Cleveland Cliffs Inc (CLF)

[Democritus_of_Abdera]

After listening to Lourenco’s presentation at the Goldman Sachs Conference yesterday, I continue to expect that as the 2020/21 bond expirations approach CLF will again use equity dilution to retire debt (see #msg-124187534). The exchange that reinforced this sentiment occurred about 23 minutes into the presentation (that can be accessed using the link posted by Dew #msg-126606745 ); i.e.

Question from Audience:
Just kind of looking at your balance sheet and your EBITDA, how do you grow into that over time and, you know, absent meaningful price increases in iron ore, which I know that you have moved away from the kind of spot pricing that the company was in a few years ago, so how do you grow into this capital structure in the north of 6X’s today.

Lourenco Goncalves (CLF CEO):
Well, lets qualify. In the last conference call I put very clear that my assumptions were $60 iron for 2017, $600 dollars for hot band in 2017 in the domestic market and we finished the quarter with a net debt of $2 billion. We tend to pay down debt during the summer and spring. And with that one doesn’t need to be guessing to much to know that we are going to be below $2 billion in net debt when we announce our Q4 results, or yearly results. But let’s use the 2 billion… $2 billion net debt and $500 million EBITDA makes a 4. So if I reduce net debt further it will be less than a 4. If my EBITDA is more than 500, and based upon the current iron ore prices it will be more than 500, it will be a lot less than a 4. If I issue stock it will be a lot less than a 4. So, we can play. We were able to knock $1.2 billion off debt down in a very bad iron ore price environment, very bad steel price environment, and against all the odds, by using what the market was giving. The market gave us bonds, very cheap, and we bought and we appreciate. Please do it again, I’ll buy again. Right now it is all at par. The second lien that we issued at 35 cents on the dollar, if you look in your Bloomberg today you will see 99. That’s pretty good, that’s a pretty good appreciation. The unsecurred’s are all above 85. The 18’s that 2 years ago no buyer believe we could every refinance let alone redeem, we redeemed at 108, its gone. So in a better price environment we should be doing more, not less.

Question from Audience:
On that same note, do you guys in the long term, when things normalize, do you have a long term leverage target or long term rating target that you are shooting for?

Lourenco Goncalves (CLF CEO):
Look, if I can get to 3X’s or less than 3X’s I’ll feel pretty good.