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The Remarkable Transformation: Cleveland-Cliffs

Mar. 07, 2021 3:41 PM ETCleveland-Cliffs Inc. (CLF) Stock256 Comments
Larry Hall profile picture
Larry Hall


  • Cleveland-Cliffs is transforming itself into a key player in the US steel industry.
  • That transformation depends on a strategy that has components of both vertical and horizontal integration.
  • The vertical integration applies to the company's ability to control the resources and mechanisms for its own steelmaking capabilities.
  • The horizontal integration is expressed in Cleveland-Cliffs functioning as an important supplier to other players in the US steelmaking landscape.
  • These changes are largely the result of the leadership of CEO Lourenco Goncalves, who stands in the first rank of today's CEOs.


Cleveland-Cliffs (NYSE:CLF) is a company in the throes of a remarkable transformation in focus, size and momentum. The same can be said of its stock, whose recent volatility is a reflection of this kinetic reality.

The power of the CLF story lies as well in its uniqueness, which is captured in the bullet points above and by the leadership of CEO Lourenco Goncalves. The company's transformation from an ore producer into a forward-looking leader in the US steel industry is tied directly to Goncalves’ strategic vision, consistent execution and underpinning characteristics of skill and confidence.

Mr. Goncalves believes in the mission and has demonstrated his ability to lead a team in execution. This is a real difference-maker for Cleveland-Cliffs.

A snapshot view of the company may cause an investor to hesitate, given that it is a turnaround story. The change in scale and the ambitious self-redefinition may cause the share price to fluctuate in the short term.

My view of CLF’s future is a rosy one: think a cold Great Lakes sunrise rising up out of slate-grey and up into a brightly-hued clarity.

Revisiting the Business Case

Several weeks ago, I wrote a piece about CLF published on Seeking Alpha. I stated that “Cleveland-Cliffs' business model has several key components, including consolidation, efficiency and growth. There is extensive interplay between the three.”

Here was a company in the midst of a transformation, and that transformation triggered growth through acquisitions and expansion. Beyond that, the emphasis for CEO Goncalves beyond expansion was efficiencies, including greater exploitation of existing resources to achieve superior production and greater revenues, profits and shareholder value.

CLF’s transformation, however, is more than the byproduct of acquisition and efficiencies. It depends upon vertical and horizontal integration. CLF now controls its own steelmaking chain from raw ore to

This article was written by

Larry Hall profile picture
I am a writer with diverse interests from creative writing to physics to tennis and music. Another interest is markets/investing. I manage my own portfolio and enjoy it. I believe in research as a critical component of any investing decision. I do comprehensive research on any stock that I am considering purchasing. I also keep current with names that I own. This is also because I find company dynamics and adjustments to market conditions a very interesting interplay. I suppose that my style is 'growth' according to the standard definitions; I am really looking for quality companies that I can own for a long time. That's really value investing, which brings me to my final Bio thought - categories like 'value' and 'growth' yield to 'quality' if we invest soundly.

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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (256)

Krypto profile picture
If the price of steel continues to be high, CLF is in a good position.
@Krypto From what I understand, prices will continue to move higher in May. Wont see any real pressure until mid-late summer as imports increase (albeit very little) and SDI starts up their 3M ton/year EAF in Sinton, TX but even so its not enough production to really put a damper on prices. At this point, CLF could do 17B in revenue in first three quarters of the year vs entire year as the consensus shows.
BIg move this morning. Anyone see a catalyst? Maybe it's related to GS and their happy earnings report ;-)
Larry Hall profile picture
@Cassidy Run It is all an unknowable mystery, hopefully one trending up.
@Cassidy Run During the past 8 days, CLF swooned down to a major level of support on decreasing volume. The purpose primarily was to close the gap. The support held, and so the launch pad was set for a blastoff today.
@Will Sonnett Yes, you are indeed correct, the gap has been closed. I've accumulated shares for my second tranche over the past three months.
georgefelix75 profile picture
Earnings due in 10 days.
Larry Hall profile picture
@georgefelix75 Most of the projected numbers for increases in revenues, profits etc. on EarningsWhispers are looking extremely good. Projected EPS is expected to miss, however that must mean that the original projection is based on an increase of several hundred percent, given all the numbers for CLF.
@Larry Hall I'm doubtful that the stated consensus EPS estimate of $0.45 on Earnings Whispers is correct. Several sources, including Seeking Alpha, state that the EPS estimate for CLF is $0.34. I think $0.34 is probably the correct estimate.
Larry Hall profile picture
@Will Sonnett Makes sense. Otherwise, 'somebody made a mistake somewhere.' I am wondering why more people are not bullish on CLF. But that's just me..
Steel pricing update:

Q1 Average: $1,195/ton
Current: $1,325/ton

Futures as of today:
May - $1,363/ton
June - $1,353/ton
July - $1,295/ton
August - $1,265/ton
Sept. - $1,221/ton
Oct. - $1,116/ton
Nov. - $1,045/ton
Dec. - $980/ton

Per LG: Full year guidance was based on $975/ton HRC average in 2021.
Larry Hall profile picture
@TALC22 Sounds heavily optimistic.
Given LG previous flops on forward looking guidance one might wonder why he is choosing an average HRC well below Q1 2021. Maybe it is due to steel contracts resetting. I think caution would be appropriate. Share price might drop in the future. Especially with all the good news factored in to the stock price. Might be putting in the high for 2021.
@Larry Hall

The big issue or question for CLF EBITDA in 2021 is the cadence for auto contract price increases. We do not know or have that information. The futures market for HRC is real and empirical, not a judgement or opinion or something that can be evaluated as optimistic.

My further sense is that a related sub issue or variable will be the fourth quarter when the year over year price increases will really start to matter. Q4 is the wildcard for 2021 and the opportunity for further upside. I also expect that there will be some charges this year for higher than expected maintenance and acquisition related depreciation or goodwill charges that will dampen EPS vs EBITDA.
CLF could generate 4 billion EBITDA in 2021. That is about half their market cap. Incredibly under valued at these prices
Nice to see the earnings announcement moved back to within a month of quarter end.
I hope LG get Cliffs house in order by taking debt below $4 trillion in 2021.
davenchop profile picture
@skittles12345 trillion.... god i hope not
LG just announced during the Platts steel market conference to expect EBITA above $1 billion in Q2 and likely Q3 as well. That is massive !!!

How many shares are outstanding, 550M ? I think Q2 will be north of $1.75 EPS and Q3 could match, wow.
@TALC22 Great news and many thanks. Might you have a link to his remarks?
@Cassidy Run If you signed up for the event you can replay his portion of the conference. For now I don't think its in writing anywhere although I would think an analyst would pick up on his comments. I believe Philips Gibbs was on the call. I think my previous estimates for Q1 revenue are solid given his comments. He also said he expects $3.5B in EBITA thru first 3 quarters which I dont think anyone was expecting.

$4.00 EPS for the year seems reasonable at this point and basis an 8x multiple we are looking at $32 share price.
Larry Hall profile picture
@TALC22 Thanks for those updates and good luck to all us CLF holders..
I own CLF just hope Lorenzo reads this Please get out there and do some inverstor seminars and TV Podcasts the company needs you to spread the word . Explain the China situation and shed some light on what should be a $60 stock
@KEEPYOURMONEY It's Lourenco, first off. I hope he reads your post too but I don't imagine he'll do more than build the powerhouse. As to the $60 stock...well, wouldn't that be grand!
@KEEPYOURMONEY He is the main speaker at next week's north American steel summit run by Platts.
@Cassidy Run Crammer had on NUCOR I mean come on CLF kick some tail
Brutal day.

Possible infrastructure package aside, the bigger news should be China's steel export rebate potentially being cut at the same time they clamp down on big polluters. Your potentially looking at the largest steel producer/consumer in the world becoming a net importer of steel all while US imports of steel are already at very low levels.
RickJensen profile picture
Talc, you are so smoothing. (:->
Lorenzo needs to go on a PR blitz and get out there and spread the word and love . A CEO needs to set an example not be a lazy log
@KEEPYOURMONEY The earnings results will do the talking.
@KEEPYOURMONEY LG has done plenty of talking and he put his money where his mouth is too. @Will Sonnett is right. CLF earnings will move the stock price higher. Patience will bear fruit here.
@Will Sonnett No brag, just fact. Rick
"Stock analysts at B. Riley dropped their Q1 2021 earnings per share estimates for Cleveland-Cliffs in a research note issued on Tuesday, March 16th. B. Riley analyst L. Pipes now anticipates that the mining company will post earnings per share of $0.02 for the quarter, down from their previous estimate of $0.69. B. Riley currently has a “Buy” rating and a $20.00 target price on the stock."

This stock is getting setup for a massive beat. Come on LG, give us some guidance.
Larry Hall profile picture
@TALC22 Sure has moved up a lot yesterday and today. Lot of traders have sunk their teeth into CLF, it seems.
@Larry Hall I think its pretty clear, inflation is here to stay and coming a lot faster than Fed is leading on. Look at the global logistics market, there is a ton of demand for goods and not a lot of goods available. The $1.9 trillion in stimulus hasnt even had an effect yet and then when you consider dems pushing thru infrastructure in July I think we see a rate increase next year.
sts66 profile picture
@TALC22 69 cents to 2 cents? On what basis? That's nonsense - they were either too high or are now too low.
sts66 profile picture
Analysts downgrade CLF Q1 EPS -40% - from TDA:

Quarter Ending 3/2021
# Estimates 4
Current Est $0.26
Prev $0.428
@sts66 I also noticed here on SA the estimates for 2021 revenue is down to approx. 17.5B which Im fairly sure was $20B last week.
I was a long term holder of this company. But the last 2 years I started trading a large percentage of my holdings. What I found out is CLF is a great trading stock. For whatever reason iron ore and steel making is volatile. Trade the volatility. It has worked great for me. I hope you are having similar success.
@sts66 Good setup for an earnings beat.
Has anyone seen the CLF advertising at both the Big Ten Basketball Tournament and the Big Ten Hockey Tournament? CLF has a huge sustainability advertisement the length of the scorers table. First time I saw CLF advertising of that size.
@skittles12345 A few weeks ago on Fox Sports. Look for ads during the tournament. I can't the TV spots anywhere on the internet though.
Elon wants to be called technoking and he wants his CFO to be called king of coin. Does anyone have any suggestions for the Lourenco Goncalves and Keith Koci duo?

I was thinking metal heads.
Larry Hall profile picture
@skittles12345 Musk is trolling again. The thick-headed souls on CNBC decided he put out these titles to distract from what they believe to be autonomous driving failures. The financial media continues to misread Tesla and its future, religiously. As a shareholder, it is amusing.

LG could be 'Steelhead Steamroller.'
@Larry Hall
I am a big believer in Tesla's revolutionary battery driven electrical grid. But I think the stock price valuation is way ahead of itself. I don't see autonomous driving to be a game changing event, I think it is similar to cruise control now. Are people going to be responsible for anything in the future?

Anyway I thought CLF investors might have some fun naming Goncalves and Koci tandem. How about the steel czar and scrapy-doo.
Larry Hall profile picture
@skittles12345 Disagree on autonomous driving, which is not at all like cruise control in its capabilities including object recognition and turning. There are now quite a few Youtube videos demonstrating the progress. There is also massive factory expansion etc. Agree with you on electric grid.
Snowboard 2k01 profile picture
We at Cliffs picked up a fair amount of modern equipment with this acquisition

On March 13, 2020, the company was acquired by Cleveland-Cliffs for $1.1 billion.

Dearborn Works has earned IATF 16949, ISO-9001 and Ford Q1 certification. The facility completed a large-scale modernization campaign in 2007 and 2011. During the campaign, more than $1.2 billion was invested in new state-of-the-art equipment and various operational improvements. Some of the major upgrades at Dearborn Works include a new blast furnace, a new five-stand, six-high, 72-foot tandem coil mill linked to a pickle line and a new exposed hot-dipped galvanizing line focused on automotive and other original equipment manufacturer (OEM) needs. In 2016, a multi million dollar investment was made to the hot-dipped galvanized line to produce AHSS, including our NEXMET® family of steels.


Our Facility
Butler Works is located on a 1,300-acre site in western Pennsylvania, a
one hour drive north of Pittsburgh. Electrical and stainless steel melting and
casting, hot and cold rolling, and finishing operations are housed in 3.5
million square feet of buildings.
Major production facilities
include the following:
• 230 ton electric arc furnace
• World’s largest Argon-Oxygen Decarburization (AOD) unit,
175 ton capacity
• Twin station ladle metallurgy furnace
• Two double-strand continuous casters
• Slab reheat furnaces and slab conditioning facilities
• Five-stand hot rolling mill
• Anneal and pickle lines
• Electric box annealing furnaces
• Two tandem cold rolling mills
• CARLITE®/scrubber lines
• Decarburization lines
• Slitting lines
• Packaging line
• Weld and trim units

ak steel mansfield

arcelormittal east Chicago


Kickin` it with Stefani: Inside ArcelorMittal Steel Mill

CLF Tax loss carry forwards

As of December 31, 2020, after taking into account limitations (or disallowance) on use, we had $2,510 million and $1,009 million of available U.S. federal and state NOLs,

Seems like an asset to me
50 years ago the Bethlehem Steel Company from Pennsylvania started building a new, state of the art, integrated mill on the banks of the Lake Michigan. 3000 acres of land, neighbouring US Steel’s Gary works, were purchased and construction started in late 1962. Probably few could have imagined that Burns Harbor would be the last integrated mill in the U.S. to be built until today.

In 1964 the 160 “ plate mill was started followed in 1966 by the 80” hot strip mill. In between 1969 and 1972 two blast furnaces, a coke plant (164 coke ovens) and a steel mill, containing two 300 ton BOF vessels were started.In 1975 Bethlehem Steel’s first continuous slab caster started production. In 1978 a 110” plate mill and a third BOF vessel became operational.In 2000 the last ingots were poured.
After filing bankruptcy Bethlehem Steel was taken over by the International Steel Group (ISG) in 2003. Two years later Burns Harbor became part of Mittal Steel USA (ArcelorMittal since 200?)
@Snowboard 2k01 Love it. Great information and history. Thanks.
@Snowboard 2k01 Very interesting, that's a lot of assets that you listed. I never realized the scope of the operations. Rick
Larry Hall profile picture
@Snowboard 2k01 Great info. If you wrote it on the snowboard, even better.
They should be minted money at these prices
HRC prices continue breaking records and several grades of stainless hit highs that haven't been seen since 2012.

I posted something similar in another thread but will add an update here as well.

Q4 HRC Average: $775/ton
Jan average: $1,100/ton
Feb average: $1,200/ton
Current pricing: $1,285/ton, ~65% higher than Q4 average

Q4 HD Galv Average: $1,015/ton
Jan average: $1,365/ton
Feb average: $1,480/ton
Current pricing: $1,565/ton, ~55% higher than Q4 average

Q4 CRC Average: $910/ton
Jan average: $1,265/ton
Feb average: $1,370/ton
Current pricing: $1,460/ton, ~60% higher than Q4 average

Q4 304 stainless Average: $2,530/ton
Jan average: $2,860/ton
Feb average: $3,090/ton
Current pricing: $3,160/ton, ~25% higher than Q4 average

CLFs average selling price in Q4 2020 was $880/ton over 1.86M tons. Estimated shipments in Q1 is 4M tons. Roughly 40% of their contracts lag because of auto so Q1 will see a good jump in average selling price but its Q2 and Q3 that will achieve massive increases.

In summary, Q1 shipments will be ~115% higher than Q4 and average selling price should be at least 25-35% higher.
RickJensen profile picture
Elon is doing his part using up stainless steel at a pretty good rate. (:->
@TALC22 So far three flat roll mills have announced maintenance outages in Q2....
Snippet from a metals article
HD Galv prices in the US climbed for the 33rd consecutive week and CRC reached $1500/ton for the first time ever. Buyers said its almost impossible to find spot availability at some mills for at least the next 2 months."

So to update the above pricing:

Current HRC price: $1,320/ton
Current CRC price: $1,500/ton
Current HD Galv price - $1,615/ton

The above steel is what the majority of the US Mittal assets produce. Also, Id like to note the above Q4 averages dont give a good picture of Q4 pricing as October and November pricing was very weak thus the rise we saw in December didnt contribute much to CLF's $880/ton average selling price in Q4 given the lead times with tons booked in December.

That said, Id like to make a new comparison:

Sept/Oct/Nov HRC average - $650/ton
Dec/Jan/Feb HRC average - $1,080/ton
Difference of $430/ton or 66%

Sept/Oct/Nov CRC average - $800/ton
Dec/Jan/Feb CRC average - $1,230/ton
Difference of $430/ton or 54%

Sept/Oct/Nov HD Galv average - $905/ton
Dec/Jan/Feb HD Galv average - $1,335/ton
Difference of $430/ton or 48%

To be clear, I dont have any idea how CLFs negotiates pricing and how long their contracts are for Mittal asset sales but what's abundantly clear is pricing is up huge.

If CLFs Q1 average selling price rises by just 25% that puts them at $1100/ton x 4M tons = $4.4B plus my estimate of $350M from iron sales for a total of $4.75B. Basis todays prices and most mills booked already thru May I see Q2 over $6B.

This doesnt even touch on their stainless, AHSS and UHSS used for auto and will be renegotiated this year during record high pricing.

Edit: Wanted to edit this to note HD Galv and CRC lead times are out into July/August. By the time Q1 results are announced they will have a good chunk of Q3 steel sold. This is setting up perfectly for a massive year.
Well timed. I tripled down on CLF last Thursday as well and it now accounts for by far the largest holding in my portfolio.

It's also finding a tiny bit of traction over on Reddit: www.reddit.com/...

While I have no faith in WSB's ability to move markets, I do believe that when they start gobbling things up, other momentum, HFT and algo based systems tend to push things faster and harder than they would otherwise move. Doubtful that $CLF will take mainstage on WSB anytime soon, but LG is certainly a dynamic enough CEO to capture their attention if someone wanted to rope them in that way :-)
@Botboy141 Good post. My first time looking at a Reddit piece. Maybe I should cast an eye over there now and again. Agree with the long term thesis and loaded up a new boat last week.
@Cassidy Run Similar to everywhere, 99% of what you find on Reddit is garbage but there's some good stuff on steel specifically @ reddit.com/r/vitards. Beware, sub filled with steel perma bulls. Good DD but a lot of bias as well.
Larry Hall profile picture
@Botboy141 Interesting. I am not sure that WDB glomming onto CLF would be a good thing. It would start to yo-yo and become simply an instrument of these agenda-driven day traders. I think it then disconnects from the underlying reality. If people want to trade GME and some of gotten rich from it, so be it. I don't want to invest in such companies.
CLF has really taken off. If you are influenced by technicals the chart is super bullish. I expect a big upside surprise when they report 1Q results
Larry Hall profile picture
@LT AUS EarningsWhispers shows a 27 May reporting date, 46 cents a share expected EPS and 4.65 billion expected revenue. Quarterly revenue increased pegged at 195%, the six trends they use (price and sentiment and earnings) all showing green. Giving serious thought to adding.
@Larry Hall

I have been seriously adding myself this week. Rotated out of Nucor as I see more upside in Cliffs.

While earnings and guidance are part of the recent Cliffs softness, I really think the secondary process was major part of it with 60 million shares needing to be absorbed in market. Knowing the general process, the underwriters were likely short shares ahead of offering and covering to support it. Yesterday was last day for underwriters on green shoe and voila, the share price is back above offering price of $16.12.

Strength in HRC prices persists and HBI volumes are online so CLF is really in a positive position to cash flow Big numbers this quarter.
Larry Hall profile picture
@sapient Excellent info. I look at the quality of many of the comments, the value added and the accompanying enthusiasm, and realise that CLF is one of my highest conviction names. I only own shares in 15 companies in all. If only CLF was of more interest to more subscribers on SA, I would write about it again. :)
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