CLF

Little Progress Seen in Iron Ore Market Balancing

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Image Source: Peter Craven By Kris Rosemann Recent reports from the likes of BHP Billiton (BHP) have echoed our previous concerns with the iron ore market, “Iron Ore Market Stability Still A Ways Off.” A number of factors on both the supply and demand sides of things are expected to provide pressure to the price of iron as we move further into the back half of 2016. BHP, for one, anticipates economic uncertainty, political instability and well supplied markets to continue weighing on iron ore prices, among other commodities.  Seasonal factors will weigh on Chinese (FXI) demand–the nation is the world’s largest purchaser of seaborne iron–in the winter months when construction typically slows as a result of more inclement weather. … Read more

Developments in the Iron Ore Market

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BHP Billiton (BHP) shares have reached their lowest levels since 2008 after reports surfaced November 5 of a mining dam the company owns via a joint venture with Vale (VALE) broke. The dam failure has decimated a rural community, killed at least 8 people, left at least 20 people missing, and potentially contaminated the water source of hundreds of thousands of Brazilians.  Samarco, the limited liability company set up to operate the joint venture between BHP and Vale, has been said to be fully responsible for the failure, but the two-year old company may do little to protect its parent companies from hefty fines and cleanup and legal costs. According to an environmental lawyer, if Samarco cannot cover the cleanup … Read more

Dividend Cushion Ratio Predicts Two More Cuts

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Forward-looking, cash-flow based dividend analysis has proven its worth once again. Chesapeake Energy (CHK) recently suspended its dividend, and Hi-Crush Partners (HCLP) has significantly cut its dividend. In each case, the Dividend Cushion ratio appropriately warned members. Early in July and prior to the elimination of its dividend, Chesapeake Energy ranked near the top of our list of dividend yields to avoid. Based on its Dividend Cushion ratio of -7.7, we rated its dividend safety as VERY POOR, and its dividend growth potential rating was also VERY POOR. The firm updated its financial strategy July 21 and eliminated its common stock dividend, effective in the third quarter of 2015. A reduction in investable capital due to the weak commodity price … Read more

Dear member,

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We have been blown away by the attention we’ve received from our warning on Kinder Morgan’s (KMI) valuation and dividend health. Our duty as an independent research provider has never been held in higher esteem as we outlined the prevalent hazards that reside both with sell-side research inundated with conflicts of interest and credit rating assessments that are paid for by the company. Independence will always trump biased analysis, and investors of all types have applauded us for this. We thank you. But being in the spotlight is nothing new for us. In the short history of the Dividend Cushion methodology, we have called in advance the dividend cuts on a few dozen equities: SeaDrill (SDRL), SuperValu (SVU), Roundy’s (RNDY), … Read more

Iron Prices to Move Higher, Ore Is It Wishful Thinking?

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A number iron ore producers–including Vale (VALE), BHP Billiton (BHP), Cliffs Natural Resources (CLF), and Best Ideas Newsletter portfolio holding Rio Tinto (RIO)–have seen share prices jump after reports that Chinese demand for the key ingredient in steel production will increase in the second half of 2015. This is good news for iron ore producers, as approximately half of the world’s steel is produced in China. According to Vale CEO Murilo Ferreira, Chinese imports of iron ore will increase significantly in the back half of this year as domestic production is expected to be down ~200 million metric tons. According to Ferreira, a significant amount–more than most realize–of Chinese iron ore producers have ceased operations, boosting the country’s import demand. … Read more

There’s More Rough Sledding Ahead; Removing Half of Microsoft from DG Portfolio

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Reverberations of the collapse in commodity prices have influenced much more than the commodity producers themselves. The slide has impacted business in a variety of sectors, almost across the board, as suppliers and customers seemed to pause to assess the damage and opportunities. The strengthening dollar is also having an unprecedented impact on the growth of global entities. If the disappointments yesterday (see here) didn’t signal an inflection point in the markets, then today surely has. It was just yesterday that we reiterated our view that Peabody Energy’s (BTU) dividend was at risk, and almost on cue, the firm announced today that it would slash its payout more than 97%, to $0.085 per share on a quarterly basis. The Dividend … Read more

One Dividend Suspension and Five Other Disappointments

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The wreckage in crude oil prices has left many in awe of the range of probable outcomes for the commodity even over a multi-month period, let alone a multi-year period. The precipitous decline has forced high-yielding equities such as Linn Energy (LINE) and Seadrill (SDRL) to slash their income payouts and begin the long road to recovery, as it has pushed the backs of others, including Legacy Reserves (LGCY), against the wall. Investor confidence, once lost, however may never be regained, and management teams know this. A dividend cut will always be the last resort, but crude oil hasn’t been the only commodity falling out of favor. Copper and iron ore have also seen much better days, too. January 26 … Read more

Your “Consider Selling” List

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Let’s put in this way. The markets look vulnerable. We failed to put in a new high during the latest market advance, and it’s very likely that we’re setting the stage for a multi-month downtrend. Please don’t be silly and panic though! The goals of investing are to achieve long-term goals, not for one’s picks to go straight up. Sticking with your long-term plan, however, does not mean “buy and pray” that things will work out.  Here’s what I want you to do right now. Go through each one of your holdings and evaluate their net balance sheet position (i.e. subtract the firm’s total debt from its cash positon). If the firm’s net debt position is massive relative to its … Read more

BHP or Rio Tinto? Is That the Right Question?

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Dr. Copper is speaking, and we don’t like what he’s saying. For those long-tenured market participants, a look at the copper markets (JJC, CPER, CUPM) generally provides insight into the health of the global economy. Copper is used in just about everything related to construction and manufacturing, and the price of the metal signals the relationship between its supply and demand. A strong copper price, therefore, indicates that demand for the metal is healthy, and that in most cases and by extension, the general economy is healthy as well. What we are witnessing in the copper markets, however, is something else, and on a high level, no different than the shellacking the crude oil markets have been experiencing in recent … Read more