CLF's price assigns no value for HBI.
Their mining and pelleting operations have an $800 million sustainable gross margin (20 M tons, $40/T margin) and net ~$500 million annually ($100M Interest, $100M SGA, $100M Sustain CapEx & Misc Expenses). WIth a PE of 8 this part of the business has a $4 billion value ($13-14 per share).
Their HBI operation should net ~$300 million annually starting in 2021 with the recent expanded production design. A PE of 12 with this growling line values this part of the business at $3.6 billion (~$12 per share). The world has been moving to DR iron for quite some time.
Overall CLF has a $7.5-8 billion capitalization value ($25-30 per share) assuming no further growth.But they will be growing.
The increase in ore prices for the next couple of years and tax refunds are providing most of the capital to re-open Empire whose production will replace the BF pellets no longer being made at Northshore with their 2019 conversion to DR-grade pellets for HBI production. Empire will further expand pellet production by another 3-3.5 M tons annually (15-17%).
If they build a second HBI, the profits from the Toledo HBI alone will be sufficient to fund all the CapEx for this. A second HBI would add several more billion ($10-12 per share) to overall company value.
Their long-term goal is to build a mine at Nashwauk to replace Hibbing which only has several years of ore left. LG has also stated plans to build HBI and then pellet plants there once the mine is open. This will require a good deal of CapEx and would not be surprised to see them partner there as they are doing at Hibbing now. Alternatively, by then, they may be so flush with cash that there would be no need to partner.
There is also an adult in charge of the company who knows what he is doing and who is aggressively moving to grow the company. Their allocation of capital has been truly superb with investments in growth, addition of a reasonable dividend, buyback at reasonable levels to not compromise investment, and continued retirement of outstanding debt.
CLF is still at firesale prices. As LG has noted, this is a simple business and these facts are all well known. Hard to believe this has being missed by so many analysts for so long. There is imminent risk of buyout and of being taken private at these levels.
