Replies to post #5465 on The Rising Influence of Rising Affluence

[DewDiligence]

DoA et al: CLF’s PR says the average spot price of seaborne iron ore (62% Fe) has been $142/ton CFR in 2012 to date, which I interpret to mean the period through Jul 25, not Jun 30. Thus, to reach an average of $145 for the full year, the average for the remaining 59 days of 2012 needs to be $148.91, which does not strike me as unreasonably high.

When comparing CLF’s guidance for seaborne iron ore to published index prices, please bear in mind that CLF’s numbers are specified as CFR China—i.e. they include the cost of freight to China.

[DewDiligence]

CLF—What I find notable is that the dividend is not mentioned in the PR.

That’s a sure sign that the BoD has not already decided on a dividend cut, although it leaves the door open for a cut later.

As you noted, the revised cash-flow forecast for 2012 covers cap-ex and the dividend. Moreover, CLF has ample liquidity from cash on hand ($159M) and the untapped portion of its credit line ($1.425B) to handle a modest reduction in cash flow relative to the revised guidance, so there won’t be a compelling need for a dividend cut unless the iron-ore market turns very much worse than any of the major companies in the industry currently expects.

For CLF to cut the dividend so soon after raising it with great fanfare would cause a colossal loss of face, so I’m pretty sure it won’t happen anytime soon. I expect CLF to say as much on tomorrow's CC.

[DewDiligence]

You were right—CLF’s $145 estimate from the 2Q12 quarterly report proved to be unduly bullish.