Tesla Discusses Supercar With Google, Is It Time To Buy? [View article]
While Tesla is a fantastic story and seems to have a very bright future, the stock price looks absurdly overvalued to me. Ford has a forward P/E of 10.35.
Imagine if a similar PE was placed on Tesla in 5 years time once the company matures a little. In this scenario IF all the growth hoopla pans out, Tesla would have to be making about $10 - $11 a share in earnings in order to justify today's stock price of $110. That would mean that Tesla would have to be pulling in a profit of around $1.15 to $1.3 Billion!
With that being said, Tesla looks like it's priced to perfection for 5 years into the future. Once the momentum drops off a little, I'd imagine this stock will retrace into the $20 a share range.
Using Yield Spreads To Assess The Relative Value Of The Mesabi Trust [View article]
Hi Jimmy46,
Thanks for reading and posting. I apologize for the tardy reply, at this point I do think that Mesabi is a good buy and hold security with little downside. See my comment to Plazmo44 below for a little bit more color on the stock's prospect in 2013.
Using Yield Spreads To Assess The Relative Value Of The Mesabi Trust [View article]
Hello Plazmo44,
Thank you for reading and for posting. The total distribution this year in my opinion should be a little bit lower than the distribution last year, but not by much. The major headwind for MSB this year is the fact that Northshore/Cliffs lost a contract to a steel firm that went bankrupt in Q3 or Q4 of 2012. This is why they idled a blast furnace late last year. On the bright side Iron Ore prices are way up from the lows of August of 2012 (i.e., around $90 a tonne at their nadir, to approximately $130 - $140 a tonne today). The better price environment should help with Mesabi's Bonus Royalty, which will offset some of the lost tonnage.
Additionally, there is some long term speculative upside that I think could really move this stock higher in the next 2 to 4 years. I'm entertaining the idea of writing an article about this so I don't want to get too in depth at this point in time.
Suffice to say, I think the stock is definitely a hold right now. While it's conceivable to see some price pressure to maybe $16 - $18 a share if the market takes a nose dive, I think the price could go back to $40 - $50 a unit in a few years as well.
Just keep in mind that the Peter Mitchell mine and the Northshore processing plant is probably the best mine that Cliffs owns in North America.
Fears Of An Iron Ore Price Collapse Create Opportunities In The Labrador Trough [View article]
The management team at Alderon (and Forbes/Altius as well) have done a fabulous job of fast tracking the Kami project and deserve a great deal of credit for their execution thus far. That being said, expectations for profitable production from the Kami deposit should probably be scaled back a bit. Almost all mines require a run-in period where the concentrating flow sheet is tinkered with and optimized, some mines require longer than others due to various reasons. My guess is that Kami will need an extra 6 to 12 months to get the fine tuning just right.
The only concerning element raised in the Bankable Feasibility study for Alderon was the fact that no bulk sample was collected, instead halved drill cores were used for metallurgical testing, these samples are referred to as "the China sample" in the FS document. Time will tell if the halved cores prove to be a sufficient proxy for the ore that will eventually be processed by Alderon and Hebei.
Thanks for the post. As you probably know, Cliffs has the capability of upgrading a few of their Mesabi mines to produce Direct Reduction "DR" pellets. The DR pellets are then used to make DRI briquettes, which serve as a substitute for scrap steel (i.e., the Nucor EAF model). Cliffs is in the final stages of testing a DR pellet at their Northshore plant as we speak, and will likely start selling DR pellets by the end of the year from Northshore--in my opinion.
Also, as you may or may not know Nucor is in the process of creating a DRI plant in St. James Parrish (i.e., New Orleans) in order to leverage their exposure to the natural gas boom. Several other steel firms are considering doing similar projects (i.e., creating DRI briquettes by utilizing cheap natural gas from the nearby Gulf of Mexico). It's very possible that Cliffs could benefit from this movement towards DRI in the near future. . Regarding the Chromite projects, I personally think they're a boondoggle. The projects will certainly prove to be a money pit similar to how Consolidated Thompson has proven to be a huge failure. In my opinion Cliffs should cut their losses with these projects as soon as possible! I welcome any evidence to the contrary.
I do agree that Cliffs Canadian mines are barely profitable. The Wabush mine has a high manganese level that is difficult to beneficate out and the cost per tonne there I believe is in the $110 range (ouch), and the major customer for the ore is in China, so they lose a lot of money to shipping costs. The reserves at Wabush will allow Cliffs to mine for another 10 or so years. The Consolidated Thompson mine at Bloom Lake has an operating cost per tonne around $80 right now, which is a far cry from the $30 a tonne Consolidated Thompson proclaimed the mine would have when it was sold to Cliffs in February of 2011.
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.
Commodity Market Intel, thanks for the article. While I agree with your core argument (i.e., low cost producers are the best investment in the iron ore industry), I think you illustrate a fundamental misunderstanding of Cliffs US business model. Cliffs Mesabi Iron Range properties produce high value in use products that are far superior to lump or sinter fines processed in the Pilbara or in the Carajas region. The high quality product is then shipped via the Great Lakes to Steel makers who operate in the Great Lakes region. The close proximity of the Mesabi mines to the Great Lakes steel customers creates a major strategic advantage for Cliffs. Not to mention the fact that Cliffs has long term contracts with steel makers on the Great Lakes which forces the steel maker to purchase a certain quantity of iron ore pellets at a specified price. Vale, Rio, or BHP would likely have to sell at a loss to compete with Cliffs in the US market. Just my two cents.
Black Iron Nears Production With 40% IRR And 2.2 Year Payback [View article]
Hello James,
Thank you for the in depth article on a name that is not widely followed. While I think Black Iron has good potential, better than most iron juniors for that matter, I'm a bit sceptical of their FS results in large part because of Forbes and Manhattan involvement.
While Consolidated Thompson may have been a big win for the shareholders of Consolidated, it has been an utter failure for Consolidated's acquirer Cliffs. The property has an op-ex of around $90 a tonne when initial projections were for around $30 at the Feasibility Stage, and the difficulty in processing the ore has forced Cliffs to take a $1 Billion dollar write down this past quarter, not to mention a permanent delay in the expansion of the property.
Alderon in my humble opinion is an even more brazen attempt to put through a mediocre property in order to capitalize on the recent iron ore boom. For those who have read through the Alderon Feasibility Study you will note the incredibly high stripping ratio due to the folded and buried nature of the deposit. Hebei Iron and Steel was supposed to have a final investment decision on that project by Mid January, however that decision was pushed back to Mid March. A final verdict should be out this Friday. It is possible that the project will be moved forward, but the share price drop since January might be telling investors that there is a possibility that Hebei might walk away from the deal entirely. Time will tell.
Using Yield Spreads To Assess The Relative Value Of The Mesabi Trust [View article]
Interesting development. If Northshore does go on to make DRI pellets, that would likely increase both the sales price and tonnage figures coming from the Peter Mitchell mine.
http://bit.ly/WL7x5p Excerpt below: Cliffs Natural Resources officials said Wednesday the company has been testing new, direct-reduced iron taconite pellets at two of its Minnesota plants — Northshore Mining in Silver Bay and United Taconite in Forbes near Eveleth.
Joe Carrabba, Cliffs CEO, said Wednesday during a press briefing with financial reporters that the company has been making test batches of taconite pellets that could be made into direct-reduced iron in electric arc furnaces.
Carrabba first announced the idea in June, saying the company was looking at spending about $200 million to upgrade one of its taconite operations to supply direct-reduced iron pellets suitable in electric arc furnaces.
“We’re pretty enthusiastic that two of our facilities through tests runs and trials … have the ability to make DRI pellets,’’ Carrabba said Wednesday.
The company said the key was reducing the silica level of the pellet. It wasn’t yet clear at which of the two Minnesota plants the final DRI pellet improvements might be made.
Treasure Island Royalty Trust: A Net Asset Valuation Of The Trust's Core Property Interests [View article]
Hi Eliot,
Thanks for reading and commenting. As an over the counter stock with a small market cap and only a few hundred shareholders TISDZ doesn't file quarterly reports with the SEC. However, if you're a unit holder you should get a quarterly report sent to you via snail mail. I've held the stock for a little over two years and might be able to get you the info you want. Send me a private message and we can take it from there.
Berkshire Hathaway (BRK.B) is set to raise capital, filing a shelf offering to issue an as-of-yet undisclosed amount of senior unsecured debt. The company plans to undertake the issuance on February 1. The plans for the proceeds are up for speculation. [View news story]
Using Yield Spreads To Assess The Relative Value Of The Mesabi Trust [View article]
This evening MSB declared a $.49 distribution to unit holders. According to the news release Northsore shipped around 993,000 tonnes in the quarter and attributed 978,306 tonnes to MSB. Also, according to the MSB press release the trust only received $76.195 per tonne. Given that the spot price for 62% Fe fines was above $120 for practically the entire quarter (and well above $120 in December) that's sales price figure is a bit of a head scratcher. Just goes to show that predicting the distribution for MSB is extremely challenging, even when using the best available data.
Cliffs Natural Resources: Is It A Short-Term Buying Opportunity? [View article]
Thanks for the article. What discount rate did you apply to CLF's future cash flows?
I think it's a bit difficult to value Cliffs without teasing apart all of their different operations/ mines. For instance the US iron ore business is a very different animal than the Eastern Canadian business, don't you think? Of course there is the met coal business and the ferrochrome development mines as well.
Revisiting Cliffs Natural Resources: A Dividend Payer Set To Make A Comeback [View article]
Hello Vash, Interesting article. Thanks for your perspective. In the beginning of the article you mention that the industry average is 40 times earnings. Who in the iron ore industry is trading at 40 times earnings, that seems a bit high to me? Vale, the largest exporter in the world, is trading at 8 times earnings and Vale has much better margins than Cliffs. Thanks for the article.
Tesla Discusses Supercar With Google, Is It Time To Buy? [View article]
Imagine if a similar PE was placed on Tesla in 5 years time once the company matures a little. In this scenario IF all the growth hoopla pans out, Tesla would have to be making about $10 - $11 a share in earnings in order to justify today's stock price of $110. That would mean that Tesla would have to be pulling in a profit of around $1.15 to $1.3 Billion!
With that being said, Tesla looks like it's priced to perfection for 5 years into the future. Once the momentum drops off a little, I'd imagine this stock will retrace into the $20 a share range.
Using Yield Spreads To Assess The Relative Value Of The Mesabi Trust [View article]
Thanks for reading and posting. I apologize for the tardy reply, at this point I do think that Mesabi is a good buy and hold security with little downside. See my comment to Plazmo44 below for a little bit more color on the stock's prospect in 2013.
All the best,
James
Using Yield Spreads To Assess The Relative Value Of The Mesabi Trust [View article]
Thank you for reading and for posting. The total distribution this year in my opinion should be a little bit lower than the distribution last year, but not by much. The major headwind for MSB this year is the fact that Northshore/Cliffs lost a contract to a steel firm that went bankrupt in Q3 or Q4 of 2012. This is why they idled a blast furnace late last year. On the bright side Iron Ore prices are way up from the lows of August of 2012 (i.e., around $90 a tonne at their nadir, to approximately $130 - $140 a tonne today). The better price environment should help with Mesabi's Bonus Royalty, which will offset some of the lost tonnage.
Additionally, there is some long term speculative upside that I think could really move this stock higher in the next 2 to 4 years. I'm entertaining the idea of writing an article about this so I don't want to get too in depth at this point in time.
Suffice to say, I think the stock is definitely a hold right now. While it's conceivable to see some price pressure to maybe $16 - $18 a share if the market takes a nose dive, I think the price could go back to $40 - $50 a unit in a few years as well.
Just keep in mind that the Peter Mitchell mine and the Northshore processing plant is probably the best mine that Cliffs owns in North America.
Hope that helps!
All the best,
James
Fears Of An Iron Ore Price Collapse Create Opportunities In The Labrador Trough [View article]
The only concerning element raised in the Bankable Feasibility study for Alderon was the fact that no bulk sample was collected, instead halved drill cores were used for metallurgical testing, these samples are referred to as "the China sample" in the FS document. Time will tell if the halved cores prove to be a sufficient proxy for the ore that will eventually be processed by Alderon and Hebei.
Just my two cents on the matter.
The Future Of Iron Ore [View article]
Thanks for the post. As you probably know, Cliffs has the capability of upgrading a few of their Mesabi mines to produce Direct Reduction "DR" pellets. The DR pellets are then used to make DRI briquettes, which serve as a substitute for scrap steel (i.e., the Nucor EAF model). Cliffs is in the final stages of testing a DR pellet at their Northshore plant as we speak, and will likely start selling DR pellets by the end of the year from Northshore--in my opinion.
Also, as you may or may not know Nucor is in the process of creating a DRI plant in St. James Parrish (i.e., New Orleans) in order to leverage their exposure to the natural gas boom. Several other steel firms are considering doing similar projects (i.e., creating DRI briquettes by utilizing cheap natural gas from the nearby Gulf of Mexico). It's very possible that Cliffs could benefit from this movement towards DRI in the near future.
.
Regarding the Chromite projects, I personally think they're a boondoggle. The projects will certainly prove to be a money pit similar to how Consolidated Thompson has proven to be a huge failure. In my opinion Cliffs should cut their losses with these projects as soon as possible! I welcome any evidence to the contrary.
Cheers,
James
The Future Of Iron Ore [View article]
I do agree that Cliffs Canadian mines are barely profitable. The Wabush mine has a high manganese level that is difficult to beneficate out and the cost per tonne there I believe is in the $110 range (ouch), and the major customer for the ore is in China, so they lose a lot of money to shipping costs. The reserves at Wabush will allow Cliffs to mine for another 10 or so years. The Consolidated Thompson mine at Bloom Lake has an operating cost per tonne around $80 right now, which is a far cry from the $30 a tonne Consolidated Thompson proclaimed the mine would have when it was sold to Cliffs in February of 2011.
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.
Cheers,
James
The Future Of Iron Ore [View article]
Black Iron Nears Production With 40% IRR And 2.2 Year Payback [View article]
Thank you for the in depth article on a name that is not widely followed. While I think Black Iron has good potential, better than most iron juniors for that matter, I'm a bit sceptical of their FS results in large part because of Forbes and Manhattan involvement.
While Consolidated Thompson may have been a big win for the shareholders of Consolidated, it has been an utter failure for Consolidated's acquirer Cliffs. The property has an op-ex of around $90 a tonne when initial projections were for around $30 at the Feasibility Stage, and the difficulty in processing the ore has forced Cliffs to take a $1 Billion dollar write down this past quarter, not to mention a permanent delay in the expansion of the property.
Alderon in my humble opinion is an even more brazen attempt to put through a mediocre property in order to capitalize on the recent iron ore boom. For those who have read through the Alderon Feasibility Study you will note the incredibly high stripping ratio due to the folded and buried nature of the deposit. Hebei Iron and Steel was supposed to have a final investment decision on that project by Mid January, however that decision was pushed back to Mid March. A final verdict should be out this Friday. It is possible that the project will be moved forward, but the share price drop since January might be telling investors that there is a possibility that Hebei might walk away from the deal entirely. Time will tell.
Best of luck to all,
James
Using Yield Spreads To Assess The Relative Value Of The Mesabi Trust [View article]
http://bit.ly/WL7x5p
Excerpt below:
Cliffs Natural Resources officials said Wednesday the company has been testing new, direct-reduced iron taconite pellets at two of its Minnesota plants — Northshore Mining in Silver Bay and United Taconite in Forbes near Eveleth.
Joe Carrabba, Cliffs CEO, said Wednesday during a press briefing with financial reporters that the company has been making test batches of taconite pellets that could be made into direct-reduced iron in electric arc furnaces.
Carrabba first announced the idea in June, saying the company was looking at spending about $200 million to upgrade one of its taconite operations to supply direct-reduced iron pellets suitable in electric arc furnaces.
“We’re pretty enthusiastic that two of our facilities through tests runs and trials … have the ability to make DRI pellets,’’ Carrabba said Wednesday.
The company said the key was reducing the silica level of the pellet. It wasn’t yet clear at which of the two Minnesota plants the final DRI pellet improvements might be made.
Treasure Island Royalty Trust: A Net Asset Valuation Of The Trust's Core Property Interests [View article]
Thanks for reading and commenting. As an over the counter stock with a small market cap and only a few hundred shareholders TISDZ doesn't file quarterly reports with the SEC. However, if you're a unit holder you should get a quarterly report sent to you via snail mail. I've held the stock for a little over two years and might be able to get you the info you want. Send me a private message and we can take it from there.
Best,
James
Berkshire Hathaway (BRK.B) is set to raise capital, filing a shelf offering to issue an as-of-yet undisclosed amount of senior unsecured debt. The company plans to undertake the issuance on February 1. The plans for the proceeds are up for speculation. [View news story]
Using Yield Spreads To Assess The Relative Value Of The Mesabi Trust [View article]
Cliffs Natural Resources: Is It A Short-Term Buying Opportunity? [View article]
I think it's a bit difficult to value Cliffs without teasing apart all of their different operations/ mines. For instance the US iron ore business is a very different animal than the Eastern Canadian business, don't you think? Of course there is the met coal business and the ferrochrome development mines as well.
Revisiting Cliffs Natural Resources: A Dividend Payer Set To Make A Comeback [View article]
Revisiting Cliffs Natural Resources: A Dividend Payer Set To Make A Comeback [View article]
-James