Douglas E. Johnston
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Douglas E. Johnston

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## Distribution Reduction In The Cards For Calumet Specialty Products? [View article]

## The Value Of Cliffs Natural Resources Is All In The P/B Ratio [View article]

## Distribution Reduction In The Cards For Calumet Specialty Products? [View article]

## Distribution Reduction In The Cards For Calumet Specialty Products? [View article]

## Distribution Reduction In The Cards For Calumet Specialty Products? [View article]

## Distribution Reduction In The Cards For Calumet Specialty Products? [View article]

## The Value Of Cliffs Natural Resources Is All In The P/B Ratio [View article]

As for buybacks, I really don't see how CLF (or Casablanca) can pull that one off given their writedowns and reduced ebitda, that will occur with a sale, and their debt covenants.

## Distribution Reduction In The Cards For Calumet Specialty Products? [View article]

"On March 31, 2014, the Company redeemed approximately $326.0 million and $174.0 million in aggregate principal amount outstanding of the remaining 2019 issued in April 2011 and 2019 Notes issued in September 2011, respectively, with the net proceeds from the issuance of the 2021 Notes at a redemption price of $570.9 million."

This implies a redemption price of 114.18 for the refinanced debt. If you include all fees etc (a total $89.6mn loss recorded), then the redemption price is higher. Simply using the 114.18 results in a yield to maturity of about 6.4%. They issued the new 2021 bonds at 6.5% (ignoring an extra 16mn in OI discounts). So, they simply made an upfront payment in order to reduce future interest payments. There was no "400 basis points" of savings. I am sure the banks understood that.

So your first statement is incorrect.

## WSJ: Cliffs Natural Resources hires adviser to sell certain assets [View news story]

And then there is coal...

they need to restructure the balance sheet - cut div and issue equity now

## Distribution Reduction In The Cards For Calumet Specialty Products? [View article]

## Distribution Reduction In The Cards For Calumet Specialty Products? [View article]

## Distribution Reduction In The Cards For Calumet Specialty Products? [View article]

## How Much Is Cliffs Natural Resources Worth? A Business Owner's Perspective [View article]

doug

## How Much Is Cliffs Natural Resources Worth? A Business Owner's Perspective [View article]

as for assuming the growth rate in gross margin equates to the appropriate discount rate makes me extremely uneasy. First, the discount rate in the denominator is a "business" (or equity) discount factor which typically is the rate of growth + a risk premium. It is the demanded ROA by the business owner in your context. Also, it is unclear why the assumption that the growth in iron ore prices will exceed the growth rate in mining costs leading to every expanding gross margins. As an analogy, what answer would you get in a DDM model where the growth rate of dividends is assumed = to the required equity return?

For ex, lets just say USIO mines 25mT per annum at your $20 GM and use the 40% which would be $200mn in net profit/annum (this implies an IO price well above current forecasts for the next few years). And if u say the required ROE is 10% over the growth rate in profit, we'd be talking a $2bn valuation. Clearly, we can produce pretty much any valuation we want by simply playing with the assumptions. And this does not include the needed capex to actually begin mining.

Even with proved reserves there are necessary capital expenditures needed to actually get them out of the ground. As for the 50% on probable, I do not know industry standard for the assumption on conversion to proven.

While i think your analysis represents a good first step, I do not think there is sufficient information to suggest that CLF is a buy

## How Much Is Cliffs Natural Resources Worth? A Business Owner's Perspective [View article]

Are you taking the probability weighted reserves of 588.7 and then multplying by a $20/ton gross margin assumption? and then taking at 60% haircut to get a value of $4.7bn for USIO?

Don't you think that net profit margin is related to the price of IO?

Where is your discount factor to convert reserves to present value?

What are your capex assumptions (e.g., to convert prob to proven?)?