The Rising Influence of Rising Affluence

[DewDiligence]

CLF receives $250-270M in settlement of pricing dispute with its main iron-ore customer, ArcelorMital:

http://finance.yahoo.com/news/Cliffs-Natural-Resources-Inc-prnews-134412455.html?x=0&.v=1

Under the terms of the settlement, the two companies have agreed to specific pricing levels for 2009 and 2010 pellet sales and related sales volumes. As a result, Cliffs will receive a cash payment of approximately $250 - $270 million as a pricing "true-up" for pellet volumes delivered to certain ArcelorMittal steelmaking facilities in North America during both years.

Also, as part of the settlement, Cliffs and ArcelorMittal have agreed to replace the previous pricing mechanism with a world market-based pricing mechanism beginning in 2011 and through the remainder of the contract for one of the iron ore supply agreements that Cliffs has with ArcelorMittal. As a result of the new pricing feature, going forward, the parties also agreed to forgo future price reopeners.

$250M a a nice chunk of change for a company of CLF’s modest size. Moreover, the use of market pricing based on the worldwide spot price of iron ore is bullish for CLF insofar as the old pricing agreement CLF had with ArcelorMital (and other customers in North America) paid CLF less that the market price in almost all circumstances.

The settlement with ArcelorMital closes the books on CLF’s two pricing disputes from prior years; the other dispute, with Essar, was won by CLF in Dec 2010 (#msg-57944986).