The Rising Influence of Rising Affluence

[DewDiligence]

given CLF has greater exposure to the US iron ore market, do you think at this point - with what looks like a slowdown in the west - vale or rio/bbl are the better investments (as more pure china plays)?

The iron ore CLF produces in the Upper Midwest is generally sold to US steelmakers under take-or-pay contracts. (This ore is mostly in the form of pellets that are customized for the blast furnaces used by US steelmakers.) If US steel production were to decline precipitously, CLF would be affected more than VALE, RIO, and BHP/BBL, but there would be a lag before the impact would be felt in CLF’s sales and earnings. (I do not expect a precipitous decline in US steel production, but that’s a separate question.)

I noticed that seaborne iron ore is factored into the formula for cliffs iron ore pricing, but do you know how much weight this is given relative to other components in the equation (i.e if weighted heavily i am less concerned about #1 above)

CLF’s pricing formulas vary from customer to customer and are tightly guarded. What we do know is that the global spot price of iron ore is an increasingly large component of the formula.

input prices in australia seem to be increasing. to what degree will this offset growth and profitability for the australia miners?

Rising input prices have an effect, of course, but they are in no way surprising. There has never been a bull market for commodities in which the input prices did not rise.

given the above would you say VALE is the best bet at this point? i know there is some political meddling but the PE is most attractive (although given its size i don't know about growth potential relative to a smaller company like CLF)

VALE’s dirt-cheap valuation is more than enough compensation to investor for the political risk, IMO. The new CEO, Murilo Ferreira, presents as a level-headed business executive, not a zealot. Ferreira’s philosophy (as I interpret it) is that there’s a benefit as well as a cost in maintaining good relations with the federal government; as long as the cost is not excessive, investors should consider it the “entry fee” for a Brazilian company to conduct business on a global scale.

should i just keep my money in cash given the market turmoil?!

I presume that your question is rhetorical :- )

do you still think CLF is a buyout candidate?

Yes.