‘Rare earth’ is the magic phrase as Cleveland-Cliffs rises 18%

If you don’t know Cleveland Cliffs CEO Lourenco Goncalves, then you’re missing out.

He is a real character that turned the company around by buying up steel mills but shares have been struggling lately. Steel prices have slumped badly since the post-covid boom and he lost a fight to prevent Nippon’s takeover of US Steel. He also purchased Canada’s Stelco at a premium that displeased the market, and then that company was hit by US tariffs.

But Goncalves is relentlessly focused on shareholders and so he decided to utter the magic words today:

Beyond steelmaking, the renewed importance of rare earths has driven us
to re-focus on this potential opportunity at our upstream mining assets.
It is our obligation to do so as a company with our geological
footprint. We have looked at all of our ore bodies and tailings basins,
and two sites in particular, one in Michigan and one in Minnesota, show
the most potential. At these two sites, geological surveys show key
indicators of rare-earth mineralization. If successful, it would align
Cleveland-Cliffs with the broader national strategy for critical
material independence, similar to what we achieved in steel.

In a somewhat-laughable indictment of the market, that’s led to an 18% pop in shares today, despite no data, no assays, nothing but a vague indication of ‘key
indicators of rare-earth mineralization’ at two sites. “We are working with the geologists to assess whether these deposits could become commercially viable,” Goncalves said in the conference call.

To be fair, it wasn’t just the mention of rare earths driving the stock price as the company reported a loss of 45-cents compared to 51-cents expected. EBITDA of $143m beat the $127m consensus. The company also hinted at a foreign partnership:

For a foreign partner, the opportunity to participate in the U.S.
market through Cliffs is incredibly valuable. This past quarter, we
entered into a Memorandum of Understanding with a major global steel
producer, which seeks to leverage our unmatched U.S. footprint and
trade-compliant operations. We expect the ultimate outcome of this MoU
to be highly accretive to our shareholders. We look forward to sharing
more on this ongoing development soon.

I think this is an interesting company led by CEO who has been successful in the past and will resort to unconventional measures. It’s also a product — steel — at the heart of the US push towards national security that doesn’t reflect any kind of premium.