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Cleveland-Cliffs Buys Remaining Equity Stake in Tilden Mine

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Cleveland-Cliffs Inc. (CLF - Free Report) has purchased United States Steel Corporation’s 15% equity stake in the Tilden Mining Company for $105 million in cash. With this acquisition, Cleveland-Cliffs now owns 100% interest in the Tilden mine that is located in Ishpeming, MI. The transaction was completed on Sep 29.

With this acquisition, Cleveland-Cliffs has added 1.2 million long tons of annual pellet production capacity and 55 million long tons of proven and probable crude ore reserves. With the added capacity, the company’s U.S. Iron Ore unit’s expected pellet sales volume will increase from an anticipated 19 million long tons in 2017 to 20 million long tons in 2018.

Cleveland-Cliffs noted that the addition of pellet capacity became a top priority for the company given the current strength in the iron ore pellet market and the expected future demand from its hot briquetted iron (HBI) facility.

Cleveland-Cliffs, in June 2017, said that it has selected a location in Toledo, OH, for the development of its first HBI production plant. The company has selected Midrex Technologies for design, engineering and procurement of necessary equipment for the new facility, which will produce 1.6 million tons of HBI per year.

The new production facility is estimated to require roughly $700 million investment. The company expects the construction to begin by early 2018, and production of commercial tonnage of HBI is expected to initiate in the middle of 2020.

Cleveland-Cliffs’ shares have lost around 12% year to date, underperforming the roughly 14.5% gain recorded by the industry it belongs to over the same period.

Cleveland-Cliffs, in July, cut its profit outlook for 2017. The company now sees net income of roughly $310 million, down from its earlier view of $380 million. It has also cut its adjusted EBITDA guidance to $650 million from $700 million expected earlier.

Moreover, the company now expects its full-year selling, general and administrative (SG&A) expenses to be around $110 million, an increase from previous expectations of roughly $100 million to incorporate HBI prefeasibility spending and higher-than-expected incentive compensation accruals.

Cleveland-Cliffs is a Zacks Rank #3 (Hold) stock.

Stocks to Consider

Better-ranked stocks in the basic materials space include Kraton Corporation (KRA - Free Report) , The Chemours Company (CC - Free Report) and Orion Engineered Carbons, S.A. (OEC - Free Report) , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Kraton has expected earnings growth of 7.2% for the current year.

Chemours has expected long-term earnings growth of 15.5%.

Orion Engineered Carbons has expected earnings growth of 19% for the current year.

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