Replies to post #6786 on The Rising Influence of Rising Affluence

[jbog]

You seem to forget that Cliff had $4 billion in debt when they had ebita in the range of $1.2 -$2.2 billion. Now they recently did a equity raise which brought their debt down to $2.9, but their ebita will be in the $400 mil range.

That's debt 8x ebita. Will the banks put up with that? It seems like selling something is in order right after they get rid of management.

[Democritus_of_Abdera]

Re: Credit Suisse's Analysis of CLF....

My take-home message from the Credit Suisse report is that within 5 years, and probably sooner, the US iron ore business will no longer buffer CLF's exposure to seaborne prices... This will be bad if seaborne prices average less than about $120/t; very bad indeed if prices are $90/t as Credit Suisse expects. On the other hand, if prices average $150/t over the next 5 yrs, CLF will do very well.

I have difficulty committing to an expected price of seaborne iron ore over the intermediate term (5 yrs).... This uncertainty arises from my belief that the experts in the field don't really know how much iron ore China is likely to need or what their policy regarding internal production will be over the next 5 yrs. So,... I note CS's $90/t estimate, but am not willing to make investment decisions assuming this price.

Before the intermediate-term (5 yr) scenario plays out, Credit Suisse believes that CLF will need to redress its balance sheet within a year. This redress will be driven by an expected breach of loan covenants in 1H 2014. They note, however, that these covenants can be circumvented by repaying the revolver portion of debt.... This revolver debt was reported to be $325M in the 2/12/13 8K...

I believe that CLF can readily find a way to pay back this revolver debt if necessary. ... So, I do not buy into Credit Suisse's certainty that the CLF will be forced to redress its balance sheet. However, I was surprised that CLF felt compelled to do the recapitalization in February... consequently, I don't know what to expect.

When discussing factors that might be in CLF's favor, Credit Suisse mentions, then dismisses, CLF's Direct Reduced Iron (DRI) initiatives... This is fair enough. What puzzles me is that the Credit Suisse analysis, like other analyses I have read, does not mention the Chrome Project....

I believe that CLF's future depends upon the iron ore business and the Chrome project will not change that dependence.... However, I also believe that the Chrome project has some marginal value that will become noticed at about the time that legacy IO contracts expire in 2015-2016 time frame.So, ... I believe that investor perceptions 3-5 years out (as reflected in the market capitalization) are not likely to be as bad as many apparently assume.

So, my bottom line is that CLF stock is beginning to looking interesting again at the $15-20 range.