Significantly improved balance sheet
Not long ago, investors were worried about whether Cleveland-Cliffs (CLF) would remain solvent enough to repay its debts. However, with the new management’s efforts, its financial leverage has improved significantly in the last four years.
CLF ended Q1 2018 with net debt of ~$1.3 billion, which is its lowest level in the last six years. Its net debt at the end of 4Q 2016 was $1.8 billion. The company is targeting net debt of $1 billion. It mentioned during its earnings release that as the hot briquetted iron (or HBI) plant is fully funded, it is still expected to generate a lot of free cash flow this year, which should go towards arriving at this net debt target.
Reaching its debt target
The company also mentioned that it would have already reached its net debt target had it not spent ~$300 million on three strategic acquisitions last year. Cliffs’s CEO, Lourenco Goncalves, also stated that after taking care of the HBI plant and the near-term debt maturities, the company will start thinking about returning capital to shareholders.
Goncalves added, “we are not going to be telegraphing that too much. At the right time, we will do it.” The timing of the dividend reinstatement would be dependent on the progress of its HBI plant, which the CEO mentioned in the Q1 2018 earnings call was “currently ahead of schedule.”
As Cliffs’s debt overload issue is in the rear-view mirror now, it has started focusing on growth. In the next part of this series, we’ll look at growth catalysts for Cliffs.