What Could Drive Cleveland-Cliffs’s Growth Going Forward?



Refocusing on growth

As Cleveland-Cliffs’s (CLF) debt repayment concerns have been mostly taken care of, at least in the short-to-medium term, it has started refocusing on growth. It is currently in the process of building a hot-briquetted iron (or HBI) plant in Toledo, Ohio. The company expects to spend $700 million with ~35% of the spending expected in 2018, 50% in 2019, and the remainder in 2020. The plant will have a nominal capacity of 1.6 million tons of HBI annually.

HBI plant

HBI is used as a feedstock in electric arc furnaces (or EAFs). Steel Dynamics (STLD) and Nucor (NUE) use EAFs to produce steel, while U.S. Steel (X) and ArcelorMittal (MT) mostly use iron ore for steel production. Most of the funding for HBI has already been taken care of by the company. CLF mentioned in its Q1 2018 earnings call that the physical work on the facility is ahead of schedule. This project is expected to be completed by 2020 when the company should have an additional revenue and earnings stream in addition to its US-focused pellet business.

Northshore DR plant-feeding growth

In addition, the company is also upgrading its Northshore plant to produce DR (direct reduced) grade pellets. These would then be used to feed its HBI facility as well as sold commercially. The company is expecting DR-grade pellets from this facility by the end of 2019. This synergy between CLF’s DR facility and HBI facility is unique in the sense that no other company in the Great Lakes produces DR-grade pellets.

While these growth initiatives are not in the immediate future, they are expected to be sustainably accretive to the company’s margins.

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