This is a huge step forward putting a hot-DR plant at Middletown. Take in pellets from best iron mines and turn them into finished high-end steel at one location! Cuts transportation costs, as well as need for coke and prime scrap. Takes advantage of all the upgrades CLF invested there right after acquisition!

Getting the US government to invest half a billion $ in something CLF was probably going to do anyway. Will be interesting to see if a CCUS at Burns Harbor comes to fruition; another profit center from having 45-Q tax credits for capturing carbon dioxide.

Not selling would actually be better for many since this MLP will likely have distributions of $12-20 in 2024 and beyond!

$CVI $UAN ⬇️⬇️ pic.twitter.com/FPfFkp74er

— Judah Rhodie (@judahrhodie) March 19, 2024

This was unexpected, but it is now clear why and how. Nippon pays less than 1% interest on its long-term bonds and can easily afford to issue 100% debt to overpay for US Steel as they are doing. They have owned Mid Rex (headquarter in Charlotte) for many years and have a lock on global reduced iron pellet manufacturing. The strong alliance between Nippon and the US Japanese automotive plants will become evident. Many of the blast furnace process changes implemented by CLF have been made possible by the pilot plant studies done by Nippon.

There is not a level playing field in terms of availability to low cost capital. Nippon could not afford to do this at this high price if it were a US company.

Meanwhile the US is financing or taking care of most of Japan’s defense security needs and going further in debt as a nation to do this. This deal could easily blow up for good reasons.

Either way, CLF benefits from this entire process which LG initiated. The American workers and union members will likely not benefit from this merger.

Minnesota awards Nashwauk mineral leases to Cleveland-Cliffs

Unanimous decision in face of yet another bizarre last minute request by Essar Ruia brother for Mesabi to keep leases so they could build plant. MN Gov Walz let Mesabi have it after hearing this request. Said he would have liked to a hear an apology to the communities. Walz also mentioned that Essar's court-ordered payment of $18M still hasn't cleared the bank yet because it wasn't wired correctly, apparently, and the state hasn't actually received the money…

https://www.startribune.com/minnesota-executive-council-awards-iron-range-mineral-leases-to-cleveland-cliffs-mesabi-metallics/600277764/

DNR [Finally] recommending Nashwauk leases go to Cleveland-Cliffs

https://www.northernnewsnow.com/2023/05/04/dnr-recommending-nashwauk-mineral-leases-go-cleveland-cliffs/

After nearly two decades, the Essar Nashwauk saga may finally be over! Two years after terminating Mesabi leases at Nashwauk, DNR is recommending they be given to $CLF. Best ore on the range!

“ By Hayley Raatsi
Published: May. 4, 2023 at 2:12 PM EDT|Updated: 2 hours ago
NASHWAUK, MN. (Northern News Now) - The Minnesota DNR has announced they will be recommending the old mineral leases for Mesabi Metallics site in Nashwauk be given to Cleveland-Cliffs.

The Minnesota DNR announced Thursday they will be asking the Executive Council to approve new leases with Cleveland-Cliffs for state ore near Nashwauk.

In addition, the DNR has included this as an agenda item for the May 25 Executive Council meeting.

The announcement comes several months after the Minnesota Supreme Court decided not to review the DNR’s ruling that pulled Mesabi Metallics’ mineral leases.

Mesabi Metallics had been hoping to build a mining and pelletization plant on the former Essar site in Nashwauk. But DNR leaders claimed Mesabi Metallics didn’t meet the terms of the lease agreement, for reasons such as not making certain payments on time. So the DNR terminated Mesabi Metallics’ leases.

After that decision, Cleveland-Cliffs leaders had expressed interest in the leases, as they anticipate their HibTac site in Hibbing will run out of iron ore in the next few years.

The Minnesota DNR released the following statement about Thursday’s announcement:

“After careful consideration of multiple requests to lease the state ore near Nashwauk, the DNR has concluded that it is in the best interest of the State to enter into leases with Cleveland Cliffs. Cleveland Cliffs has a proven record of bringing mining projects into operation and currently holds a significant land position adjacent to the state ore in the area. Leasing this state ore to Cleveland Cliffs will provide local communities, K-12 public schools and other beneficiaries a long overdue source of mineral revenue. Cleveland Cliffs has stated that, if the leases are approved, it intends to utilize the state ore to extend the life of Hibbing Taconite and that it would immediately begin the work needed to bring the ore into production.”

Cleveland-Cliffs Chairman, President, and CEO Lourenco Goncalves released the following statement after the decision:

“Cleveland-Cliffs and the Minnesota Department of Natural Resources have reached an agreement on a package of State iron ore mineral leases at the Nashwauk mine site for review by the Minnesota Executive Council on May 25. I thank Governor Walz for his support and the great work of his Department of Natural Resources. We would not be at this very place without Governor Walz’s leadership and the great work of the Minnesota DNR professionals. When approved by the MN Executive Council, the leases will be used to provide a long-term extension of Hibbing Taconite’s mine life, securing the future of Hibbing Taconite and the good-paying, union jobs at HibTac, our flagship operation in Minnesota. I look forward to the Minnesota Executive Council’s review and approval of this lease package on May 25.”

Representative Dave Lislegard, a DFLer who represents Aurora, also commented on the decision Thursday:

“There have been years of broken promises and missed deadlines, and as a result, the people of the Iron Range have had to experience economic turmoil for far too long. Today, the uncertainty surrounding this project is finally coming to an end. I’m grateful to Governor Walz and the Minnesota DNR for performing their thoughtful due diligence on this process and coming to a conclusion that benefits our region, the mining industry, and the state of Minnesota. I’m also thankful for the incredible advocacy from our partners in labor. Cliffs has demonstrated a real commitment to the people of our region. I’ve been working to see this result come to fruition for many years – with the leases going to a proven, reputable company – and I’m proud to have brought people around the table so we could finally arrive at a solution like the one announced today. The relief workers, families, businesses, and communities will experience following this news cannot be overstated, and I could not be more happy for the people of our region. There are still some steps to come – including final approval from the Executive Council – but today is a very good day on the Iron Range, and it validates the years of hard work.”

Policy will raise food prices. Plenty of historical evidence…

For blast furnaces, adding HBI pays for its entire production cost in savings since it lowers coke costs by ~$200/ton, using the current $400 / ton coke costs and assuming a 500 kg/ton coking rate. CLF has already shut down two coke plants this past year as a result of adding HBI to blast furnaces.

CLF has also been seeing a 10-15% (or higher) increase in hot metal productivity with the HBI/NG combination implementation for upgraded blast furnaces.

Waiting for CLF dividends to exceed 2016 stock price.

Only a question of time before CLF initiates an annual dividend that exceeds its early 2016 stock price of ~$1.60. It is now also 10x higher than only two years ago.

Good to see reports from Wall Street analysts who actually understand the US steel industry finally getting some attention. CLF was up 12% yesterday and has doubled in price over the past two months. The JPM $44 target is reflective of CLF's current value.

Just nine months ago, Merrill Lynch analyst was predicting $600 / ton 2022 pricing for HRC compared to the $1,100-$1,300 that steel industry leaders had bee publicly predicting. Analyst's doomsday prediction was even trademarked "Steel-Mageddon" with no analysis or understanding of the changes in the US Steel industry that had occurred in recent years. Not surprisingly, the analyst departed Merrill a month later, all published reports were removed from their research site, and Merrill clients were warned to ignore the information in these.

Looks like Wall Street is finally burying the Steel-Mageddon fantasy. It sure took a long time and shows how much influence analyst reports have on the irrationality of stock prices, no matter how misguided they are.

CLF will redeem 2025 9.875% notes ($607 million principal) in April using cash from operations. Combined with convertibles closed in January, CLF will have paid off ~$900 million of long term debt in 2022 by the end of April.

If they chose to do so, CLF could easily end 2022 with total net debt equivalent to what they had prior to the acquisition of AKS, MT, and FPT while ending 2022 with revenues ten times higher than prior to these acquisitions.

https://www.clevelandcliffs.com/news/news-releases/detail/544/cleveland-cliffs-to-fully-redeem-its-9-875-senior-secured

March 21, 2022 7:00am EDT
CLEVELAND--(BUSINESS WIRE)-- Cleveland-Cliffs Inc. (NYSE: CLF) announced today that it has instructed the trustee to provide notice of redemption for the entirety of its remaining $607 million aggregate principal amount of outstanding 9.875% Senior Secured Notes due October 2025. Pursuant to the terms of the Notes and the Indenture governing the Notes, the Company expects the total payment to holders of the Notes including the redemption premium to be approximately $677 million, plus accrued and unpaid interest, if any, to, but not including, the redemption date, which is expected to be on April 20, 2022. The Notes will be redeemed with available liquidity. The cash interest associated with these notes is approximately $60 million per year.

Lourenco Goncalves, Cliffs' Chairman, President and Chief Executive Officer said, “With expectations for our free cash flow generation continuing to rise, our top priority for the use of this cash remains the reduction in debt. This redemption is an important accomplishment for our deleveraging goals, removing our highest-coupon and nearest dated major debt tranche that was issued during the peak of pandemic uncertainty. We will have significantly lower interest expenses as a result.”

CLF hydrogen use to produce HBI can be phased in.

From Midrex 2021 Q4 newsletter:
“The reducing gas – mainly a mixture of H2 and CO – is produced from natural gas in a special CO2 reformer. Without any modifications to the equipment, the process allows up to 30% of the natural gas to be replaced by hydrogen.”

CLF move to exploit 70% hydrogen capability in 2022 at the Toledo HBI plant is an early surprise and undoubtedly will increase HBI costs.

Auto manufacturers are looking to pursue greener inputs and are going to pay more for the steel being made.

Apparently, LG has decided the increased costs are worth it in terms of the overall bottom line. While many are talking about greener steel, CLF is rapidly moving forward at producing greener steel and doing this at large scale.

This must be good news for Midrex which has two HBI/DRI plants under construction in Russia and a third recently finished and in production. I would not be surprised to see CLF announce a second HBI plant in 2022, particularly if they are getting good results using higher HBI feed rates as Kobe Steel demonstrated in 2020. Higher HBI feeds reduce the need for coke whose price has increased 40% over the past year and represents ~1/3 of the production costs of blast furnace steel.

In addition to HBI, the stated decrease in coke use is also due to increased scrap use in BOFs, since more scrap means less hot metal is needed from blast furnaces.

CLF at 8-year high, up 75% since January

Integrated Steel producers US Steel (X) and Cleveland-Cliffs are up over 6% today while EAF steel producers Nucor and Steel Dynamics are currently down for the day. X and CLF blast furnaces are not dependent on pig iron imports as EAF producers are and both have the capability to rapidly add pig iron production capabilities.

75% of the ~5 million tons per year of US pig iron imports are from either Russia or Ukraine and investors are shifting to integrated producers that had market values of 1-1.5 X EBITDA in January.

$X investment is paltry $60M vs $2,500M cash on-hand at the end of 2021. This results in generating the capability to produce 500,000 tons of pig iron per year and does solidify some of X needs for a plant that will be operational in three years. They are already generating excess hot iron from their blast furnaces at Gary and are planning to use part of this excess to feed into the new pig iron process.

There was some earlier speculation that NUE may have been their unnamed partner.

US Steel announces Pig Iron Investment at Gary Works

Today, US Steel issued a press release that it has decided to go it alone and use internal resources to fund the previously announced 0.5 Mtons/year pig iron production faculty that will be operational during the first half of 2023.

https://www.ussteel.com/-/blogs/u-s-steel-advances-metallics-strategy-with-pig-iron-investment-at-gary-works

PITTSBURGH--(BUSINESS WIRE)-- United States Steel Corporation (NYSE: X) (“U. S. Steel”) today announced that it is advancing its metallics strategy by insourcing pig iron capabilities at Gary Works. The approximately $60 million investment will produce up to 500,000 tons of pig iron annually and provide a critical raw material input for its electric arc furnaces (EAF). Once complete, the Gary pig iron production is expected to provide nearly 50% of Big River Steel’s other ore-based metallics needs, contribute over $30 million of run-rate enterprise EBITDA benefits and deliver an internal rate of return in excess of 30%.

“U. S. Steel’s low-cost iron ore is an important strategic advantage for the company,” said U. S. Steel President and Chief Executive Officer David B. Burritt. “Our ability to control this important steelmaking input is a valuable competitive differentiator for our growing fleet of electric arc furnaces. An investment in pig iron is an important first step to translating our low-cost iron ore advantage to our EAF footprint while driving efficiencies at Gary Works.”

The decision to self-fund pig iron production rather than contract is expected to further enhance Big River Steel’s cost structure while adding value at Gary Works by driving blast furnace efficiencies without reducing Gary Works’ raw steel output. The permitting process is well underway, with construction expected to commence in the first half of 2022. Pig iron production at Gary Works should begin in the first half of 2023. The company expects to maintain its previously stated 2022 capital spending budget of approximately $2.3 billion by offsetting the pig iron investment within the capital budget.

75% of ~5 Mtons/year pig iron from Russia/Ukraine. Pig iron from this region has low phosphorus content compared with higher phosphorus levels in pig iron from Brazil; this becomes important in high spec steel products such as for auto applications.

EAF steel producers could quickly replace their pig iron inputs with scrap or HBI/DRI. CLF and NUE have both capabilities. This will put some added price pressure on scrap but no real effect on US production making capacity, since all the major US steel makers have already been taking substantive actions to slow the growth of domestic steel production.

X is also building a 0.5 a Mton/year pig iron facility being funded and built by a silent partner. This will be operational by early 2023. CLF is idling blast furnaces and could easily quickly convert one or two to produce the same amount of pig iron being imported from Europe, but CLF has stated many times they will not produce pig iron for other companies.

Importing pig iron to use in EAFs comes with higher overall CO2 emissions than from current blast furnace production. The trend is increased use of DRI/HBI to supplement scrap in EAFs. As scrap impurities rise, the need for higher quality metallics will continue to increase.

Could see CLF trying to acquire them.They have been looking for a well-managed service center in the Midwest and certainly have the cash…

IH4 idling validates CLF HBI NG productivity upgrades.

Since buying the bulk of US blast furnaces at bargain basement prices, CLF has centered its path forward on going greener by upgrading its blast furnaces to accommodate HBI and by adding natural gas to reduce iron ore with hydrogen generated in process flows from natural gas. This is being coupled with adding scrap to BOFs to replace some of the iron melt from blast furnaces. These upgrades are increasing BF productivity by 10-15%, lowering coke needs and decreasing CO2 emissions.

The Sep-Oct upgrade at Indiana Harbor 7 increased daily output from 11,000 tons to 12,500 tons, adding 500,000 tons of annual output. IH7 is the largest BF in the Western Hemisphere and this upgrade (and the use of scrap from the FPT acquisition) is making the idling of IH4 possible. Clearly, CLF has seen excellent process results from the IH7 upgrade over the past several months.

Middletown BF was upgraded in March of 2021 with a similar productivity increase, Cleveland BF#5 is going down for 100 days starting in March for a similar upgrade.

CLF has closed 30% of acquired blast furnaces without cutting overall production and lowing emissions in the process. They operate the greenest blast furnaces on the planet and they are doing this at full scale and are becoming the lowest cost US steel producer in the process.

ZEUS looks dirt cheap for the right buyer as do all the met coal companies. Wouldn’t be surprised if CLF tries to make a move here. They have been talking for months about acquiring a service center and LG & Koci both have direct experience running one.

Since their focus is primarily on steel production via blast furnaces, CLF has a compelling strategic need to control input costs on met coal, which has risen 40% over the past year and represents ~1/3 of the production cost of blast furnace steel. It is their number one ‘21-‘22 cost increase driver cited on their recent earnings call. The top met coal companies have market caps in the $1-$2 billion range, thermal assets that could be spun off, and any excess met tonnage could be sold into the seaborne market where prices that have skyrocketed are expected to continue rising for years,

CLF certainly will have the operating cash flow to do both in 2022.

Many missed Q3 hints that Q4 tonnage down expected and they were accelerating planned 2022 maintenance & repair furnace shutdowns (for three of their eight furnaces) into Q4 of 2021 due to lower auto demand and expectations of ramp up in the second half of 2022. They are shutting down another blast furnace in Cleveland for over 100 days during the March-June period that will be taking 350,000 tons off the market.

It isn’t what was meant. He was referring to analysts who cannot believe CLF will be generating the cash they are printing in 2022. They made over $500 million EBITDA in January 2022 alone in what is expected to be the slowest ‘22 quarter by CLF and all the auto companies…

Even for the ones that don’t believe that we are going to generate the revenues and the cash flow that we are going to generate in 2022, if they believe that our EBITDA will be -- let’s put a number, $2.5 billion, $3 billion, then you end up with 2 times leverage. It’s still very healthy. So even the naysayers have to admit that a company leverage 2 times is good. But guess what, Lucas, based on the refinancing -- not refinancing, based on the renegotiation of our sales contracts, our cash flow generation should keep us within this onetime leverage or less. So, that’s what we’re working on here at the company with a backdrop of reality.

Another Classic LG Earnings Call and Vision Today.

LG makes it clear that today’s US Steel industry has substantively changed into one focused on profitability and not production. They all have LG to thank for the consolidation that has transformed the industry.

The transformation of CLF steel production processes focused on blast furnaces upgraded with HBI, NG, and use of scrap in BOFs lowers emissions for high quality steel that can only be produced in blast furnaces. These transformations have been years in the making. As LG noted at the end of the call:

This is not a one quarter business. This is a long-term business, and I strategize multiyear.

Another great comment from the end of the call:

Lourenco Goncalves
Yes. At this point, we have -- give or take, we are consuming 1.7 billion tons -- million tons of -- 1.7 million tons of HBI in our blast furnace and more or less 300,000 tons in our EAFs. We do have EAFs at this point. You know that.

If and when we put more EAFs, at that point, we are going to have more scrap because FPT continues to get a new sources of scrap, including prime scrap on the stamping plants that we’re doing closed loop with -- among our automotive clients. So, because we continue to rely on FPT, we don’t believe that we’re going to need more HBI. We can be selective, we can keep our HBI for our blast furnaces, continue to use a portion in our EAFs, and even when we have more EAFs, we will grow these EAFs with scrap, not with HBI.

Remember, these EAFs will be for lower specs. So, scrap is good. The most environmentally-friendly type of operation in the steel business is an EAF to produce rebar. It’s very low emissions when you melt scrap for rebar because it’s pretty much it.

FB can be good source of investment information…

Will Shell re-partner with ET on Lake Charles LNG 16.4M metric tons/year production plant?

Energy Transfer submitted a request this week to have permits for this project extended from 2025 to 2028.

Energy Transfer requests extension to 2028 for Lake Charles LNG project https://seekingalpha.com/news/3796204-energy-transfer-requests-extension-to-2028-for-lake-charles-lng-project?source=copyToPasteboard

The proposed 16.4M metric tons/year plant and pipeline modifications originally were planned to enter service by late 2020 but was granted permission in 2019 for an extension to December 2025.

Lake Charles LNG has secured all necessary federal, state and local permits related to construction of the project.

CEO Jim Teague speaking energy truths on this week’s earnings call!

“But before we get to Randy, I’ll finish with our thoughts on the changing sentiments around oil and gas. For some time now, the sentiment towards all traditional forms of energy, especially in political circles has been very negative.

Many said that the world should pull the plug on traditional energy as soon as possible and completely devote our capital and efforts toward renewable energy. Without a doubt, this was always naïve. The world now realizes that an overnight transition to renewable sources of energy is not at all possible as evidenced by the rapid development of various global crises, including high natural gas and LNG prices, high crude oil prices not seen since 2014 and runaway inflation not seen for about 40 years.

Europe is starved for gas and is faced with heat or eat, while Russia with its major oil and gas supplier is amassing troops on the Ukraine border. Try as you may, it’s hard to blame these crises on the pandemic. Over one-third of the world lives in energy poverty, mainly in developing countries.

Europe’s energy policies have now made energy poverty a reality in first world countries. As an oil analyst said, energy is the economy. We, in the United States, live in a country of plenty. We are origination with the high quality of life of creative culture, now also blessed with abundant energy. Maybe that has distorted our thinking about the situation in other countries or regions. People who don’t want developing nations to have what we have are either in denial, hypocrites or both. At Enterprise, we’ve been outspoken that is going to take all of the above, not for a few years, but for decades to come. Look to comments made by a variety of sources, everyone from the IEA to the Head of Saudi Aramco, members of the European Union and even the U.S. Energy Secretary. Ultimately, they all message the same thing: Investment in oil and gas needs to ramp up sharply in order to provide the badly needed baseload traditional sources of energy that will be needed alongside low-carbon fuels and green energy to meet the world’s growing demand.”

At Enterprise, we’ve never seen supplying energy to meet growing needs as two competing paths. We’re going to remain focused on supplying the world with a clean, low-cost and reliable fuels it needs today, while also playing a role and important part in developing lower carbon alternatives. I think I’ve said enough. Randy, I’ll let you.

Hot Rolled Coil (HRC) futures have dramatically dropped from the $2,000 sky-high (and unsustainable) prices seen in late 2021 due to steel shortages and increased demand. Some analysts are forecasting a return of HRC prices to the $500-$600 historical range in 2023 and beyond. The first half of 2022 is also seeing HRC weakness due to the imported steel bought by service centers, lack of auto demand, and the increase opening of new plants in the US. The back half of 2022 should see a strong snapback in HRC prices with the expected decline in imports, the need for service centers to buy to restock and the expected surge in auto demand expected to last several years.

CLF acquired two steel companies at bargain prices in 2019-2020 and 2020-2021; that coupled with the surge in 2021 HRC prices, drove earning ups and the stock price to its present value that is ~ five time higher than two years ago. 2022 earnings are expected to remain as strong as 2021.

Longer-term, the central question revolves around HRC prices in out years. The US steel industry is much more consolidated; import restrictions are in place, and the price of scrap steel (~80-85% of EAF feed) has dramatically risen (e.g.; 67% to $508/ton for NUE in Q4, 2021) and will continually to do so placing EAF producers at an increasing cost disadvantage. There will be a shift to the use of more reduced iron (HBI/DRI) as feedstock for EAFs. It is highly unlikely HRC prices will return to historical levels and a strong case can be made for them being over $1,000 for a number of years going forward. At that level, steel companies are printing a lot of cash.

CLF now owns most of the blast furnaces in the US (X owns the rest) and is retrofitting them to use Natural Gas and HBI, increasing their productively and lowering CO2 emissions. They also recently bought the leading US supplier of scrap steel that owns 15% of the market and plan to expand that soon. Scrap steel can be used in the BOFs tied to blast furnaces which CLF intends to start doing, CLF also built a ~2 Mton per year HBI plant in Toledo; the plant is fed by DR-grade pellets from its mines and processing facilities in Minnesota.

Both X and CLF are dirt cheap right now and in a very strong position going forward. X's market cap is ~1x its 2021 EBITDA and CLF's market capo is ~ 1.5 times that.

Mesabi has stated bankruptcy not likely. Judge’s decision was such a slam dunk that not sure whether they would even appeal.

MN finally appears to be getting fired up on getting this project back on track quickly. Original permits have already been approved to be valid for the new lease holders.

X, CLF, & STLD are dirt cheap with market caps ranging from 1-2 time annual EBITDAs. Any of these could be privatized at these prices or acquired by a larger company.

All four major steel CEOs foresee a stronger 2022.

Scrap steel prices that are the primary input for EAFs rose 67% in 2021 to $508/ton for NUE. Scrap prices will continue to dramatically rise and there are strong incentives for the 100% EAF steel producers (NUE and STLD) to secure alternate input sources in the form of DRI/HBI or pig iron to supplement scrap. Russian pig iron imports could also stop at any time.

Wouldn’t be surprised to see an NUE / X merger. NUE is already reported to be the yet unnamed partner funding a pig iron production faculty at an X facility. Similarly, but much less likely, a CLF/STLD merger is a possibility.

It will be interesting to see who or what team bids on the Nashwauk leases, since the size of the project could well be $3-$5 billion (mine, HBI/DRI, steel production facility).

CLF Court backs DNR in axing Nashwauk leases on iron ore project

Looks like Nashwauk now wide open for CLF. Look to see LG move on this as Hibbing has only several years of ore remaining and Nashwauk would lock out competitors from best ore on range. Mine would be built first there.

IMHO, with basement market caps of $8.3 billion and $5.3 billion for CLF and X respectively; additional consolidation is increasingly likely. All US steel CEOs are seeing higher revenues in 2022 and expect years of increased demand. Industry is more consolidated and firms less likely to overbuild. HRC prices are rolling over to more realistic levels, with second half 2022 HRC expected to surge as imports from last year’s super-high HRC roll off and as auto demand ramps.

https://www.startribune.com/court-backs-dnr-in-axing-leases-for-beleaguered-nashwauk-iron-ore-project/600140287/

By Mike Hughlett Star Tribune JANUARY 27, 2022 — 3:30PM

A Ramsey County court judge has upheld the termination of mineral leases for a troubled and long-delayed iron ore project near Nashwauk, Minn., pushing it further into limbo.

The Minnesota Department of Natural Resources (DNR) in May axed the leases for Mesabi Metallics after the company missed the deadline for a $200 million down payment to complete the half-finished taconite plant.

A few weeks later, Mesabi Metallics sued the DNR in Ramsey County District Court for breach of contract and good faith, asking the court to disallow the cancellation. Without the state leases, Mesabi Metallics' project as planned is not viable.

Ramsey County District Court Judge Robert Awsumb ruled Thursday that the DNR had properly terminated the leases, and that Mesabi owes the state $17.5 million in past due royalties.

The DNR and Mesabi Metallics cut a last-chance deal in December 2020. Mesabi Metallics was supposed to have lined up $850 million in financing for the project by May 1 — with $200 million of that deposited into a U.S. bank account.

But Mesabi Metallics ponied up only $100 million, blaming the coronavirus pandemic in India for financing delays. Essar Global, a multinational metals company owned by the wealthy Ruia family of India, effectively controls Mesabi Metallics.

In his ruling, Awsumb wrote that the $200 million payment was "material as a matter of law. In fact, it was foundational."

"Given the many failures by [Mesabi and its predecessors] in the past, it is obvious having anything less than $200 million readily available was a non-starter for the DNR and the state of Minnesota," he wrote.

As for Mesabi saying it was hamstringed by COVID-19, Awsumb noted that the pandemic hadn't stopped Mesabi Metallics from negotiating a new lease accord over many months in 2020.

"The entire agreement at issue in this case was negotiated at the height of the pandemic," he wrote.

Essar Steel Minnesota started building the Nashwauk plant in earnest in 2011 with a planned 2013 completion date. But it ended up stiffing contractors and failing to reimburse the state for about $65 million in infrastructure improvements for the project.

In July 2016, after myriad missed deadlines, then-Gov. Mark Dayton moved to terminate Essar's lease. Essar Minnesota responded by filing tor Chapter 11 bankruptcy protection.

By the end of 2017, the former Essar Minnesota — rechristened Mesabi Metallics — had financially reorganized with new owners, a new plan and a new lease agreement with the state of Minnesota. But Mesabi Metallics quickly became a shambles.

Essar re-entered the picture in January 2019 by buying up $260 million of Mesabi's outstanding debt and eventually what was left of its equity.

When Mesabi missed more deadlines by Jan. 1, 2020, the state could have pulled the leases then. But it chose to craft yet another deal with Mesabi.

Mesabi's state mineral leases are much coveted by other companies.

Cleveland-Cliffs, the largest player on Minnesota's Iron Range, has long sought them. U.S. Steel, long the Range's dominant company and now second to Cliffs, has also shown interest.

The DNR would eventually put the leases back on the market. However, any releasing process could get delayed if Mesabi appeals Awsumb's decision — or if the company files Chapter 11 bankruptcy.

Chapter 11 protection freezes legal actions while temporarily shielding a company from its creditors claims. "I don't think there is any reason to think that bankruptcy is a possibility," said Dale Kurschner, a spokesman for Mesabi Metallics.

The company declined to say if it planned to appeal Awsumb's decision. "We are reviewing today's court decision to determine next steps," Mesabi Metallics President Larry Sutherland said in a statement.

He said Mesabi Metallics hopes to "collaborate on concrete plans with all key stakeholders including the state of Minnesota. ... We remain committed to completing an iron ore pellet plant and building a value-added facility at our Nashwauk site."

In a statement, the DNR said its "focus and priority is on facilitating an operational, value-added facility that optimizes the outstanding ore body at Nashwauk. ... Going forward, we will carefully evaluate our options for doing this and will consider putting the leases up for bid or negotiating with qualified parties."

Like oil & natural gas, steel elevated for several years with HRC likely to hold in the $1,100-$1,300 / ton range, a sweet spot equivalent to oil at $70-$80 per barrel.

Strong expectations for 22-23 with EV production increase announcements from F and GM this week coupled with chip availability tailwind and pent-up demand from consumers & rental companies that will take several years for auto industry to address.

Interest rate spikes are also driving rotation out of growth sector into value plays such as steel, which continues to be dramatically undervalued.

All the steel stocks are further surging today after yesterday’s strong gains. Nucor and Steel Dynamics up nearly 7%, US Steel up over 5% today. Strong auto sector news pushing this.

CLF also has a 38 million share convertible redemption on Jan 18 and holders have option to cash in before to prevent CLF from buying them out using the 25-day VWAP which was $20.469 going into today (vs the over $24 current SP). They may be trying to push the stock higher as well…

CLF stated cash for 100% of principal, so will probably issue ~24 million shares to replace the 38 million in current diluted share count. This is approximately a 2% reduction in diluted share count and focuses cash expenditures on debt reduction.

Cleveland-Cliffs to Fully Redeem 1.50% Convertible Senior Notes due 2025

CLF is using cash rather than the 38 million shares that they could have issued to redeem these notes. This cuts their current diluted share count another 7% in addition to the 10% diluted share count reduction from preferred buyback done in Q3 of 2021. Depending on the SP for the month prior, this will cost ~$750-$950 million if stock price averages &20 to $25 respectively. This was the first month CLF could do this and they could have waited until 2024 to take this action. The redemption of these removes another $294 million in long term debt. These bonds were originally issued to pay for nearly half of the Toledo HBI plant. This move demonstrates a large degree of confidence in continuing cash generation.

https://www.clevelandcliffs.com/news/news-releases/detail/539/cleveland-cliffs-to-fully-redeem-its-1-50-convertible

December 01, 2021 7:00am EST

CLEVELAND--(BUSINESS WIRE)-- Cleveland-Cliffs Inc. (NYSE: CLF) announced today that it has instructed the trustee to provide notice of redemption for all remaining $294 million of its 1.50% Convertible Senior Notes due 2025. The redemption will take place on January 18, 2022, the earliest possible date for redemption pursuant to the Indenture governing the Notes.

Noteholders may convert their Notes prior to the redemption date. Upon redemption or early conversion, the Company intends to pay 100 percent of the outstanding principal amount in cash.

This release is for informational purposes only and is neither an offer to buy nor a solicitation to sell any of the Notes. The foregoing does not constitute a notice of redemption under the Indenture governing the Notes and is qualified in its entirety by the redemption notice that will be distributed to the holders of the Notes. A notice of redemption setting forth the redemption procedures will be provided to registered holders of the Notes by The Depository Trust Company.

I think anyone with his environmental sense to bet the company on an HBI plant and ground level plant operational experience to know what is technically possible jumped on the MT acquisition to buy most of the dirt cheap operating blast furnaces in the US with a clear plan to do what is now being implemented. He also has over $100 million of his own money invested in this.

The high HRC prices are speeding this transition. By the end of 2022, CLF will likely have less debt that it did prior to the three major acquisitions and tens time the annual revenue.

Pulled together this information from a variety of sources: CLF, Midrex, Kobe, voestalpine, earnings call transcripts,, etc

CLF is becoming clean blast furnace steel production play

After acquiring the vast majority of US blast furnaces for bargain basement prices; CLF has been quietly upgrading them to add capability for HBI input and for using natural gas. They will now be using all HBI from the Toledo plant internally and are upgrading a second mine with DR-grade (required for HBI plants) pellet production capability. Their recent scrap purchase was to primarily use in the BOFs connected to blast furnaces.

The use of HBI in blast furnaces is proven technology as exemplified by voestalpine steel using HBI from its Corpus Christi plant for its Austrian blast furnaces for the past several years. Kobe Steel has recently run blast furnace tests showing the viability of using up to 20% HBI as feed. As noted in earnings call, prime scrap feeds up to 25% can be used for BOFs. The combination of these two feeds reduces ore input by 1/3 and lowers emissions. The NG / HBI combination has already proven to cut coke rates by 20% and a coke oven at Middletown has already been idled.

Blast furnaces at Middletown and Indiana Harbor #7 (largest in Western Hemisphere) have been retrofitted and several others have their upgrades accelerated into 2021. Throughput rate increases on the order of 500,000 tons per year for IH7 alone are projected for what was already the nation’s most efficient steel producer.

CLF has stated that they can lower blast furnace Scope 1&2 emissions to 0.95 tons of C per ton of steel produced.

CLF is planning to use current Best Available Technology (BAT) to retrofit blast furnaces for the decade or two it will take at least to achieve economically viable full scale low emission green steel production. The combination of the Toledo HBI plant, the new scrap acquisition, and the cheaply acquired blast furnaces all indicate this strategic plan has probably been in the works for some time. It will all come together and be apparent in 2022, a year when cash flows can be used to focus on debt reduction.

This is a good deal for the US steel industry as it maintains the 25% 232 tariffs and enacts a new quota of 3.3 million tons per year that can be imported duty free from the EU for steel only made in the EU. It also extends by 2 years the 2 million tons of specific products previously approved for tariff-free imports.

Prior to the tariffs, US imported ~ 5 million tons per year from the EU that included some coming from Turkey originating in China.


CLF issued a press release last night supporting this.
“Lourenco Goncalves, Cleveland-Cliffs' Chairman, President and Chief Executive Officer, said, “Today’s announcement of an alternative Section 232 measure with the EU is evidence that President Biden and his Administration understand the critical role of the steel Section 232 program in providing a level playing field for American companies and workers. This tariff rate quota arrangement will guard against a harmful surge of steel imports from the EU.

The agreement recognizes that the United States has the most environmentally friendly steel industry in the world. Cleveland-Cliffs produces high-quality flat-rolled steel products with all stages of production occurring in the United States, from the mining of key raw materials through melting and finishing. In furtherance of Cleveland-Cliffs’ commitment to decarbonization, the Company has spent more than $1 billion since 2017 to build the world’s most technologically-advanced direct reduction plant in Toledo, Ohio. This plant produces hot briquetted iron that is 70% less CO2 intensive than imported metallics such as pig iron.

I wish to thank Secretary of Commerce, Gina Raimondo, and United States Trade Representative, Ambassador Katherine Tai, for negotiating a deal that respects the importance of maintaining strong Section 232 measures to the benefit of U.S. national and economic security.”

LG adding NG HBI to blast furnaces, scrap to BOFs to reduce CO2 emissions, increase throughput, and lower costs. They are changing the steel making process at full-scale plant levels.

It is all about the chemistry!


From last part of earnings call:

“Lourenco Goncalves -- Chairman, President, and Chief Executive Officer

Yes. And I apologize to the ones in the call that we got through -- it's too much of nitty-gritty details of the chemistry. But at the end of the day, you guys are going to have to be prepared for that because when you talk about emissions, we are talking about chemistry. We're no longer talking about cost accounting.

We're no longer talking about the average price of HRC. You're going to have to -- the research analyst community, you will have to prepare yourselves to get this conversation to the next level because the phase of announcements and bombastic declarations and trademarks and things like that will pass. Because after you do a little bit of that, everybody, including the clients and yourselves, will say, OK, where is the beat? How many tons of this thing you are producing? Where is this steel going? Is this in the door of the Ford Explorer? I'm making this up. It's the first car model that came to my mind.

Or where is this being used and what for? So I'll tell you, we produce five million tons of steel to the car manufacturers. I would love to produce less because I still believe that's too much of automotive exposure, even though it's less than half of what I had when I only had A.K. Steel. So the biggest synergy -- nobody asked about synergies today, by the way.

The biggest synergy from the acquisition of both A.K. Steel and ArcelorMittal USA, Matt, was the fact that you could bring back technological sanity to this business. And we are also translating this technological sanity into much higher revenues, much higher profits, EBITDA margins that were unheard of before. By the way, I don't know if you guys noticed for the companies that reported so far, we reported the highest EBITDA margin among them all.”

CLF +12.7% on earnings release of expected news.

There was no substantive news on today’s earnings call.

EBITDA guidance was unchanged for 2021, 3rd quarter EBITDA increased incrementally to $1.9 vs $1.8 billion guided.

No surprise that annual fixed priced contracts (which are 45% of CLF contracts) were being renegotiated at higher rates than 12 months ago when HRC was less than half the current price. Widely publicized these contracts were being renegotiated this fall and going well. HRC futures are still high well into 2022.

The replacement of Northshore with Minorca as source of DR-grade ore for Toledo HBI was the major news of the day, but not completely unexpected given arbitration MSB started that was recently decided against CLF. This has minimal overall impact to earnings and provides leverage to buy / negotiate other deals with MSB or to gain access to Nashwauk.