CLF - Embedded Expectations Analysis - 2020 12 10
Cleveland-Cliffs Inc. (CLF:USA) currently trades below recent averages relative to UAFRS-based (Uniform) assets, with a 2.0x Uniform P/B. At these levels, the market has bearish expectations for the firm, and management may be concerned about free cash flow, HBI's advantages, and automotive demandSpecifically, management may lack confidence in their ability to generate positive free cash flow in H2, improve their capital structure, and mitigate margin declines. In addition, they may be exaggerating the advantages of their HBI product, the progress of the HPI production ramp up, and their focus on reducing leverage. Moreover, management may have concerns about the sustainability of recovering automotive demand, their ability to conduct asset sales, and the impact of sourcing materials only in the U.S. Furthermore, they may lack confidence in their ability to build inventory, continue serving their automotive clients, and compete with the ArcelorMittal acquisition. Finally, management may be concerned about their joint venture with Nippon Steel, purchasing currently shut down blast furnaces, and their maintenance costs
Cleveland-Cliffs is an iron ore mining company. The company is a supplier of iron ore pellets to the North American steel industry from its mines and pellet plants located in Michigan and Minnesota. The company is organized according to its differentiated products. The company has two segments: Mining and Pelletizing, which the company is a main producer of iron ore pellets, primarily selling production from its Mining and Pelletizing segment to integrated steel companies in the U.S. and Canada; and Metallics, which constructing a Hot Briquetted Iron (HBI) production plant, whereby HBI is an iron alternative to scrap that, when used as a feedstock, allows an Electric Arc Furnace to produces valuable grades of steel.
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