How could they be 'backtracking' if their report came out a day prior (june 12th) to the deal announcement?
They did come out with their opinion of the deal today:
Essar deal: negative impact on 2014-2016 earnings, but positive longer term
¦ CLF's recent contract extension with Essar has both positive and negative implications.
¦ Negative for 2014-2016 earnings. Although the existing contract with Essar extends to 2016, it is our understanding that CLF has conceded lower pricing for the remainder of the contract. Essar is CLF's second largest USIO customer and purchased 3.2mt in 2012. The revisions to the Essar contract effectively accelerate the reversion to LT / mid-cycle pricing on the Great Lakes, which we discussed in our 23 Mar and 12 Jun research reports.
¦ In exchange for lower ST pricing, Essar has agreed to a new off take contract for 2017-2024, but this will be at much lower volume. The existing contract is for 'first rights of supply', but post-2017 CLF will only meet Essar's requirements that cannot be met by its own Mesabi Range iron ore project (currently under construction). If Essar Algoma is running at full utilisation,
we estimate the volume opportunity for CLF could be up to 1.5mtpa, but based on 2012 utilisation, it would be 0mtpa.
¦ Valuation: The details of the pricing adjustments are unknown, but we estimate this deal could have a negative earnings impact of $30-120mn p.a.in 2014. Post 2016, we estimate a positive earnings impact of up to $30mn p.a.
CS put out many things in their June 12 report and they still say Cliff has a huge balance sheet and cost problem. They expect EPS of (US$) $1.49 -$2.60 -$4.60 over the next 3 years.
This deal in now way blows a 'hole' in their previous report.
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