Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
SG, with the CLF 4Q 2020 earnings conference call scheduled for Feb 25, the Cliffs “short story” is situated to take three weeks before info detail from Cliffs enables better informed earnings projections for CY 2021. The early Cliffs PR indicated there will be only three weeks of MT acquisition math (Dec 2020) in that 4q 2020 “new Cliffs” data. However, touching on to the total moving parts of the new Cliffs ought to give Cliffs management enough leeway to elucidate the situation for 2021 earnings. I will be disappointed if Cliffs doesn’t accomplish that anticipated info share. It seems, short interest is positioning for a Cliffs management communication let down for long investors, which can leave another three month + wait for confirming earnings performance.
The WSB, hedge fund GME shorting story has been an informative read that reminds me of all the hedge fund and short trading mischief observed since when I started serious investing around the peak of the dot com. bubble. I hope measures are put in place that eliminate what many view as abusive trading practices against retail investor interests. It could happen....it should happen.... We shall see.
Commerce Secretary nominee Raimondo has this to say about tariffs in today’s news:
“Whether it's the entities list, or tariffs, or countervailing duties, I intend to use all those tools to the fullest extent possible to level the playing field for the American worker,” she said. “I believe in free trade but fair trade.”
Perhaps, those who have claimed JB will rescind tariffs are misinformed?
Dec 9 to 31, 2020 is all the MT USA financials included with the preliminary 4Q 2029 Cliffs results released today. Yet, the analysis is still showing Cliffs is beating analyst EBITDA projections for the 4th Quarter. Directionally, these results look excellent and affirming for support of higher pps targets. Yet, I don’t see enough context with three weeks of consolidated MT USA numbers to project much into 2021 that is more clarifying than the Dec 9 time frame Cliffs Press Release. When does the full story come into focus? Perhaps, when audited 4Q results are released in a month? More certainty comes with 1Q 2021 results. It seems LG is signaling CLF has a bullish story to tell for 2021 going forward but shareholders still need to wait to confirm how good.
It looks like three things were underway that impacted Cliffs closing share price. First, it looks like the cluster of puts and calls scheduled to expire on Friday balanced with a volume and closing pps that attempted to minimize overall options payout. Then there was a Biden speech Thursday that didn’t mention much about anticipated major infrastructure spending. Also, we had the CLF executive team receiving and selling options that were identified as part of a three year (2018 to 2020) incentives payout, announced after hours on Thursday. Reference was made how the sale was to cover tax obligations for options issued with a zero cost, but.... There was also reports of lower than expected Holiday season sales and an increase in the January unemployment reflecting post Holiday layoffs, suggested to be worse than projected. That RSI index was showing oversold, but Friday’s close put the RSI back below 70.
I am not familiar with how performance incentive options are normally held or sold, but the combo of issues seemed to impact the trading on Friday. The 4q 2020 and 2020 annual Cliffs results are scheduled to report around a month out now, so that may have been an options trade timing factor.
Iron ore and steel prices remain high and 2021 Cliffs earnings projections are still supporting pps price targets in the $20s+. Since Nancy held up the R infrastructure spending plan to wait for a more D friendly balance of power, perhaps, we will see details for the D infrastructure spending announced soon?
That seems reasonable, although I am not ready to suggest how earnings that haven’t yet been booked would best be applied. Looking forward, analysts forecasts are observing that Cliffs (the steel industry) is on the front end of a commodities up cycle that historically might last a few years before cycling back. There is a long infrastructure upgrade list that might be expected to keep both domestic and global steel demand high for years to come, presuming policies don’t stumble in execution.
This is from SG’s post made in November, suggesting $6 billion in earnings when applying a $400 per tonne margin might be a low estimate for 2021:
“Cleveland-Cliffs will acquire ArcelorMittal USA for approximately $1.4-billion.
Quote:
Cleveland-Cliffs Inc. (NYSE: CLF) announced that it has entered into a definitive agreement with ArcelorMittal S.A. (NYSE: MT), pursuant to which substantially all of the operations of ArcelorMittal USA (“AM USA”) for approximately $1.4 billion. Upon closure of the transaction, Cleveland-Cliffs will be the largest flat-rolled steel producer in North America, with combined shipments of approximately 17 million net tons in 2019. The company will also be the largest iron ore pellet producer in North America, with 28 million long tons of annual capacity.”
$400 x 17 million = $6.8 billion. EBITDA applied to 1/2 billion shares common stock makes that $13.6 per share (EBITDA). But then, today’s steel price and profit margin can change as the year proceeds. Interest, Taxes, Depreciation and Administrative need to be balanced out, trimming back on cash. That 4 q 2020 and maybe a Q report or two in 2021 is needed to fill in blanks...
I was of the understanding that 90% of pellets would be supporting Cliffs steel production. Pellets are what? 62% iron content? So there are a couple million tonnes of Cliffs iron ore pellets production left over for market... is that math right?
It is nice to see a few Analysts upgrading Cliffs 12 month pps projections into the mid to upper $20s. These still appear to be based on conservative earnings projections, considering the 2019 financials vs. 2021 market pricing for “new Cliffs” products.
Since ballpark 90% of Cliffs pellets production is now feeding the new Cliffs steel production, it seems upward market price movement in hot and cold rolled steel and increasing auto demand is where the Cliffs 2021 earnings estimates ought to focus, albeit, the 2 million tons surplus to market might still add another $200 million +/- to Cliffs earnings, beyond steel production contributions.
Has anyone seen a Cliffs analyst projection that right sizes the new Cliffs value potential? I haven’t yet, but those recent analyst estimates are starting to zero in a little better than those “pre vaccine announcement” and pre election result, infrastructure development steel market demand estimates.
So, what EBITDA contribution comes from Cliffs sale of a tonne of steel when Cliffs is shielding their steel production costs from feedstock price increases due to their recent acquisitions and self supply consolidation? It seems the 10% of sales, earnings contribution imputed by the Cliffs PR 2019 stats could now be fifteen to twenty percent or even higher. That first new Cliffs quarterly report should be useful to better zero in the earnings estimate for 2021 and beyond.
Trader, I am still referencing that Cliffs press release where they presented their new structure (post MT USA acquisition) using a 2019 based financials estimate. Rounding for easier math, there are about 1/2 billion new Cliffs shares to “put in the denominator” for making PE Ratio pps guesstimates. Steel and IO market pricing suggests CLF 2021 financials being better than 2019. Better profit margins. Better sales. The 2019 basis earnings were about 10% of sales, so we might expect better margins in 2021. This and the rest is all speculation until Cliffs starts validating numbers with real data, due to start with the 4q 2020 earnings report.
Yet the 2019 $1.7 billion earnings estimated number from Cliff’s PR allows one to project pps valuation at higher than today’s trading levels, depending what future PE ratio values are applied. A PE of 6 seems conservative but it is hard to find steel company PEs for comparison. A PE of 8 is not unrealistic either, down the road. Post Pandemic economies are emerging as a backdrop to already strong underlying high demand for steel. There are many uncertainties to play out, seeking validation through Cliffs “real” performance.
SG, I don’t see analysts yet know how to value the new Cliffs in conjunction with timing of emergence from the FY 2020, pandemic influenced market. Now a fifth COVID vaccine is working through Reg approval review, this time claiming a 100% effectiveness rate. Consider this excerpt from the December 1 Zack’s write up (pre MT deal closure) posted by abracky:
“According to Zacks, analysts expect that Cleveland-Cliffs will report full-year sales of $5.11 billion for the current fiscal year, with estimates ranging from $5.09 billion to $5.13 billion. For the next fiscal year, analysts anticipate that the business will report sales of $18.65 billion, with estimates ranging from $18.36 billion to $18.95 billion.”
The Cliffs MT USA asset acquisition press release gave reference to a sales estimate for the new Cliffs, based on 2019 market conditions. The above 12/1 analyst estimates for 2021 exceed the Cliffs PR sales estimate. Yet, the Zack’s article precedes the recent announcement of steel and iron ore price increases. Cliffs profit margins in 2021 ought to exceed what Cliffs cited using the 2019 stats (about 10% of sales). Assigning a PE of 6 to $4/share earnings would spot the Cliffs pps in the mid $20s. So what eps are analysts projecting for the “new Cliffs” in 2021?
Interesting times.
SG, you noted earlier you were taking note of the “high RSI”. The RSI is back into the upper 60s now and it looks like technicals are setting up an inflection point. We are still about a month away from 4q earnings reports and I presume recent announced increased IO and steel prices will show effects in 1q 21 and beyond. Your thoughts for end of year and early year pps movement?
So, when in the last six years has Cliffs been situated with underlying earnings of between $3.5 and $4 pps (assume 2019 financials) combined with a post COVID era global growth scenario? I net searched steel company historic info on PE ratios and forward PE ratios when the world economy was “normal”. Most of the Cliffs recent history (6 years?) has been in some sort of financial recovery mode, then along came the global pandemic. So what sort of pps would Cliffs be expected to post if reflecting a combo of strong company fundamentals and a strong economy wielding healthy steel demand? What PE ratio makes sense for Cliffs going forward?
There is much speculation in play here but a forward PE of 4 seems low to me. Yet, CLF needs to post sales and earnings under its new structure to affirm it is on track for growth.
Any suggestion as to why volume today and yesterday each exceeded 20 million shares?
It looks like posters are still unpacking the information from yesterday’s Cliffs announced finalization of their acquisition of MT USA assets. I offer a few observations.
First, I decided to hold my position, since the deal finalization was expected and was delivered per the earlier Cliffs communications. The analyst projections and “stair steps” to higher pps values (described by Clay in his video) should still apply. Today’s pps movement appears to signal that others agree that Cliffs prospects look good. For me, ongoing national and international recovery from pandemic influence on markets in conjunction with widespread distribution of vaccines presents a bullish outlook for Cliffs. A wild card is, what does MT decide to do with their 78 million Cliffs shares delivered as part of the acquisition deal? MT should know better than any of us retail investors whether it makes sense to sell or hold.
A few other things were interesting from yesterday’s Cliffs communications. One is that the shareholder protection plan seems structured to work for MT and Cliffs with a longer term, five year outlook described. The deal would limit MT ability to vote shares contrary to Cliffs management, would forbid MT acquiring more than 20% of Cliffs shares or sale of shares to individuals exceeding percentages that would allow their exercising of control over the company. While terms imply MT might be holding their shares for longer term, the terms indicated MT is not required to do so. I see no reference to a holding period requirement for the 78 million shares that I saw posted on Yahoo earlier.
The Cliffs reference to 2019 financials applied to the new Cliffs assets, post acquisition closure is helpful. Simple math applied to a rounded off 1/2 billion shares outstanding would have a 2019 financials Cliffs situated with earnings of between $3.50 and $4 per share. But this is not 2019. Cliffs press release financials also leaves investors waiting for 4Q 2020 results and market demand financials in 2021 to get a clearer picture about Cliffs performance prospects going forward. I see that 2019 stats reference to be pragmatic, considering how markets are still responding to emergence from a pandemic at timing when vaccines just started to be administered this week. In that sense, Wednesday’s Cliffs announcement just delivered the expected—no surprises with speculation of great upside as the economy recovers from a global pandemic.
Did others notice that China announced yesterday they have a vaccine under wide spread distribution, suggesting China population “herd immunity “ may be achieved in 2021?
This excerpt from today’s 12/9 Press Release from Cliffs provides a 2019 centric financial take. So, are iron ore and steel pricing for 4q 2020 and going into 2021 relative to Cliffs profit margins about the same, better or worse than what went into this 2019 comparator for the post MT USA acquisition by Cliffs?
CLEVELAND--(BUSINESS WIRE)-- Cleveland-Cliffs Inc. (NYSE: CLF) today announced that it has successfully completed the acquisition of substantially all of the operations of ArcelorMittal USA LLC and its subsidiaries (“ArcelorMittal USA”), forming the largest flat-rolled steel producer in North America. On a full-year 2019 basis, the combined Company generated pro-forma revenues of approximately $17 billion and combined adjusted EBITDA of approximately $1.7 billion, including previously disclosed expected synergies.
In connection with the acquisition of ArcelorMittal USA, which includes the interests of ArcelorMittal USA of 60% in I/N Tek L.P. and 50% in I/N Kote L.P., Cleveland-Cliffs also acquired Nippon Steel Corporation’s remaining interests of 50% in I/N Kote and 40% in I/N Tek, for a total consideration of approximately $183 million. With this additional transaction, Cleveland-Cliffs becomes the sole owner of 100% of I/N Tek and I/N Kote, which generated a combined $121 million of adjusted EBITDA in 2019.
Interesting that during the pandemic driven market swing between February and now, the Cliffs share price swept across all the analyst targets listed in that ten analyst summary but for the $13 and $14 targets which had update timing which would have allowed post COVID vaccine news analysis. There is no reference to those recent $15.75 and $17.50 pps estimates in that ten analyst summary. Also, several of those analyst reports date earlier than the announced Cliffs acquisition of Arcelor Mittal US assets and the HBI plant startup and the run up of IO pricing such that the values seem obsolete.
Is Credit S associated with the large short position seeking cover? I recall the link to the short was suggested on this board several months back, but don’t recall the source.
That January earnings reporting for 4q 2020 ought to clear up the prospects for Cliffs future, just as will a Cliffs announcement that the MT deal has been enacted, said by LG to be due yet this month.
Hmmm. I saw news about China action that indicated those Chinese ( or any?) companies that refuse(d) independent audits meeting listing standards three years running will be delisted. Some major companies were mentioned but that refusal to accept audit angle seems plausible cause for delisting. Details were unclear, but migration by these companies to the Hong Kong exchange was suggested as a likely consequence, but poorly audited listings are an issue for investors regardless of where trading ends up, yes?
Regarding Cliffs, I had sold some at a lower pps plateau a couple weeks ago and soon bought back when it was clear that the stock pps is going up on steroids post vaccine announcements. Are the $12s another plateau where pps pauses before going higher or a peak? RSI levels aside, a few drivers are noteworthy.
-Cliffs pps was still recovering working within a backdrop of a large amount of short interest (30%) before the market ever heard of COVID.
- along came the COVID crisis. I observe Cliffs had been slowly working back into improved pps despite pandemic influence but that adverse influence still lingers. Some “expert” predictions were that COVID might depress markets going into 2022 or longer! Extension of protective tariffs certainly helps Cliffs cope but that didn’t appear to be Pandemic related.
- and then there is that big post election market surprise. That is, not just one but a cluster of four different COVID 19 vaccines and new therapeutics with high demonstrated efficacy are being fast tracked to approval under Operation Warp Speed and are expected to start being administered yet this month! The Brits already approved the Pfizer vaccine for emergency use! Normalcy is now optimistically projected to resume after front line workers and vulnerable parties get vaccinated—by around Spring of 2021– not that gloomy 2022 or later. Until a COVID all clear is achieved, I expect Cliffs pps suppression due to COVID crisis influence will linger, which leaves more unrealized pps upside for Cliffs.
- I observe stock analysts are challenged in figuring out Cliffs valuation. Lots is happening with Cliffs, including the Arcelor Mittal US asset acquisition due to finalize in the next few weeks now that FTC approval was achieved. A $12 pps analyst updated target from last week just got “reupdated” to $14, considering such matters. Other analysts say $15.75 or $17.5. I see those guesstimating Cliffs earnings are suggesting $20+ pps in timing that can influence MT decisions on how to handle their 78 million new Cliffs shares (June 2021).
- what about estimated Cliffs earnings? Iron pellets are again selling in ranges giving Cliffs nicely high profit margins. Recent $135 per ton IO pricing is still up trending. Apply that to post deal CLF annual production of 27 million tons. Couple that with rising steel market pricing applied to AKS and post MT acquisition Cliffs steel production. Add the HBI plant Cliffs startup (occurred around Thanksgiving?). To me it seems current Cliffs market capitalization is low compared to upside expected to be clarified within the next month or two.
- Consider, there is still more than half of a high short position that was established over the last two years that appears like it is trying to cover. The MT US asset acquisition deal gives MT 78 million shares but those shares need to be held by MT at least six months. The number of shares MT gets out of the deal is already fixed but the share price that clears if MT sells those shares is not.
-It seems it is in MT’s best interest to see Cliffs pps soar as high as it can go through at least June 2021. This sentiment could be working cross purposes with the large short position cover that appears to be getting attempted as best can be. I presume more short cover occurred this week, but last I saw, there were still 64 million short shares exposed in this “surprised” up trending market, earlier this week. That $13 pps old trading ceiling from two years back doesn’t appear to reflect what is currently going on. Those recent analyst updates are suggesting $14, $15.75, $17.5 pps or higher, all falling above that old $13 pps ceiling.
Lots to consider here and very speculative. Your thoughts?
Interesting Yahoo analysis. Their discounted cash flow analysis would post a current Cliffs pps value of $17.38. What is not clear to me is whether the analysis reflects the MT acquisition assets. If not, the methodology would understate projected value accordingly. Is the method applied by Yahoo widely accepted as credible? I am considered to be a “numbers guy” but still found the math hard to follow.
The philosophy behind gaps needing to be covered seems to hinge on the presumption that there were orders that were skipped over when markets move the pps past the terms of unfilled orders. In this day of computer assisted trading, I can see maybe there might be gaps during pre and post market periods if orders were not being recognized from houses that do not do pre or post market trades, but computerized trading ought to still capture valid orders, yes?. So, what is going on here with Cliffs trading?
When it comes to the large short position coverage (still around 75 million shares??), I wonder how the MT acquisition terms weigh into balancing that out or if the short even needs to be covered? Early announced terms for the deal indicated 75 million common shares would be issued to MT upon deal finalization. Then we can consider how the deal adds just under 20% more shares to Cliffs shares outstanding (up from about 400 million shares) and how the proportion of new earnings for Cliffs looks to be a much bigger segment than 20%, favoring better overall profitability. Cliffs is assimilating some MT debt and higher pension obligations, but overall, Cliffs appears to be emerging as a more profitable company with the acquisition which is in addition to COVID recovery improved market demand, post vaccine optimism and the higher US and world market unit pricing for iron ore and steel.
I am not clear about what Cliffs pps target is best supported but appreciate the directional upward movement in the pps appears warranted. The recent analysts’ $12 to $15.75 pps range is a directional start... That 4q 2020 earnings report due in January might give a more clear picture if it includes the impact of the earlier AK Steel acquisition and ongoing MT US asset acquisition. Lot’s going on to digest and understand here...
The gap looks like a premarket trading artifact.
So, what price targets make sense for Cliffs now that the planned acquisition of the MT US assets has passed the government anti trust regulatory review and key tariffs are said to be getting extended? The two most recent analyst price targets were for $12 and $15.75 pps and we can see Cliffs closed in the elevens on Friday. It has been about two years since Cliffs traded in the $11 to $13 pps range and it seems Cliffs financials are looking stronger from multiple perspectives. Thoughts?
At least, manipulative for the short position cover. It strikes me as ludicrous for a stock analyst to reference a pps trough associated with the pandemic sell off as the basis for being overbought when pandemic effects are still weighing on the markets. Consider the source and the article gives insights behind the large short position. Still 75 million shares? That is lots to cover if MT plans on holding on to their US asset acquisition shares (75 million) until Cliffs value realization is in better balance,. What is a “post COVID” realistic share holder value (pps) for Cliffs? Pre COVID pps seemed to see the large short position established between $9 and $12 pps. In the interim period, Cliffs has started up its new HBI plant, acquired AK Steel and picked up MT US assets. Plus steel demand has brought iron and steel market pricing to values much higher than analysts projected, leaving Cliffs with higher profit margin potential. Interesting times.
Hmmm. That was supposed to read “lots to consider”. iPads are frustrating when they do auto correct gibberish. What happened to the 15 minute edit option on IHUB after one does a post? I can’t find it on the app.
Some philosophy (not advice), LOL! The way I look at things for stock investing like CLF is much like the “sunk costs” concept in accounting. That is, one should look forward towards investment trade offs relevant for today, not being unduly influenced by the costs sunk in to get to today beyond how they might educate future prospects. So... we know Cliffs pps (and many other stocks) took a nosedive when the pandemic influence was receiving market valuation consideration. You noted how your cost average benefitted because you were willing to take the risk from investing in more shares of an iron and steel stock during a pandemic where analysts were projecting depressed sales of products using steel. That drop in market demand appears to have occurred, but how long will that pandemic influence last?
Now consider that Cliffs reported last week improved 3Q 2020 results, surprising analysts and bringing a pps I observe is similar similar to what was posting for Cliffs before the pandemic influence weighed in. Pandemic influence is not yet done, IMO, but I observe your willingness to take a risk with Cliffs investment during the pandemic has situated you well for today. Congratulations.
Today, I am looking forward to what Cliffs will bring for value after all pandemic influence is resolved plus the impacts from Cliffs decisions like recent acquisition of AK Steel, purchase of US assets from MT, startup of the new iron facility said to be finishing construction, higher world and domestic iron ore and steel prices and so forth.
What is Cliffs value going forward, figuring all these things plus pressure from the large short position and MT receiving 75 million shares of Cliffs common stock when that earllots to consider... gets finalized (in 2020 per the earnings call).
A little cynicism? As there appear to be +/- 90 million short shares in process of being covered leading into the MT deal closure announced today (said to be due to complete 4th quarter), your choice to not buy above $9 pps should keep you out of competition for short covering shares... most of the short appears to have been established between $9 and $12.5 pps anyway. Much near term price action depends on the pps at which MT decides to move their 75 million shares at. I would be surprised if the MT folks clear their shares cheaply (below $9 pps) but the short cover should still have $9+ pps headroom and still be in the money. Plus, CLF again has surprised analysts with greater than projected earnings. And LG said that the late third quarter strong financials are continuing into the fourth quarter. Cliffs upside potential looks pretty strong going into 2021...
It still looks like some of the Cliffs short positions are being covered with sale of the 75 million common shares that were part of the MT deal. The average short pps is still much higher than current trading but it seems the shorts need to cover before pps gets to break out. Posturing is being done that Cliffs will thrive both under a D or R win in November, which strikes me as a bit of a reach, but high domestic steel demand is projected. Regardless, Friday’s earnings call, clearing the 75 million Cliffs shares given to MT, clearing the large short positions and the post elections policies impact on the steel industry all have me wondering what happens to Cliffs when events clear away their influence? Perhaps, a revisiting of double digit CLF share pricing before year end? The primary spoiler could be proposed policies that would whallop markets with a spike in corporate tax rates.
What about this theory?— the large short position was established when stock price was between $9 and $13 to the tune of over $100 million shares. The Arcelor Mittal acquisition gives MT 75 million shares of Cliffs as part of the deal. MT wants cash, so they start selling their shares to the shorting entities (hedge funds and investment banks— maybe Credit Suisse included?). Current trading price of about $7.50 gets slowly walked up while the short gets covered using the MT issue of Cliffs shares. This would suggest the deal was anticipated with the short position benefitting by whatever margin the short clears vs. the MT Cliffs shares sale price. If the short was MT in the first place—Hmmmm can they do that?
Per the Cliffs press release...
“ArcelorMittal USA will be acquired by Cleveland-Cliffs on a cash-free and debt-free basis, with a combination of 78.2 million shares of Cleveland-Cliffs common stock, non-voting preferred stock with an approximate aggregate value of $373 million, and $505 million in cash. The enterprise value of the transaction is approximately $3.3 billion, which takes into consideration the assumption by Cleveland-Cliffs of pension/OPEB liabilities and working capital.”
Since the 78 million new common shares can be presumed to be treasury stock (new issue), where does that leave the approx 90+ million share short interest going into this MT US assets acquisition announcement? There are now new Cliffs revenues from MT acquisition plus anticipated ramp up to reflect improving, post COVID recovery, market conditions. The press releases show both Cliffs and MT still have share price suppressed about 30% relative to the S&P average since March 2020 (COVID onset), so simple pre pandemic market recovery appears to still be unrealized.
There are lots of moving parts to sort out. Perhaps, end of 3rd quarter earnings reports will provide a good directional indicator for Cliffs’ near term future? Lucas Pipe’s updated $10 price target seems to be a reasonable more near term projection.
I am presuming that the unusually large short positions in Cliffs are aligned with when serious MT US holdings purchase talks were being initiated. The short suppressed the Cliffs share price, which translates to impacts on how many shares are exchanged when the deal with MT finalizes. Investment banks and hedge funds establishing the short positions will now need to figure out if the high iron ore and steel price basis that are aligning with China world market demand resurgence becomes a short position decision game changer now that Cliffs appears to be emerging with a very strong US market base. Despite news of today’s share price boost with announcement of this deal, we know that share price last week was higher, then suppressed for apparently unrelated reasons. My guess is that longer term, this deal will be very good for Cliffs shareholders. I don’t understand how the large short position will behave but if the shares from Cliffs that are part of this deal serve to cover short positions (part of a bigger plan?), a lot of money will be have been made “on the side”. Consider, Cliffs share price before COVID related market suppression was in the $9 to $11+ range, which is when the short positions were established. Hmmm.
Looks like Seeking Alpha article agrees. The MT assets in the US about match size of Cliffs per SA? The integration would make Cliffs even more vertically integrated for coverage of US market after AK steel acquisition. Yet, it seems too soon to presume the deal will happen. Long term bullish for Cliffs but short term cash flow seems challenging to make this work.
Doesn’t the unemployment report for May constitute a major announcement? That is, analysts were projecting another 10 million lost jobs but the report indicated 2 1/2 million gained jobs. Cliffs has been grouped with domestic stocks positively impacted if there is a V shaped economic recovery, post COVID flatten the curve measures. After all, the projection of a strong economic recovery quicker than expected got a huge reinforcement with that bullish jobs report.
The Cliffs pps retrenchment before COVID entered the scene was in the upper 8s. About $9 pps. Now that the economy reopening has not only brought back the COVID risk hedging of pricing for the average of stocks, it should not be surprising to see Cliffs revisit that $9 pps pre COVID low range through the next several weeks. Then consider, more short interest posted during the COVID down turn, stimulus is targeting infrastrucure projects throughout the summer and how a tight supply market is posting higher than anticipated iron ore and steel market pricing. Those that bet against Cliffs are finding the fundamentals assigned to justify their short did not materialize, but rather in some instances, played out opposites. Consequently, I see analyst price targets that figured $10 to $12 pps would be revisited are coming back into focus. After all, Cliffs traded around $12 pps as recently as late 2019. The rationale for lower Cliffs quarterly earnings going forward is also unraveling so I view the recent analyst recommendation to exit at a $6 pps price target to have been pandering to the hedge funds that had bet against Cliffs success, using COVID next wave fears as cover. Of course, there is much to be learned about how China demand rebounds after a couple quarters of slack growth and their COVID response impacts. Since the backdrop of strengthening China demand is re-emerging, it seems reasonable to expect higher iron ore and steel prices to hold, benefitting a Cliffs rebound as Cliffs serves a more profitable US demand recovery.
All IMO. KT
SG, you say LG is in on the shorting? That seems unlikely from a personal LG perspective. However, I see a need to examine acquisition term details to get answers about a CLF GS role.
Swapping of AKS for CLF shares prospectively creates a supply of CLF shares to cover some shorted shares—If the IBs positioned a stash of shorted shares with a higher cost basis than current trading CLF pps (somebody did) plus the same or cooperative parties established a supply of AKS shares at distressed pricing over the last year (somebody did). A big payday can be delivered to scheme participants, working with differences in the pps before and after the acquisition was announced and a successful acquisition is left for Cliff interests.
Those who had their AKS shares shaken out at distressed pricing last year and current/recent CLF shareholders who established positions at the higher pps that was feeding the short interest increase appear to have been targeted for this manipulation. The acquisition details and trading date stamps might bring answers about who participated in setting up depressed AKS pricing and higher CLF pricing which was translated into shares sold short.
So is what I describe here off base or just just recognizing how IBs and market makers go about their business when an acquisition is being set up? That is, they facilitate misleading company news and feint contrarian stock transactions so AKS and CLF shareholders can be shaken down to prepay for a pending acquisition deal?
So now what happens?
KT
Consider this scenario: Cliffs pps appears to be getting dominated by arbitrage surrounding exchange of shares ala the AKS acquisition while the CLF pps shifts lower. Recall last year how LG issued his earnings call challenge to pellet customers (and the financial community) that the Tilden restart would be contingent on orders being locked down to service any increased costs to Cliffs. Similarly, LG asserted around then that market supply of the higher quality Cliffs pellets was tight such that customers should step forward to lock down commitments, especially with reduced supply from Cliffs as Cliffs gets DRI underway. A good dynamic for CLF, yes?
Around the same timing that LG was talking “let’s make a deal” with customers, the big short positions in Cliffs got bigger—total short moved to 40% of outstanding shares, doing what CLF shareholders would experience as a suppression of share price (some analysts were asserting then a $14+ pps target, which did not happen). The AKS acquisition subsequently gets announced by Cliffs (months after the short position swelled). Surprise! (To me at least). Analyst projections for CLF now average around $8.5 pps.
The cost of the AKS acquisition to CLF shareholders gets affected by relative trading price, AKS vs. CLF, when shares are converted. That quickly released lawsuit challenging the acquisition after it was announced would assure that hedge funds (or any party) would have time to enrich themselves or recover from downside from the surprise— unless they were an existing Cliffs shareholder. Existing CLF shareholder pps outcomes now seem to be more tied to longer term delivery of success including the success of the acquisition.
The investment bankers who may have facilitated the CLF hedge with shorting (when no one but insiders should have known an acquisition was in the works) created a pathway for IBs to get paid twice. Once for facilitating the acquisition of AKS by CLF (a fair and normal event for the Cliffs IB, GS). Then again when the short shares established when Cliffs was trading in the $9 to $12 pps range get covered under $9 pps. Which parties established that short?
On top of that, it looks like the AKS side of the acquisition stock deal gets enriched. How? A lower CLF price means AKS shareholders receive more Cliffs shares in the exchange of shares unless AKS pps drops proportionately more. AKS pps went up after the acquisition was announced. CLF pps went down. What did LG have figured in for the share exchange ratio that kept the AKS acquisition an overall good deal for Cliff shareholders? Was the AKS acquisition necessary to just keep them afloat so they can continue to buy Cliffs pellets?
Do I fully understand the above? Hardly (I was surprised by the AKS acquisition) and of course, there is speculation surrounding short position movement. Please call out errors in my thinking here.
Regardless, I was expecting Cliffs to announce deals for their pellets, not acquisition by Cliffs of a major pellets customer (no new demand for pellets?). But for the hedge fund move with apparent inside information supporting their shorting of the stock, the acquisition could have played out with only minor pps shifts. I suppose, hedging action could also have sourced from the AKS side because AKS shareholders financially can get further enrichment if the CLF pps is suppressed. Yet, hedge funds/IBs armed with inside info about an acquisition likely to proceed would benefit if they hedged a big short position in the manner that played out. This is especially the case if they subsequently caused analysts to release news calling the acquisition a bad deal for Cliffs shareholders. Did that happen?
Best wishes and IMO,
KT
Right on... or rephrased, what events would need to post that would help those who hold the high short interest decide it is in their best interest to cover? The squeeze reflects a presumption that runaway, breakout pps may be triggered. The rephrased question suggests an orderly shift in sentiment occurs that enables Cliffs pps to consistently rise to reflect the valuation improvement events that Saving Grace is calling out.
One prospect I consider is that there might be future events that remove the tariffs imposed to rein in dumping onto US markets. Short speculators might be gambling that the resultant feedback impact on domestic iron ore production could yield to lower Cliffs valuation.
Another prospect is that shorts are figuring Vale restores to their pre- dam failure production levels, softening the iron ore pricing that goes into figuring Cliffs revenue. Somewhat, that is already occurring for Vale. Resumption of Vale dividends would suggest resolution there.
What other factors are allowing the short to very high short interest to linger? Who is holding the short positions?
KT
Vinmantoo, is it not the case that patent time clocks start when the med is approved/released for commercial sales? This tech rights expiration question was addressed in great detail years ago, so long ago that my memory of resolution is fuzzy, LOL. I recall the issue was being raised to suggest tech was soon to be worthless and the premise was debunked. Others?
KT
SG, are you certain this is correct: “Shorts can not borrow shares to use for shorting when there is an order already on the shares they want to borrow from other banks. “?
Also, there being under 2000 shareholders that who, in turn, would wish to coordinate a float lock down is intriguing. One might also anticipate very large shareholders who do not wish to overlay sell orders on their holdings, even at $100 per share, since those shares may be already trading in coordination with the shorting parties in exchange for borrowed share “rent”.
I observe the size of my position is a “so what” for float lock down, considering Cliffs has just under 300 million shares issued. If those 2000 shareholders each held 50,000 shares, that locks up only 100 million shares and still leaves 200 million shares in the float being held by a small number of entities. The short interest is what? 88 million shares? .
There appear to be practical limitations on your strategy and I wonder about it being viable.
KT
Saving Grace, I agree about there being attempts to deceive with trading patterns these last few days, as a painting attempt for a $7.00 close appears to validate. Volume suggests the short interest that was driving down the pps recently is attempting to cover, just as those holding shares long may have been inclined to add to their positions. Some on this message board indicated they did add, at pricing not seen for a year or two. As is typical for me, hind sight shows I added too soon, but oh well. I am in no rush to act when accumulating long.
As for the special dividend added to the quarterly dividend announced Tuesday, I am looking at the combined ten cents as an indicator of what Cliffs intends for quarterly dividends going forward, I.e. a $0.40+ annual dividend. Maybe it will be just a one time thing, but... If LG sees earnings continue to strengthen, I am hoping the CLF dividend continues to get stepped higher each quarter, making the LG analogy of a frog in a heating pot of water increasingly apropos for short interest risk management. 88 million shares short times $0.40 per share means that whomever is holding short will collectively need to ante up about $35 million over the next year to replace the dividend, not including their cost to borrow shares, rinse and repeat for each quarter shorty sits in the warming pot as CLF adds a few cents to dividends each quarter.
Of course, my observations are just speculation, but a factor in why I see holding long through 2020 and beyond is enticing. Those short ”frogs“ that don’t jump out of the pot could soon be servicing a $0.50 to $1 plus annual dividend as Cliffs financials strengthen while the short frogs that hop out need to cover, putting upward pressure on the share price and raising the risk that the short borrowed shares will need to be replaced as real share owners transact for their best interest.
I observe signs of CLF acting with guidance of financial professionals who have a plan to strengthen the situation for long share holders when short interest has gone awry. Maybe even Goldman Sachs is helping CLF, as a good investment banker who wishes to help finance the next CLF expansion should? Retribution after that GS analyst’s “math error missed target” antics a year ago seems appropriate. if not, GS will be in the pot with the rest of the shorts. We shall see. Maybe just wishful thinking?
Best wishes and IMO.
KT
SG, your critique of LG doesn’t align with the situation at hand, it seems. Why? Cliffs is between quarterly reports and should be delivering results that portend for end of year earnings... reported in mid-October. That is just six or seven weeks out.
Short interest being high combines with a suppressed share price, but trading volume has been low and shares short are burgeoning. Cliffs restocks cash on hand to better support the share price with buybacks or dividends, all in a relatively protracted period. China trade deal hype was postured last week for what? the third time in less than a year, attempting to give cover to hedge fund CLF shorting piled onto an already high level of short interest. Consider how the share price is still holding up above $7.50 (the 2018 election year hype low) and yet higher short volume is being needed to hold down the pps a year later.
For whatever it is worth, I am long and scrounging for more dry powder to expand my position before a cyclic run up before what I project will be a good quarterly earnings report. Will that run up occur again? We shall see. If not, I will just hold through 2020.
Best wishes and IMO
KT
Dew, you wrote, “so it doesn’t make much sense to allocate the cash from the tax refund to any particular use.”
The amount transferred into Cliffs Accounts so it is now spendable, yes? While recognized as a receivable from the IRS, the hundred+ million wasn’t spendable unless used as collateral. The change in accounting status matters for available cash on hand and can now be applied to a business purpose without encumbrance.
A parallel is when an individual files a tax return and is awaiting processing for a tax refund. When the IRS posts the refund cash into accounts, the individual can buy...whatever. Until posted in accounts, the funds are encumbered. IMO
KT
WS manipulation by Central bank or is it more appropriately stated, hedge fund manipulation based on Central bank decisions?
Dew, perhaps you don’t know that your signature box has been sold as advertising space? I suppose premium members see your signature.
It looks like Clay’s pps projection is playing out leading into Friday’s cc.
Regarding Vale fallout, it looks like iron and pellet pricing is reinforcing the pricing levels that Concalves had projected for 2019 markets around timing of the October cc, so IMO that can give reinforcement to the analyst projections on the higher side of the range.
KT