    We added back risk today at the close. We're glad they are out of acquisition market. They have plenty of work to do with existing properties. They are doing everything right but can not control the price of gold.
    Sep 8, 2014. 04:32 PM | 1 Like Like |Link to Comment
  • Cliffs Natural Resources: Stuck In A Quagmire [View article]
    i do not think CLF has been beaten to a pulp and there are significant questions on survivability given outlook for IO production (from Big 3) even in the face of low prices.

    Based on your original criteria: The assets are questionable (high cost) in the aggregate and the (new) management is completely untested.

    I too like to buy when everyone else is fleeing but want a margin of safety. When we get a secondary might be the time.
    Sep 8, 2014. 04:29 PM | 2 Likes Like |Link to Comment
  • Cliffs Natural Resources: Stuck In A Quagmire [View article]
    @Dr - not sure that is a good deal for Wuhan....Ausie is prob worth only about 6-700mn....remember its only got 66mT of reserves (mostly probable) and they mine 11mT/annum maybe generating 150-200mn in cash flow at $85-90 IO....they'd be giving Bloom Lake 18% for almost free...but I like your thought process...somehow they are going to have to convince the bankers that they haven't taken too much of a haircut and ebida will still cover interest 3+x. The trick will be getting rid of money losing ops like Coal so that ebitda doesn't take a hit when u sell Aussie. Of course they don't have a lot out on their credit line but I don't think they can live without one unless they boosted cash significantly....tough position which is why i think equity infusion is necessary
    Sep 8, 2014. 01:43 PM | Likes Like |Link to Comment
  • Cliffs Natural Resources: The Sell-Off Begins [View article]
    @noob - i agree but the difference was at the time the leverage at ABX was slated to rise to upper 3s in 2014 and was still a decent degree of safety vs debt covenants. Cliffs is slated to end the year at closer to 6 (Net debt 3bn/500mn ebitda) and things do not look better for 2015. They will also be closer to their debt covenants. Equities with higher leverage trade cheaper to book. I thought it was a smart idea for ABX to issue equity. I think it would have been smart for CLF to issue in mid 20s back last fall. Maybe they were concerned with the "impression" given the proxy fight at the time. Either way, one has to make the tough decision to you issue equity and solidify balance sheet or increase risk. I think a rights issue makes most sense so that existing investors get first dibs to add capital and avoid dilutive effects

    ABX did not experience a takeover from a small minority investor. That is a risk that needs pricing too.
    Sep 8, 2014. 08:25 AM | Likes Like |Link to Comment
  • The Value Of Cliffs Natural Resources Is All In The P/B Ratio [View article]
    @Pharma - it is in the covenants - if they sell assets below book, then the debt-to-cap ratio goes up (currently at ~33%; cov. limit at 45%) - also if they sell profitable unit (e.g. asia) with getting rid of losses (NA coal), then ebitda goes down and interest coverage covenant comes into play....
    Sep 7, 2014. 04:17 PM | Likes Like |Link to Comment
  • Cliffs Natural Resources: Stuck In A Quagmire [View article]
    @paul - i was considering the haircut on just the PP&E assets (i.e. the mines) which stood at $11bn end Q2. I usually start with the premise that the market is smarter than me and try to disprove. With CLF, I find it difficult to confirm value based on BV.

    Yes, ideally companies issue shares when "rich" and buy them back when "cheap" but many times that is not the case. There are a number of examples where the market "forced" companies to issue equity at seemingly depressed levels as well as at least one (close to home) that didn't raise capital because they thought too cheap and paid the ultimate consequence.

    I think in addition to BV being overstated, there will likely be a drain on shareholder equity from net-income losses over the next 1-2 years. Admittedly, my $10 target is somewhat informal - probably a reasonable margin of safety at that level for a speculative trade. We will probably not buy until we see balance sheet improvement - too much risk of loss IMO. Of course, I've been wrong before but I prefer being wrong and preserving my capital.
    Sep 7, 2014. 04:12 PM | 1 Like Like |Link to Comment
  • Cliffs Natural Resources: Stuck In A Quagmire [View article]
    @donnavet - I can not offer that specific advice. I will say, we still have no position long or short. I would advise reading both sides of the argument, look at CLF's and Casablanca's presentations and then some DD. Hopefully, I provided a down payment on such....gl
    Sep 7, 2014. 03:55 PM | 1 Like Like |Link to Comment
  • Cliffs Natural Resources: The Sell-Off Begins [View article]
    @noob - speaking of gold, i think it is very instructive to look at what happened with Barrick Gold (ABX) when gold prices collapsed back in early '13. Very similar situation to CLF's in my opinion. Shares did not stabilize, at a very low level, until they recapitalized - that is my view. If not, then even $10 may not hold. I think $40 is not feasible any time soon but its a free market...good luck!
    Sep 6, 2014. 04:56 PM | Likes Like |Link to Comment
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