Cleveland-Cliffs Inc. (CLF) - The Making Of A Short Squeeze

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(Edited)

Cleveland-Cliffs Inc. (CLF) - The Making Of A Short Squeeze

I used to be a contributing writer for Seeking Alpha. But I began to run out of time to write articles once I started having kids. So here is a very brief snippet of a stock I am looking at now.

Cleveland-Cliffs Inc. (CLF)

This company is just running full speed into a scenario where a short squeeze may prove to be necessary.

The bear case is entirely contingent on what may have worked in the past when the company was in very dire straits - when it was overleveraged and facing a sharp commodity market downturn. Today, the argument is also quite contingent on the inevitability of a looming recession, which I would argue might still fail to dislodge the free cash flow machine this company is now setting up.

I would encourage every investor to read this transcript:

https://seekingalpha.com/article/4276128-cleveland-cliffs-inc-clf-ceo-lourenco-goncalves-q2-2019-results-earnings-call-transcript

The part that pushed me over the top into believing shorts are going to be screwed is the following:

"Shortly after we reported our last quarter results, we issued $750 million in unsecured notes due in 2027 at a five handle coupon. This new issue allowed us to both retire legacy notes coming due in two years and reduce the size of our largest debt maturity tower in 2025 by $600 million.

With the transaction closed, we have no debt coming due until the year 2024, also, our previous $1.4 billion maturity tower in 2025 was nearly cut in half and pushed out another two years to 2027.

We accomplished all of this without a material change to our annual debt service expense. Even though our balance sheet was already in excellent shape, we are and will always be on the lookout for opportunities like these to make it stronger."

And then later it was noted:

"I’d like to say, with our HBI plant completed and in full production free cash on an annualized basis will be EBITDA minus $220 million. Other than $100 million of sustaining capital, and $120 million of debt service, all the rest of the EBITDA is free cash. Since we will continue to use our NOLs and I'd have to disperse any cash to pay taxes for the foreseeable future, and we are not even adding to this free cash number, the cash coming from our future AMT refunds which are real as you all know.

At price levels comparable to what we've seen this year and with HBI layered in, we would expect to generate about an annualized $1 billion in EBITDA meaning that we would have around $800 million in free cash flow to return to shareholders primarily via stock buybacks and increased dividends.
"

I should note that this is a company with a mere $2.27 billion market cap.

Case closed.

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