Replies to post #398 on The Rising Influence of Rising Affluence

[DewDiligence]

CLF Acquires Canadian Chromite Mines in Stock Swap

[I don’t especially like this deal from CLF’s standpoint, although I appreciate the scarcity of chromite and its strategic value for producing stainless steel. The up-front acquisition cost is relatively small—an expansion of CLF’s shares outstanding by about 2%—but the cost to bring the acquired mines into commercial production will be enormous and I think CLF is overestimating its ability to pull off a project of this magnitude.

According to the CC yesterday, CLF plans to spend about $800M during the next few years to build the project infrastucture in a remote portion of Ontario that currently has no utilities and no transportation. In other words, this projects sounds like a black hole of delays, cost overruns, and forays into the capital markets. I would rather have seen CLF use free cash to buy back their own shares or pay a meaningful dividend instead of the token payout they have now. Moreover, CLF's recent acquisitive moves signal that management is not looking to sell the company, which removes one of the rationales for owning the stock, IMO.

CLF is up 1% in the two days since the deal was announced.]

http://finance.yahoo.com/news/Cliffs-Natural-Resources-Inc-bw-2730906035.html?x=0&.v=1

• Cliffs Natural Resources Inc. Announces Definitive Agreement to Acquire Chromite Deposits From Freewest Resources Canada, Inc.

• Freewest Board Unanimously Supports and Recommends All Freewest Shareholders Accept Cliffs’ Offer

• Positions Cliffs to Become Sole North American Primary Chromite and Ferrochrome Producer/Exporter

• World-Class Deposits With Potential to Support 1 to 2 Million Tonne-Per-Year Operation for More Than 30 Years

7:00 am EST, Monday November 23, 2009

CLEVELAND--(BUSINESS WIRE)--Regulatory News:

Cliffs Natural Resources Inc. (NYSE: CLF) today announced it has entered into a definitive agreement to acquire the “Ring of Fire” chromite properties of Montreal-based Freewest Resources Canada Inc. (TSX-V: FWR).

Under the terms of the agreement, Cliffs will acquire Freewest’s interests in the Ring of Fire properties, comprising three world-class chromite deposits: 100% of “Black Thor” and “Black Label,” and 50% of “Big Daddy”, an adjacent deposit held by a joint venture of Freewest, KWG Resources and Spider Resources. Freewest’s other assets will be spun off into a “new” Freewest. Following this spin-off transaction, the “new” Freewest would exist independently and its common stock would continue to trade on the TSX Venture Exchange. Freewest has provided additional information on the transaction’s structure in a press release issued today.

On closing, each Freewest shareholder will receive C$0.55 per share, or C$118 million in aggregate (C$110 million excluding shares Cliffs already owns in Freewest), of consideration in the form of Cliffs Natural Resources common stock. The fraction of a Cliffs share to be issued per Freewest share will be determined based on the volume weighted average price of Cliffs’ shares for the five trading days ending on the third trading day before the effective date of the transaction. Based on Cliffs’ closing price on November 20, 2009, this consideration would result in an exchange ratio of 0.0119 and the issuance of a total of 2.4 million Cliffs shares. In addition, each Freewest shareholder will receive 1 share of “new” Freewest for each share of Freewest held on the record date. Shares of “new” Freewest have an estimated value of C$0.15 per share. Freewest’s Board unanimously supports the transaction and recommends all shareholders accept Cliffs’ offer. This recommendation is also supported by a Fairness Opinion from Freewest's financial advisor. The transaction is expected to close in the first quarter of 2010. Closing of the transaction is subject to approval by Freewest shareholders, court approval of the transaction, and a number of other customary conditions.

Cliffs currently owns 6.9% of Freewest’s basic shares outstanding, and in addition owns warrants to purchase additional shares of Freewest, which, if exercised, would further increase Cliffs ownership to 9.75%. Subject to approval of the TSX Venture Exchange, Cliffs intends to infuse C$4.1 million of cash into Freewest via a private placement for working capital purposes which, when combined with the potential exercise of its warrants, would increase its ownership to 12.7%. Cliffs will retain its pro rata share of ownership in “new” Freewest [i.e. the spin-off from the existing Freewest that excludes the three Ring of Fire properties].

BMO Capital Markets is acting as financial advisor and Blake, Cassels & Graydon LLP is acting as legal advisor to Cliffs, in connection with the transaction.

Strategic Rationale

The acquisition will allow Cliffs Natural Resources to apply its expertise in open-pit mining and mineral processing to a chromite ore resource base which would form the foundation of North America’s only ferrochrome production operation. The planned mine is expected to produce 1 million to 2 million tonnes of high-grade chromite ore annually, which will be further processed into 400,000-800,000 tonnes of ferrochrome. Cliffs believes the Black Thor, Black Label and Big Daddy deposits are the highest quality deposits in Canada's "Ring of Fire" district, and would provide a significantly long mine life and expansion potential.

Cliffs’ Chairman, President and CEO Joseph A. Carrabba commented: “This long-term project is consistent with Cliffs’ stated strategy to broaden its mineral diversification and opens the door to a new universe of customers. In addition to furnishing the raw-material needs of carbon steel producers, we will become a supplier to producers of stainless steel.

“Ferrochrome is imported by the world’s fastest growing steel markets and many countries have categorized it as a strategic resource. We believe this discovery represents one of the premier chromite deposits in the world. Given the operation’s unique location, our objective will be to supply ferrochrome to stainless steel producers around the world.”

Expected Mining and Processing of the Reserve

Cliffs acquired a significant position in Freewest Resources in a private placement in June 2009 and has closely followed the technical development of these assets. A formal study of the chromium deposits will commence in early 2010, and is expected to be completed in the first half of the year. The study will meet industry standards and be comparable to an NI 43-101 Technical Report or a Joint Ore Resource Committee (JORC) assessment of the mineral resource. Diamond-drill core samples within these deposits have consistently intersected significant chromite zones with world-class thickness, grade and chromium to iron (Cr:Fe) ratios to supply a low-cost, open-pit mining operation.

Cliffs expects commercial plans to bring the deposit to market would include construction of the open-pit mine and mine-site processing facility, as well as a remote electric arc furnace (EAF) to further process the ore into high-grade ferrochrome. The EAF facility is anticipated to be located on the north shore of Lake Superior. Should the project go forward as planned, the permitting process is anticipated to require approximately three years, with production commencing around 2015.

Overview of the Chromite Market

Chromite is an essential raw material for the production of chromium. Cliffs estimates that more than 90% of chromite ore is converted to ferrochrome, a critical ingredient in the production of stainless steel, as well as other steels and nonferrous alloys. End markets for stainless steel, alloy steel and other products that use ferrochrome include transportation, electrical, engineering, building & construction and metal goods.

In addition, chromite is a key industrial mineral in the steel industry for the manufacture of refractory bricks, furnace linings and foundry sand. Chromite is also used in the production of chromium chemicals. In many applications, it is considered irreplaceable, as substitution would result in increased costs and decreased performance.

Currently, most resources and production are in the Eastern Hemisphere, requiring all stainless steel producers in North America and most of Europe and Asia to import ferrochrome. Market reports estimate that four countries—South Africa, Kazakhstan, Finland and Turkey—control nearly 80% of the world’s 24 million tonnes of chromite ore production. Cliffs indicated that, because of its proximity to North American and European stainless steel production, a merchant ferrochrome operation in Ontario would have a distinct competitive freight advantage over producers in other parts of the world.

Conference Call With Securities Analysts and Investors

Cliffs will host a conference call to discuss its proposed acquisition of Freewest Resources today, Nov. 23, 2009, at 1 p.m. ET. A slide deck will be used to supplement the discussion. The call will be broadcast live on Cliffs’ website: www.cliffsnaturalresources.com. After the live call, the audio and slides will be archived and available for download from the website.

About Cliffs Natural Resources Inc.

Cliffs Natural Resources is an international mining and natural resources company. We are the largest producer of iron ore pellets in North America, a major supplier of direct-shipping lump and fines iron ore out of Australia and a significant producer of metallurgical coal. With core values of environmental and capital stewardship, our colleagues across the globe endeavor to provide all stakeholders operating and financial transparency as embodied in the Global Reporting Initiative (GRI) framework. Our Company is organized through three geographic business units:

The North American business unit is comprised of six iron ore mines owned or managed in Michigan, Minnesota and Eastern Canada, and two coking coal mining complexes located in West Virginia and Alabama. The Asia Pacific business unit is comprised of two iron ore mining complexes in Western Australia and a 45% economic interest in a coking and thermal coal mine in Queensland, Australia. The South American business unit includes a 30% interest in the Amapá Project, an iron ore project in the state of Amapá in Brazil. Over recent years, Cliffs has been executing a strategy designed to achieve scale in the mining industry and focused on serving the world’s largest and fastest growing steel markets.‹

[DewDiligence]

CLF Acquires Consolidated Thompson for $5B in Cash

[This is a transformative deal for CLF insofar as the cash price of the acquisition amounts to almost half of CLF’s own market capitalization. The rationale for the deal is to augment CLF’s Wabash mine in Quebec (acquired by CLF in Oct 2009: #msg-42447258), which ships product to China and other buyers in Asia, thereby earning the global price for seaborne iron ore rather than the (lower) North American price CLF realizes from its mines in the Great Lakes region. I.e., the deal is a direct play on The Global Demographic Tailwind.

Thompson’s mines, which have been operating commercially for less than a year, are near enough to CLF’s existing operations in Quebec that they can share the rail transport and port facilities, reducing operating costs and allowing the output of the Thompson mines to be doubled from 8M to 16M annual tones within the next few years. Moreover, Thomson’s ore averages 66% Fe content by weight, making it the highest quality ore in North America (and comparable to the output from VALE’s Carajas mine in Brazil) and thereby subject to a premium price relative to the global seaborne benchmark , which is based on 62% Fe content.

Wuhan Iron and Steel Co (WISCO), China’s third-largest steel company, owns 25% of the Thomson mines and will retain this ownership following CLF’s takeover of Thompson. WISCO is also an equity holder in Thompson’s Canadian-listed shares and has agreed to sell all of its stake to CLF, which makes the takeover close to being a fait accompli.

Despite the substantial risk of a deal that shells out cash worth almost half as much as CLF’s own market cap, today’s price action shows that market likes the strategic rationale for the deal and the fact that the deal will be immediately accretive to EPS. CLF is up 3% today to a new 2-year high, and the shares are up more than 700% (!) from their Mar 2009 low. Still, I wonder if CLF, which has been buying up everything it can get its hands on during the past 18 months, might be biting off more than it can chew.]

http://finance.yahoo.com/news/Cliffs-Natural-Resources-Inc-prnews-3476425548.html?x=0&.v=1

›Cliffs Natural Resources Inc. Announces Definitive Agreement to Acquire Consolidated Thompson Iron Mines Limited for C$4.9 Billion, or C$17.25 in Cash Per Share

• Acquisition to Diversify Cliffs' Customer Base with Expanded Seaborne Presence

• Positions Cliffs as a Top Ten Global Iron Ore Producer

• Consolidated Thompson's Largest Shareholder Agrees to Support the Acquisition

Tuesday January 11, 2011, 4:40 pm

CLEVELAND, Jan. 11, 2011 /PRNewswire/ -- Cliffs Natural Resources Inc. (NYSE:CLF) (Paris:CLF.pa), an international mining and natural resources company, today announced that it has entered into a definitive arrangement agreement with Consolidated Thompson Iron Mines Limited (TSX:CLM.to - News) to acquire all of Consolidated Thompson's common shares in an all-cash transaction valued at approximately $4.9 billion Canadian dollars (including net debt), or C$17.25 per share, which represents an implied premium of 30% to Consolidated Thompson's closing share price as of Jan. 10, 2011. Cliffs has committed financing and available liquidity sufficient to fund the purchase price. Cliffs expects to arrange for permanent financing by accessing the capital markets, which may include long-term debt and equity.

The transaction is expected to be modestly accretive to Cliffs' earnings-per-share and cash flow in 2011 and 2012. The transaction is expected to close early second quarter 2011, subject to the satisfaction or waiver of various customary closing conditions.

The transaction has been approved by Consolidated Thompson's Board of Directors. In addition, Consolidated Thompson's Board of Directors has recommended that its shareholders support the transaction, which would be completed by way of a statutory plan of arrangement that is subject to shareholder approval in a court-supervised process under Canadian law. In addition, Cliffs has entered into a support agreement with Consolidated Thompson's largest shareholder, Wuhan Iron and Steel (Group) Corporation of China, which owns nearly 19% of Consolidated Thompson's outstanding shares [i.e. WISCO has committed to tender its shares]. Consolidated Thompson's directors and certain senior officers have also entered into support agreements with Cliffs.

Strategic Rationale

The proposed acquisition of Consolidated Thompson reflects Cliffs' strategy to build scale by owning expandable and exportable steelmaking raw material assets serving international markets. Once the acquisition and planned expansion projects are complete, Cliffs expects nearly half of its iron ore production in North America will be exported. The transaction will provide Cliffs greater access to Asia and opportunities to build and grow strong business relationships with Consolidated Thompson's current customers.

All of Consolidated Thompson's current production capacity is contracted under long-term off-take arrangements at sales-per-ton rates that move with the global seaborne prices. This production capacity includes the existing strategic alliance with Wuhan Iron and Steel (Group) Corporation, China's third largest steel producer, and two large Asian commodity brokers. Consolidated Thompson has established strong relationships with its existing customers. Upon completion of the acquisition, Cliffs expects to maintain and enhance these strategic relationships. These new customers would also enable Cliffs to strategically diversify its customer base beyond its historical North American steelmaking customers. Upon completion of the acquisition and completion of the planned ramp-up in production, it is expected that over half of the combined revenue base will be generated from customers outside of North America.

Joseph A. Carrabba, Cliffs' chairman, president and chief executive officer, said, "The acquisition of Consolidated Thompson will combine a low-operating risk profile with access to high-growth global markets and broaden our exposure to seaborne iron ore prices. We have followed Consolidated Thompson closely since its founding in 2006, and have been very impressed with its significant progress and development to date. We are also enthusiastic about expanding our investment in Eastern Canada, where we have over 45 years of experience and where the regulatory environment, political system and environmental stewardship are consistent with our core values."

Consolidated Thompson's Strategic Assets

As an emerging world-class iron ore producer, Consolidated Thompson currently operates in the iron ore-rich area spanning northeastern Quebec, western Newfoundland and Labrador. Consolidated Thompson manages and operates Bloom Lake, an open-pit iron ore mine, and two adjacent development properties, Lamelee and Peppler Lake. The producing operations are currently ramping to an annualized production rate of 8 million metric tons of iron ore concentrate, with an expansion in progress that is expected to double the company's annualized production to 16 million metric tons.

Consolidated Thompson's assets are located in close proximity to a hydroelectric power grid, along with roads and a rail line that link the processing facility to deep-sea ports in Sept-Îles, Quebec. This infrastructure, coupled with Consolidated Thompson's newly commissioned concentrator facility, good quality ore body and absence of royalty payments, positions it among other low-cost iron ore producers around the world.

Consolidated Thompson controls approximately 580 million metric tons of proven and probable iron ore reserves at an average grade of 30%. In addition, Consolidated Thompson has over a billion metric tons of measured and indicated resources, with potential additional resources to be proven via a near-mine drilling program.

Synergies with Cliffs' Existing Eastern Canada Operations

Consolidated Thompson's operations are close to Cliffs' existing operations at Wabush Mines in Eastern Canada, a 5.6 million metric-ton rated capacity iron ore pellet operation with integrated rail and port infrastructure that currently supports Consolidated Thompson's operations. Cliffs' close proximity to Consolidated Thompson's operations is expected to provide the opportunity to achieve significant sustainable operating synergies by leveraging Cliffs' existing logistics and processing infrastructure. Cliffs has identified opportunities to lower Consolidated Thompson's freight and ship loading costs and maximize the combined company's consolidated reserve and resource base by optimizing product mix between pellet and concentrate products. Cliffs estimates that the proposed transaction could generate annual pre-tax operating synergies of approximately US$75 million.

Combined Company Profile

Cliffs' acquisition of Consolidated Thompson is expected to enhance Cliffs' profile as one of the largest mining and natural resources companies in North America, with significant exposure to Asia. Cliffs' legacy and technical expertise in open-pit mining, combined with Consolidated Thompson's high-growth development profile, creates the opportunity for additional scale and leverage. Upon consummation of the acquisition, Cliffs' global mine portfolio will include ten iron ore facilities, six coal mines and a pre-feasibility chrome-development project across North America, South America and Australia.

Cliffs believes that, with Consolidated Thompson's current operations and successful completion of its ongoing expansion projects, combined with Cliffs' global iron ore operations, the acquisition would position Cliffs to become a producer of up to 30 million metric tons of iron ore pellets, up to 16 million metric tons of iron ore concentrate and up to 11 million metric tons of lump and fines iron ore.

Upon completion of the acquisition, Consolidated Thompson will become an indirect wholly-owned subsidiary of Cliffs Natural Resources and be rebranded under the Cliffs name. It is anticipated that Consolidated Thompson will become part of Cliffs' North American Iron Ore business unit and will be led by Cliffs' executive leadership team.

Details Regarding Arrangement Agreement

Cliffs' agreement to acquire Consolidated Thompson contains customary closing conditions. These include:

• Approval by two-thirds of the votes cast by Consolidated Thompson's shareholders attending or represented at a future special meeting of shareholders;
• Obtaining all court, government and regulatory approvals, including Investment Canada, Canadian Competition Act, and others; and,
• No material adverse change in Consolidated Thompson's business, financial condition or results of operations.

Cliffs' Advisors

J.P. Morgan Securities LLC is acting as Cliffs' financial advisor and has committed bridge financing for the transaction. Jones Day and Blake, Cassels & Graydon LLP are acting as legal counsel.

Conference Call

Cliffs Natural Resources' executive management will host a conference call today, Jan. 11 at 5:30 p.m. ET to discuss the agreement. Interested participants may listen to the call by dialing [phone] (for callers within the U.S.) or [phone] (for international callers) and referencing code 00365099 approximately 15 minutes prior to the call. A slide deck will be used during the call. Both the slide deck and the conference call can be accessed via the investor relations section of Cliffs' website, at www.cliffsnaturalresources.com. A replay of the call and the accompanying slides referenced during the call will be available on the website for approximately 30 days.‹