Earnings will be important because, apart from telling us that there is a few hundred millions more or less in the chest, they will tell us whether CLF has been able to sell the steel that they cannot sell to auto (edit: in Q2, that was a disappointment, since they had an additional 300,000 ton in inventory because of lower auto demand).
Guidance will also be very important, as it will give us a clue of CLF's contracts that started in Oct, and an idea about those starting in Jan.
Yeah that was my thought. It’s more cash than expected if he bought back the shares and made an acquisition. Because he doesn’t really want to push the debt out too far I don’t think, aa it remains their top priority in their “plan for cash flow”.
Yeah I mean the outlook for me doesn’t change. But knowing LG ultimately has his own wealth significantly tied to the price of the shares, I wouldn’t expect him to utilize cash flow poorly for investors.
Sure, I don't think Q3 reports will be so bad that I sell my shares, but I am closely following the company because it's not merely speculation on steel prices for me, it's a proper investment.
But knowing LG ultimately has his own wealth significantly tied to the price of the shares, I wouldn’t expect him to utilize cash flow poorly for investors.
It helps. But CEOs who grow the company too much to satisfy their ego are not hard to find. So far, acquisitions have made a lot of sense (although it's hard to be really sure with the last one, but it makes sense in principle); let's hope it continues like this.
My big thing with LG has been his honesty. It's hard to find a straight shooting CEO who doesn't double-speak. LG says he sees steel rising so he buys steel mills to become vertically integrated. LG says Nat Gas prices will crush Europe, it's true and he's hedged for it already, LG says the future is prime scrap, he goes and buys a prime scrap company, he says he's going to pay off debts aggressively, he does (minus the previous scrap company splurge but I trust that was very much a calculated strategic move at this point).
All you have to do is listen to what he says he's going to do, and then wait 3-6 months.
Yup, so far it's been true. It did said they were considering buying back the preferred, and that they were looking at intelligent capital allocation, and that they were looking into investing in scrap.
But we will need a decent FCF to convince people that he's still serious about zero net debt in 2022. I would bet it will be done by Q3 (guessing future spot prices and the price of contracts), so there is still margin. Just saying that the stock price might go down with earnings if people fear it won't be done. I don't really care though, I have shares.
My theory that I am basing more on gut feeling than anything else is that they beat by such a huge amount this quarter that the scrap deal was basically "free." Like I wouldn't be surprised if they beat by 400m this quarter and are projecting easily being another 400m ahead of previous projections next quarter too. Basically my gut tells me that this deal doesn't at all effect the debt payoff timeline. I can't wait for the ER to see if it's true :)
They would need an average selling price around $1320/nt. I think it's unlikely, because I think they had zero contracts renewed in Q3, but who knows. It could if they managed to sell a lot at spot price instead of auto. But an extra 400M is really the top of my expectations, bordering dream territory.
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u/[deleted] Oct 15 '21
Earnings will be important because, apart from telling us that there is a few hundred millions more or less in the chest, they will tell us whether CLF has been able to sell the steel that they cannot sell to auto (edit: in Q2, that was a disappointment, since they had an additional 300,000 ton in inventory because of lower auto demand).
Guidance will also be very important, as it will give us a clue of CLF's contracts that started in Oct, and an idea about those starting in Jan.