re China - yes China is a concern. However, I believe that the fact that China uses 50% of the iron or in the world is misleading. My guess is that China imports 50% of the iron ore in the world is probably correct, but since China is the manufacturing plant for the entire world, most of it is re-exported as finished or half finished goods.
What matters is not where these goods are build, (if they weren't build in China, they would be build elsewhere) but in what quantities they are consumed. To that end, I just don't see a crash in demand coming, with Europe flatlining, US showing slow growth and still health growth in the rest of the world in aggregate.
Secondly, CLF valuation is very undemanding and it is obvious that quite a bit of fear is already reflected in the stock price. Now, even if earnings fall for CLF significantly and CLF reacting and scaling back their Capex, as they apparently are willing to do, they could hold or even increase their dividend, which I am guessing would support the shares. So, unless we have a total crash for iron or and coal prices, i can see a potential for lower CLF share prices but it would not be a sure thing.
If it happens to be that the Chinese slowdown fears are overrated (as the recent rise in Chinese manufacturing indicators and the health steel production recently may show), the shares have strong appreciation potential, unless you believe that a stock with a health balance sheet, trading at 6x earnings and a 4% dividend yield is not cheap.
Last not least, with CLF modest market cap and low valuation and record low interest rates, I can see one of big resource companies like BHP, RIO or Anglo American make a bid for this company, as it is probably cheaper to buy mines on the NYSE, then to build them on a green field where cost overruns are the norm nowadays. |
