Why Cleveland-Cliffs shares plunged 10% in early trade today
Shares of iron ore producer and steelmaker Cleveland cliffs (NYSE: CLF) fell just over 10% at the start of trading on February 9. Within an hour of the start of the trading day, the stock was still down around 9%. There were three relevant news here.
First, Cleveland-Cliffs announced after the market closed on February 8 that it was selling 20 million shares. The money raised from the sale is intended for debt reduction efforts. However, this move will dilute current shareholders, a situation that is generally not welcomed by investors. Second, he also announced that ArcelorMittal (NYSE: MT) would sell 40 million shares it owns following the sale of North American steel assets to Cleveland-Cliffs. Cleveland-Cliffs will not see any of this money. It is not shocking that a sale of this magnitude puts downward pressure on the stock.
And then, today, the company announced a billion dollar debt sale. The proceeds are to be used to repay debt maturing between 2021 and 2025, effectively pushing those maturities back to 2029 and 2031. This is likely a net positive, but not enough to offset the blow from the stock sale.
The balance sheets are important and Cleveland-Cliffs has made some aggressive acquisitions to create a steel company. Now he’s trying to keep up with the cost of those moves, which left the steel and iron ore maker with a debt ratio of more than five times. It’s good that the company is tackling its debt problems, but investors clearly weren’t too happy with the company’s efforts here today.
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