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Cleveland-Cliffs Reveals Details Of Australian Business Closure

Apr. 09, 2018 2:02 PM ETCleveland-Cliffs Inc. (CLF)135 Comments
Vladimir Zernov profile picture
Vladimir Zernov


  • Cliffs expects to close Australian operations by June 30, 2018.
  • The estimated cash expenditures are $120 million-$140 million.
  • The key question is whether the company will be able to fully mitigate the negative impact by selling various items in its Australian operations.

Cleveland-Cliffs (NYSE:CLF) has recently published an 8-K filing where it revealed the details of its exit from Australian operations. The company has previously warned that it would shut down its Australian operations this year, but now we can see an exact timetable and company’s estimates of the exit costs.

Cleveland-Cliffs announced that it will close Australian operations by June 30, 2018. Total costs of the closure are estimated at $140 million-$170 million. Included in this estimate are contract termination costs ($60 million-$70 million), employee severance obligations and other closure-related costs ($30 million-$40 million) and non-cash asset impairments and write-offs ($50 million-$60 million). Speaking about the impact on cash, Cliffs estimates future cash expenditures of $120 million-$140 million, as they include certain capital lease liabilities that were previously recorded on the balance sheet.

Here’s what is important for those interested in Cliffs’ shares. The company will spend about $130 million of cash to exit the Australian business. Meanwhile, Cliffs will be selling everything it could sell from these operations. During the latest earnings call, the company stated that the exit would be “pain free” due to mitigation strategies. What “pain free” means numbers-wise is unclear at this point, and I hope to hear more details during the upcoming first-quarter earnings call, which is scheduled for April 20.

The timing of the announcement is no coincidence. As per the latest annual report, the company had supply agreements with steel producers in China which expired in March 2018. Also, supply agreements with customers in Japan expired in March 2018. Obviously, Cliffs decided not to renew these commitments due to hefty discount to IODEX prices for Australian lower-quality ore.

In my opinion, the impact of this speedy exit will ultimately be positive for Cliffs' shares. The reason for this is that the company shares have often been

This article was written by

Vladimir Zernov profile picture
I'm a trader who trades both short-term and long-term. I started my career as a day-trader for a trading firm, but then turned to longer time frames and went on my own to manage my portfolio. I use technical analysis as well as fundamental analysis in my research.

Analyst’s Disclosure: I am/we are long CLF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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