Cleveland-Cliffs (CLF) has come a long way with respect to its financial leverage. Investors might remember that its debt spiraled due to acquisitions at the peak of the cycle. With the new management’s efforts, however, its financial leverage has improved significantly in the last four years. In this article, we’ll discuss its debt position and financial leverage at the end of 2017.
Improving balance sheet
Cleveland-Cliffs (CLF) ended 4Q17 with a net debt of $1.3 billion, which is its lowest level in the last six years. Its net debt at the end of 4Q16 was $1.8 billion. Its maturity profile has also improved significantly. During 2017, the company reduced its average cost of debt from 6.8% to 5.0%.
Cash position and investments
Cliffs’ cash and cash equivalents have also improved significantly. At the end of 2017, its cash balances totaled $1.0 billion as compared to just $323 million at the end of 2016. It generated $182 million in cash during the year, which mostly went towards the acquisition of the remaining minority interest in both the Tilden and Empire mines.
Cleveland-Cliffs’ (CLF) capital expenditure could take a major step up in 2018 when it is expecting to spend $385 million. With $1 billion in cash and cash equivalents and tax benefits along with its strong outlook, the company looks set to deliver on its growth plans.
The company has taken care of its short-term debt concerns. The company has profitable contracts in place in the long term, which could be cash flow accretive, leading to a paydown of its debt.