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A practitioner read of CLF at $11.23 through the HALO Trade lens: replacement value of ~$25-35B for the integrated BF/BOF + iron ore + DRI footprint, a $4.827B federal NOL stack, and the Anduril / Arsenal-1 / Freedom's Forge bridge to defense-industrial reshoring.
Baseline anchor per the May 2026 memo. Live CLF quote available on Yahoo Finance or your broker — the case’s methodology (replacement value + NOL + through-cycle EBITDA + reshoring lens) is invariant to the day’s tape. See the Q2 2026 refresh strip and the 2027 debt-repayment table below for the updated read.
Second-quarter 2026 Adjusted EBITDA of $286M tripled sequentially from Q1’s $95M, with Cliffs guiding Q3 to approximately $575M and stating Q4 EBITDA is expected to further exceed the Q3 guide. Chairman and CEO Lourenco Goncalves: “Our second-half earnings performance should be our strongest since 2021… we would expect to reach our leverage target of under 2.5x debt to EBITDA by this time next year.” Cliffs returned to positive free cash flow in Q2 and paid down $63M of ABL Facility net; average net selling price per net ton stepped up to $1,124 (from $1,048 in Q1). The trajectory materially supports the through-cycle EBITDA anchor used in the case memo (~$1.5–2.0B, with the case-study base case at $1.75B) — annualizing the Q3 guide alone implies a >$2.3B run-rate, ahead of the base-case anchor.
Read against the memo: The Q2 2026 print does not change the memo’s central architecture — replacement value as the floor, NOL as a separately-credited asset, HALO Trade lens on integrated BF/BOF + iron ore + DRI. It does, however, tighten the case for the through-cycle anchor: Q1’s $37M FY2025 trough EBITDA that the memo used to argue against EV/EBITDA-based valuation is already visibly in the rear-view mirror. Sources: CLF Q2 2026 earnings release (Business Wire, July 23, 2026); Form 10-Q for the quarter ended June 30, 2026 (SEC EDGAR, filer CIK 0000764065, accession 0000764065-26-000100).
This is the whole thesis in one table — and the anchor comes directly from CLF management. On page 10 of the Q2 2026 earnings presentation Cliffs published an Illustrative Bridge to 2027 Adjusted EBITDA and Free Cash Flow that walks Q3’26E Adj. EBITDA of $575M into 2027E Adj. EBITDA of $3,300M and, after interest, capex, and pension/OPEB, into 2027E Free Cash Flow of $1,700M. The bridge components are all specific and disclosed: (1) Q3’26E $575M × 4 = $2,300M annualized; (2) +$500M from the 2027 reset of non-automotive fixed-price contracts — those contracts were signed in a much weaker demand environment and step up in 2027; (3) +$500M from Stelco expected EBITDA improvement as the Canadian steel market recovers; (4) −$1,600M for interest expense, capex, and pension/OPEB payments to bridge EBITDA to FCF. Every number is management’s own; the source is CLF’s Q2 2026 Earnings Presentation (page 10), filed July 23, 2026. The table below uses that bridge as the Base case and stress-tests the debt-repayment trajectory against the current $7.7B of long-term borrowings and the roughly $2.8B tranche associated with the November 2024 Stelco acquisition.
“We would expect to reach our leverage target of under 2.5x debt to EBITDA by this time next year.” — Lourenco Goncalves, Chairman and CEO, Q2 2026 earnings release (July 23, 2026).
Q3’26E $575M → annualized $2,300M + $500M non-auto fixed-price contract resets + $500M Stelco EBITDA improvement = 2027E Adj. EBITDA $3,300M − $1,600M interest & capex & pension/OPEB = 2027E Free Cash Flow $1,700M.
Base case is management’s own disclosed 2027 bridge (CLF Q2 2026 Earnings Presentation, page 10). Bear and Bull flex the same architecture up and down for downside stress-testing and upside optionality respectively. Starting position: long-term borrowings $7.70B (per Q2 2026 earnings release Condensed Consolidated Balance Sheet, June 30, 2026). 2H 2026 FCF applied to debt anchors on Q3 EBITDA guide $575M and management’s statement that Q4 exceeds Q3. All figures in $ millions unless noted.
| Line item | Bear Slow rebound |
Base Through-cycle |
Bull Strong-cycle + reshoring |
Sourcing / logic |
|---|---|---|---|---|
| 2027 P&L build — Base anchored to CLF’s own disclosed bridge | ||||
| Q3’26E Adj. EBITDA annualized | $1,800 | $2,300 | $2,500 | Base = CLF’s own bridge: Q3’26E $575M × 4. Bear = softer 2H’26 assumption. Bull = Q4’26 above Q3 per management. |
| + Non-auto fixed-price contract resets | +$250 | +$500 | +$700 | Base = CLF’s own disclosure: minimum $500M opportunity from resetting all non-auto fixed-price agreements in 2027 (contracts were signed in a much weaker demand environment). Bull adds further reset pricing above the minimum. |
| + Stelco expected EBITDA improvement | +$250 | +$500 | +$700 | Base = CLF’s own disclosure: expected EBITDA improvement at Stelco as Canadian market recovers. Q2 release confirmed “beginning to see meaningful improvement in the Canadian market, positioning Stelco to return to generating significant earnings.” Bull assumes fuller Stelco Canada turnaround. |
| = 2027E Adjusted EBITDA | $2,300 | $3,300 | $3,900 | Base $3,300M is CLF management’s own disclosed 2027E Adj. EBITDA (Q2 2026 Earnings Presentation, page 10). All scenarios below FY2021 actual peak of ~$5.3B EBITDA. |
| Less: interest, capex, pension/OPEB | ($1,500) | ($1,600) | ($1,700) | Base $1,600M is CLF’s own consolidated bridge line (interest expense + capex + pension/OPEB payments). Bear reflects lower interest (less debt paydown) but tighter capex; Bull reflects higher capex on utilization plus larger pension contributions. |
| = 2027 free cash flow | $800 | $1,700 | $2,200 | Base $1,700M = CLF’s own disclosed 2027E FCF number, page 10 of the Q2 2026 earnings presentation. Compare to FY2021 actual FCF of ~$2.4B at peak-cycle. |
| Debt-repayment trajectory | ||||
| Long-term borrowings 6/30/2026 (starting) | $7,703 | $7,703 | $7,703 | Q2 2026 Condensed Consolidated Balance Sheet (SEC EDGAR). |
| 2H 2026 FCF applied to debt | ($800) | ($1,100) | ($1,400) | Anchored on Q3 EBITDA guide $575M + Q4 exceeding Q3 per management. Base assumes ~50% conversion to FCF after capex and interest. |
| LTD at 12/31/2026 (implied) | $6,903 | $6,603 | $6,303 | Starting position for 2027 debt-paydown clock. |
| 2027 FCF applied to debt | ($800) | ($1,700) | ($2,200) | Debt paydown = 100% of 2027 FCF. Base = CLF’s own disclosed $1.7B FCF. Goncalves: debt paydown will "continue in a more meaningful way for the foreseeable future." |
| LTD at 12/31/2027 (implied) | $6,103 | $4,903 | $4,103 | 18-month cumulative debt reduction of $1.6B / $2.8B / $3.6B. Base retires more than a third of total borrowings inside 18 months. |
| Stelco-tranche paydown clock | ||||
| Stelco-attributable debt (approx.) | $2,800 | $2,800 | $2,800 | Incremental debt from Nov 2024 Stelco close (C$3.85B EV, cash + share consideration + assumed debt). Per FY2025 10-K financing footnote and Stelco Amalgamation 8-K. |
| Cumulative 2H’26 + 2027 FCF applied | $1,600 | $2,800 | $3,600 | Sum of 2H’26 + 2027 FCF from rows above. |
| Stelco tranche remaining at 12/31/2027 | $1,200 | $0 | $0 | Base case: the $2.8B Stelco tranche is fully retired by end of 2027 — roughly three years after the November 2024 close. Bull retires with $800M of surplus FCF to spare (available for shareholder returns or further deleveraging). |
| Additional years to fully retire Stelco tranche (at 2027 FCF run-rate) | 1.5 yrs | 0.0 yrs | 0.0 yrs | Remaining Stelco balance ÷ 2027 FCF run-rate. Even Bear retires the Stelco tranche inside 18 months of hitting normalized 2027 FCF. |
| Leverage read (against 2027 Adj. EBITDA) | ||||
| Debt / 2027 Adj. EBITDA at 12/31/2027 | 2.7x | 1.5x | 1.1x | Base case clears Goncalves’ publicly stated <2.5x target with room to spare, matching his “by this time next year” timing. Bull runs Cliffs to 1.1x by end-2027 — effectively investment-grade leverage. Bear still gets there inside a second full year. |
All figures in USD millions unless noted. Base case is CLF management’s own Illustrative Bridge to 2027 Adjusted EBITDA and Free Cash Flow (Q2 2026 Earnings Presentation, page 10, filed as an exhibit to the July 23, 2026 8-K on SEC EDGAR, filer CIK 0000764065). Bear and Bull scenarios flex the same component drivers 50% lower and higher respectively for stress-testing. Long-term borrowings sourced from Q2 2026 earnings release Condensed Consolidated Balance Sheet at June 30, 2026. Stelco-attributable debt (~$2.8B) is approximate: funded principally through incremental ABL Facility draws, senior-notes issuance, and assumed Stelco debt at the November 1, 2024 close per the FY2024 10-K financing-activities footnote and the Stelco Amalgamation 8-K (share consideration of 25.9M CLF shares plus cash consideration). NOL from 10-K Note 12 (federal $4.827B carryforward). 2H 2026 FCF anchors on Q3 EBITDA guide ($575M) and management’s statement that Q4 exceeds Q3. This is a simplified debt-repayment schedule for illustrative purposes — the memo’s full 10-year DCF (2026E–2035E) lives in Tab 4 of the free valuation model.
The through-cycle argument is the whole case. FY2025 delivered $37M of Adj. EBITDA because steel prices were at cycle bottom. When steel prices stabilize — and Q2 2026 says they already are — CLF generates enormous free cash flow, because the operating leverage of an integrated BF/BOF + iron-ore + DRI producer is enormous once ASP crosses the fixed-cost breakeven. Management’s own 2027 bridge quantifies it: $3.3B of 2027E Adj. EBITDA and $1.7B of 2027E free cash flow, disclosed on page 10 of the July 23, 2026 earnings presentation. That’s not an analyst forecast; that’s the CEO and CFO telling the market what they expect. Tariffs on foreign steel are not an isolated trade policy; they are a component of the broader US industrial reshoring strategy that also runs through the CHIPS Act, the defense-industrial-base revival, and the Anduril / Arsenal-1 rearmament arc. You cannot have a defense-industrial base without a domestic steel-producing base. That linkage is what puts a policy floor under CLF’s ASP and turns the through-cycle EBITDA anchor from an analyst assumption into a policy-supported operating floor. Under management’s own bridge, the Stelco tranche of the balance-sheet build is fully retired by end-2027 — three years after the November 2024 close — and Cliffs prints leverage of 1.5x by December 2027, comfortably inside Goncalves’ publicly stated <2.5x target. That is a materially different picture than the one an EV/EBITDA reader gets from staring at the trailing trough print.
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Trough FY2025 Adj. EBITDA of $37M makes EV/EBITDA mathematically meaningless. The real floor comes from (1) ~$25-35B replacement value for the integrated steel + iron ore + DRI footprint vs. $14.8B EV, (2) $4.827B federal NOL ($1.10/sh PV base case), (3) strategic-buyer + asset-sales math, and (4) through-cycle EBITDA of $1.5-2.0B (not $37M). Q2 2026 update (Jul 23, 2026): Adjusted EBITDA already stepped from $95M in Q1 to $286M in Q2 with a Q3 guide of ~$575M — the recovery to through-cycle levels is visibly underway. See the Q2 refresh strip above.
Vs. $11.23 close, Base implies ~16% upside — but the asymmetry is in the Bear floor, not the Base. Bear floor combines strategic-buyer + asset-sales math plus separately-credited NOL. HALO Trade lens: heavy fixed assets at low obsolescence risk as the structural margin-of-safety floor. Methodology: 10-yr DCF anchored on through-cycle EBITDA at 9.75% WACC + steel comps (NUE / STLD / X / MT / RS) + SOTP + NOL.
CLF reads, in the author's view, less like a steel producer at trough EBITDA and more like an irreplaceable strategic asset on the US reshoring trade. The atoms-not-bytes argument: integrated BF/BOF + iron-ore + DRI footprint would take ~150-300 cumulative years to replicate from scratch under the current regulatory regime. The Anduril / Arsenal-1 / Freedom's Forge bridge: defense-industrial reshoring needs domestic flat-rolled steel at scale; CLF is, in the author's view, the only US producer that can deliver. The author's lens; not a price target, not a recommendation.
Independent editorial analysis · Not affiliated with or endorsed by Cleveland-Cliffs Inc..
This case study is independent editorial and educational analysis of publicly available information about Cleveland-Cliffs Inc.. The Baratelli Institute is not affiliated with, endorsed by, sponsored by, or otherwise connected to Cleveland-Cliffs Inc.. Cleveland-Cliffs®, Cliffs® and related marks are the property of their respective owners. No claim is made to any such marks by the Baratelli Institute. Analysis draws exclusively on publicly disclosed information (SEC filings, press releases, earnings call transcripts, investor materials, journalist reporting); no non-public information has been received from Cleveland-Cliffs Inc.. Presented for educational and editorial purposes under principles of fair use and fair comment on a publicly traded company. Nothing in this analysis constitutes investment advice or a recommendation to buy, sell, or hold securities. Consult licensed advisors before investment decisions.
The author owns shares of CLF as disclosed in the case study. This is an educational case study, not investment advice, not a research report, not a buy/sell rating, not a price target, not an allocation recommendation, not an opinion of fairness for any corporate transaction. Every number traces to a public SEC filing. The Institute is not a registered investment adviser; this is a Lowe v. SEC publisher-exception publication.
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The Institute’s policy paper The Deployment Plan walks the five federal-existing-authority moves that make the American AI compute buildout electrically viable. Move 4 is the domestic industrial capacity for grain-oriented electrical steel (GOES) — the specialty steel that wraps every transformer core. There is exactly one mill in the United States that makes Hi-B, and it is Cleveland-Cliffs’ Butler Works. The equity thesis on Cliffs and the policy thesis on solar deployment are the same argument told from two seats.
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