The Rising Influence of Rising Affluence

[Democritus_of_Abdera]

Re: CLF

Dew, you piqued my interest in CLF several months ago... But, I've been holding back from making an investment, largely because of your prediction on March 17 (#msg-61079686) that an equity offering will be required to complete funding. I took Laurie Brlas' statements in the April 29th CC as supporting your prediction (see below).

It is possible, however, that CLF might complete the funding by drawing on their operating cash flow (a sentiment expressed by Sanil Daptardar of Sentinel Investments in the CC Q&A).

Do you still believe an equity offering is likely? If so, do you have any prediction as to when it might occur?

Relevant quotes from CLF's April 29th Q1 2011 Earnings Call:

<Laurie Brlas Prepared Statements> .... Turning to capital structure and liquidity, at March 31st, we held $2.3 billion in cash and equivalents. Our long-term debt stood at $2.4 billion with no borrowings on our $600 million revolver. Both of these figures include the $700 million 10-year tranche of senior notes closed prior to quarter-end. Another $300 million 30-year tranche of public debt was closed subsequent to quarter end. As I already indicated, we received $275 million as a result of our settlement with ArcelorMittal, both of which increased our current cash positions. These two items would push our cash close to $3 billion. The total amount needed to fund our pending acquisition of Consolidated Thompson is approximately $5 billion. We would draw on our $1.25 billion term loan and we would expect to use the bridge financing for the remaining piece in the short term. In the longer term, we anticipate replacing the bridge facility by further accessing the capital markets.

.....

Based on our current outlook, we expect to generate approximately $2.6 billion in cash from operations. We anticipate 2011 capital expenditures of approximately $700 million comprised of about $300 million in sustaining capital and $400 million in growth and expansion projects.

Q&A

<Q – Sanil Daptardar>: Okay. Just last question on the bridge financing which you intend to do in the short term. You talked about replacing it by accessing the capital markets. Is that the same amount, around $3 billion that you would be accessing, because you still have $3 billion of cash on books and you might be generating about $1.9 billion in free cash flow. So is there a need to access the capital markets?

<A – Laurie Brlas>: The bridge will be about $1 billion roughly that we would draw on that. And because we have about close to $3 billion of cash right now, and the term loan we’d draw, so we would draw roughly around $1 billion on the bridge loan. And as you know the bridge loan is not designed to be a long term instrument. It’s a short term instrument, so we would need to replace that. We would look to replace it depending on market conditions relatively soon. We don’t have an exact specific time in mind yet, but it’s not something that we would want to hold on to for a long time.

<Q – Sanil Daptardar>: Okay, it would not be equity financing, it would be more kind of a loan, term loans or kind of loans or something?

<A – Laurie Brlas>: No, I did not say that. We’ve said, since we did the acquisition of CT that it’s very likely that we will do some equity financing. The way we manage the company and the balance sheet is very important to us and we don’t put it at risk. We have an investment grade rating and that’s indicative of the way we think about our company.