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Cleveland Cliffs' Management Thinks The Future Is Incredibly Bright

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Most of the funding for HBI is in place, and those debt maturities are about $300 million in total. Based on the company's recent earnings reports, it should be able to generate enough cash to cover these expenses in short order, and it wouldn't be shocking if we saw a dividend as early as 2019.

New investment is already ahead of schedule

A large determinant of when investors can expect a dividend is this HBI facility. As is the case with any new facility, there is the fear that there will be significant cost overruns and delays. So far, that isn't a concern as Goncalves noted that progress at both its HBI facility and a new iron ore mine are going incredibly well:

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[W]e celebrated the official groundbreaking of our HBI plant in Toledo, Ohio. However, because we will obtain all our permits in record time, we were actually able to start the physical work almost two months ago and are currently ahead of schedule. The project team has working quickly in awarded civil works, piling, and foundation contracts which will allow us to begin setting steel in the third quarter of this year.

Thus along with the great progress made so far at Northshore [mine] puts us well on track to deliver DR-grade pellets to Toledo by the end of 2019 and to deliver customized-HBI to electric arc furnaces by mid-2020.

Adding another mine that can deliver DR-grade (industry lingo for very high quality) pellets in the next 18 months and the building of this HBI facility in two years will do a lot to move the needle for Cleveland-Cliffs. 

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Underappreciated value in Cleveland-Cliffs' stock

Mining iron ore isn't exactly the most stable business out there. The industry notoriously vacillates between periods of over-and-under supply that can make investing for the long term in this business incredibly tricky. Also, we have seen first-hand what can happen to a business that invests in questionable assets and takes on a lot of leverage. So, I can understand why Cleveland-Cliffs isn't a stock for just anyone.

That said, I don't think Wall Street is properly valuing the opportunity in Cleveland-Cliff's stock right now. It is in the best financial position it has been in for years, it has supply contracts in place that will ensure steady demand and decent margins for several years, and the addition of a new mine and an HBI upgrading facility will likely add a lot to the bottom line over a rather short timeframe. 

constrained by its discontinued operations in Australia. As these assets come off the books from a recent sale, and these new U.S. facilities ramp up, it's incredibly reasonable to expect a significant jump in earnings. Plus, it looks like the company will be reinstating a dividend sooner rather than later. Add it all up, and I think investors have a very good shot at achieving a high rate of return on an investment in Cleveland-Cliffs today. " data-reactid="72">As it stands, Cleveland-Cliffs has a PE ratio of 8.3, and that is on a trailing-12-month basis, where profits have been constrained by its discontinued operations in Australia. As these assets come off the books from a recent sale, and these new U.S. facilities ramp up, it's incredibly reasonable to expect a significant jump in earnings. Plus, it looks like the company will be reinstating a dividend sooner rather than later. Add it all up, and I think investors have a very good shot at achieving a high rate of return on an investment in Cleveland-Cliffs today. 

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Tyler Crowe owns shares of Cleveland-Cliffs. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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Source : https://finance.yahoo.com/news/cleveland-cliffs-apos-management-thinks-113100850.html

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