Replies to post #467 on The Rising Influence of Rising Affluence

[DewDiligence]

Noront Seeks to Outbid CLF for Freewest’s Chromite Mines

[If I were on the BoD of CLF, I would let Noront take it for the reasons mentioned in the prologue of #msg-43909449.]

http://www.reuters.com/article/marketsNews/idAFBNG41381720091130

›Mon Nov 30, 2009 7:20am EST

Noront increased its offer for Freewest to about C$222 million ($210.4 million) as it looks to consolidate its nickel and chrome deposits in northern Ontario.

Under the new offer, Noront will issue two freely tradeable shares and a full five-year purchase warrant with a strike price of C$4 for each seven Freewest shares held, valuing Freewest at 86 Canadian cents a share.

The latest offer from Noront represents a premium of 34 percent to Freewest's Friday closing price of 64 Canadian cents.

Montreal-based Freewest had been fending off a C$90 million hostile bid from rival Noront since October, describing it as "highly opportunistic."

Last week, Cliffs Natural (CLF) agreed to buy Freewest for roughly C$150 million, and Freewest said its board unanimously supported the offer and recommended that all Freewest shareholders accept it.

Noront said its latest offer will expire on Dec. 11 and will not be increased.‹

[DewDiligence]

CLF is close to a 5-bagger from its 2009 low. Today, I’m selling the sizable position in the private foundation I advise because the valuation is no longer cheap and I think management is uninterested in a buyout (as discussed in #msg-43909449).

[DewDiligence]

CLF Reports 4Q09 Results

[There’s a lot of information in this PR on CLF’s four mining business segments and two JV’s. (I especially like the furnished sensitivity analysis of the company’s EPS to benchmark iron-ore prices.) Clearly, CLF weathered the economic downturn in pretty good shape, and business is on the upswing. Investors have certainly noticed, however! CLF’s share price, which is sitting at a 12-month high, is up a whopping 400% from its Mar 2009 low, and the stock is now more of a sell than a hold, IMO. Moreover, I think the Freewest acquisition (which recently closed after CLF sweetened the offer a couple of times) reduces CLF’s own buyout vig for the reasons mentioned in the prologue of #msg- 43909449.]

http://finance.yahoo.com/news/Cliffs-Natural-Resources-Inc-bw-1978858885.html?x=0

›Wednesday February 17, 2010, 4:50 pm EST

CLEVELAND--(BUSINESS WIRE)--Cliffs Natural Resources Inc. (NYSE: CLF) (Paris: CLF) today reported fourth-quarter and full-year results for the periods ended Dec. 31, 2009. Full-year revenues of $2.34 billion decreased 35% from the previous year. The decrease was attributed to lower year-over-year demand and pricing for steelmaking raw materials due to the global economic crisis and recessionary environment in some of the Company’s markets. Net income attributable to Cliffs shareholders for the year was $205.1 million, or $1.63 per diluted share, compared with $515.8 million, or $4.76 per diluted share, in 2008. The Company ended the year with $503 million in cash and equivalents.

Joseph A. Carrabba, Cliffs’ chairman, president and chief executive officer, said, “Despite an extremely challenging environment through most of 2009, Cliffs achieved strong financial and strategic performances, delivering respectable earnings and ending the year in a position of strength. This was the result of exceptional execution by our management team, whose experience and professionalism allowed them to recognize 2009’s challenges and opportunities ? and act to position the Company to benefit from each.”

Other 2009 Highlights

In 2009, Cliffs completed a number of significant corporate development and operational achievements, each implemented to advance its strategy of achieving scale in the mining industry and exposure to the world’s largest and fastest growing steel markets. These included:

• Successfully managing each of its businesses to match production with the demands of a dynamic and changing market environment, characterized by extremes;

• A year of record volume in Asia Pacific Iron Ore and the repositioning of this business under the Cliffs Natural Resources corporate name and identity;

• The recent addition of Cliffs to Standard & Poor’s S&P 500 Index;

• Reaching an agreement to acquire the remaining 73% interest in Wabush Mines;

• A successful bid to acquire Freewest Resources (TSX-V: FWR - News) and its anticipated world-class chromite deposits in Ontario, Canada;

• Publishing the Company’s first Sustainable Development Report under the internationally recognized Global Reporting Initiative framework;

• A successful equity offering of 17.25 million Cliffs Natural Resources shares, resulting in $347 million of net proceeds;

• Establishing the Cliffs Natural Resources Global Exploration Group (GEG), a small team of professional geologists with the mandate to form partnerships with junior mining and exploration companies with prospects for commercially viable projects; and

• The April 2009 listing of Cliffs Natural Resources on the Professional Compartment of NYSE Euronext Paris.

Fourth-Quarter Consolidated Results

Consolidated fourth-quarter revenues were $820.5 million, a decrease of 10% compared with $916.3 million in the same quarter last year. The decrease for the quarter was driven primarily by lower year-over-year pricing in each of the Company’s businesses, somewhat offset by higher sales volumes in Cliffs’ Asia Pacific businesses.

In the fourth quarter, Cliffs’ sales margin declined 39% to $175.0 million, from $285.9 million in the same period of 2008. This decrease was also primarily the result of lower year-over-year pricing, offset partially by strong cost-control efforts, in each of the Company’s business segments.

Consolidated operating income for the fourth quarter increased 6% to $155.6 million, from $147.3 million in the 2008 fourth quarter. Cliffs indicated its 2009 fourth-quarter operating income benefited from an $11.7 million gain on the sale of a non-core asset in Australia, while 2008 fourth-quarter operating income was negatively impacted by $90.1 million in costs related to a terminated merger agreement. Selling, general and administrative (SG&A) expenses declined 26% to $37.1 million during the quarter, reflecting lower year-over-year variable compensation, management salary reductions and other cost-reduction initiatives.

Fourth-quarter 2009 net income increased 101% to $108.2 million, or $0.82 per diluted share, from $53.9 million, or $0.47 per diluted share, in 2008. Cliffs noted that fourth-quarter 2009 net income was impacted by the $11.7 million pre-tax gain referenced above.

Cliffs also said its fourth-quarter 2008 net income included approximately $209.1 million pre-tax, or $1.43 per diluted share, of non-recurring items, including:

• The $90.1 million pre-tax impact from terminated merger costs, referenced above;

• $93.9 million pre-tax of negative mark-to-market adjustments related to currency hedging; and,

• $25.1 million pre-tax related to the impairment of investment securities in two junior mining and exploration companies.

As a result of these items, fourth-quarter 2008 also included an income tax benefit of $29.4 million, compared with an income tax expense of $35.4 million in 2009.

North American Iron Ore

Three Months Ended Year Ended
Dec. 31, Dec. 31,
2009 2008 2009 2008

North American Iron Ore Sales (Long Tons) - In Thousands 6,565 6,512 16,418 22,691

Sales Margin - In Millions
Revenues from product sales and services $ 568.5 $ 636.1 $1,447.8 $ 2,369.6
Cost of goods sold and operating expenses 401.1 428.3 1,172.3 1,565.3
Sales margin $ 167.4 $ 207.8 $ 275.5 $ 804.3

Sales Margin - Per Ton
Revenues from product sales and services* $ 81.39 $ 89.14 $82.48 $ 92.56
Cash cost** 53.10 52.99 61.17 54.21
Depreciation, depletion and amortization 2.79 4.24 4.53 2.91
Cost of goods sold and operating expenses* 55.89 57.23 65.70 57.12
Sales margin $ 25.50 $ 31.91 $ 16.78 $ 35.44

* Excludes revenues and expenses related to freight and reimbursements, which are offsetting and have no impact on operating results

**Cash cost per ton is defined as Cost of goods sold and operating expenses per ton less Depreciation, depletion and amortization per ton.

Fourth-quarter 2009 North American Iron Ore pellet sales volume was 6.6 million tons, a 1% increase from the 6.5 million tons sold in the fourth quarter of 2008.

North American Iron Ore revenue per ton was $81.39 during the fourth quarter, down 9% from the comparable quarter in 2008. The decrease was driven by lower year-over-year prices for iron ore and steel. Cost per ton of $55.89 was down 2% from the year-ago quarter.

For the full year, pellet sales volume totaled 16.4 million tons, which was down from last year’s record 22.7 million tons. Revenue per ton decreased 11% to $82.48 for the year. Cliffs noted that, as a result of its long-term, formula-based pricing contracts in North America, its 2009 price decrease of 11% favorably compares to the 48% decrease in the 2009 seaborne price settlement for iron ore blast furnace pellets. Full-year cost per ton in the North American Iron Ore segment was $65.70, up 15% from 2008. The increase is primarily related to lower leverage over fixed costs as the result of lower volume in 2009 compared with 2008, as well as higher labor rates. This was somewhat offset by cost-reduction efforts throughout the year, which included the deferral of certain maintenance activities to 2010.

North American Iron Ore Production

(In millions) (1)
Three Months Ended Year Ended
Dec. 31, Dec. 31,
2009 2008 2009 2008
Total North American Iron Ore Mine Production 6.1 8.0 19.6 35.2
Cliffs Natural Resources Production Share 6.0 5.3 17.1 22.9

(1) Long tons of pellets of 2,240 pounds

Cliffs’ equity share of its total North American Iron Ore mine production was 6.0 million tons in the fourth quarter and 17.1 million tons for the year. Due to lower partner demand, Cliffs acquired 1.6 million tons produced at Tilden and Wabush from its mine partners at variable cost. As a result, these tons were available to Cliffs to sell and are included in its production share above.

North American Coal

Three Months Ended Year Ended
Dec. 31, Dec. 31,
2009 2008 2009 2008

North American Coal Sales (Short Tons) - In Thousands 748 773 1,874 3,241

Sales Margin - In Millions
Revenues from product sales and services $ 82.0 $ 88.3 $207.2 $ 346.3
Cost of goods sold and operating expenses 90.5 95.9 279.1 392.7
Sales margin $ (8.5 ) $ (7.6 ) $ (71.9 ) $ (46.4 )

Sales Margin - Per Ton
Revenues from product sales and services* $ 90.64 $ 100.78 $93.44 $ 92.97
Cash cost** 86.90 95.47 111.42 91.39
Depreciation, depletion and amortization 15.11 15.14 20.38 15.89
Cost of goods sold and operating expenses* 102.01 110.61 131.80 107.28
Sales margin $ (11.37 ) $ (9.83 ) $(38.36 ) $ (14.31 )

* Excludes revenues and expenses related to freight, which is offsetting and have no impact on operating results

**Cash cost per ton is defined as Cost of goods sold and operating expenses per ton less Depreciation, depletion and amortization per ton.
For the fourth quarter, metallurgical coal sales volume was 748,000 tons, with average revenue per ton of $90.64. This compares with sales volume of 773,000 short tons in the fourth quarter of 2008 and average revenue per ton of $100.78. The decrease in revenue per ton was the result of a weak market for metallurgical coal throughout 2009 in North America and Europe, as well as a number of test shipments sold to customers in Asia at lower than full year average pricing.

Cost per ton for the fourth quarter was $102.01, down 8% from the year-ago period on 3% less sales volume. The 8% decrease in cost per ton is the result of efforts in 2009 to reduce costs at Cliffs’ North American coal mines.

The net effect of the above factors was a fourth-quarter loss of $8.5 million at the sales margin level, compared with a sales-margin loss of $7.6 million in last year’s fourth quarter.

For the full year, sales volume totaled 1.9 million tons. Revenue per ton was virtually flat with the prior year at $93.44, with cost per ton of $131.80. Costs throughout 2009 were impacted by low fixed-cost leverage.

North American Coal Production

(In thousands) (1)
Three Months Ended Year Ended
Dec. 31, Dec. 31,
2009 2008 2009 2008
Total North American Coal Mine Production 729 923 1,741 3,468
(1) Short tons of coal of 2,000 pounds
Cliffs produced 729,000 short tons of metallurgical coal in the fourth quarter and 1.7 million tons for the full year.

Asia Pacific Iron Ore

Three Months Ended Year Ended
Dec. 31, Dec. 31,
2009 2008 2009 2008

Asia Pacific Iron Ore Sales (Tonnes) - In Thousands 2,121 1,747 8,512 7,800

Sales Margin - In Millions
Revenues from product sales and services $136.7 $ 151.4 $542.1 $ 769.8
Cost of goods sold and operating expenses 116.9 84.8 454.9 421.2
Sales margin $ 19.8 $ 66.6 $ 87.2 $ 348.6

Sales Margin - Per Tonne
Revenues from product sales and services $64.45 $ 86.71 $63.69 $ 98.69
Cash cost* 41.40 31.84 40.45 44.55
Depreciation, depletion and amortization 13.72 16.72 12.99 9.45
Cost of goods sold and operating expenses 55.12 48.56 53.44 54.00
Sales margin $ 9.33 $ 38.15 $10.25 $ 44.69

*Cash cost per tonne is defined as Cost of goods sold and operating expenses per tonne less Depreciation, depletion and amortization per tonne.
Fourth-quarter 2009 Asia Pacific Iron Ore sales volume increased 21% to 2.1 million tonnes, compared with 1.7 million tonnes in the 2008 fourth quarter. The increase was primarily the result of Cliffs’ operating team increasing production to record levels in order to take advantage of strong steel demand in Asia during the quarter.

Revenue per tonne for the fourth quarter decreased 26% to $64.45, compared with $86.71 in the prior year. Per-tonne cost in Asia Pacific Iron Ore during the quarter, which increased 14% from the previous year to $55.12, was negatively impacted by approximately $14 per tonne related to unfavorable exchange rate movements of the Australian dollar compared with the U.S. dollar. Adjusting for this impact, Asia Pacific Iron Ore achieved a 15% reduction in cost of goods sold per tonne.

Full-year sales volume increased 9% to 8.5 million tonnes, compared with 7.8 million tonnes in 2008. Revenue per tonne for 2009 of $63.69 decreased 35%, with cost per tonne of $53.44 down 1%, compared with 2008. Full-year cost per tonne in 2009 benefited from approximately $4 per tonne due to a lower average exchange rate during the year compared with 2008.

Asia Pacific Iron Ore Production

(In millions) (1)
Three Months Ended Year Ended
Dec. 31, Dec. 31,
Mine 2009 2008 2009 2008
Koolyanobbing Complex 2.2 2.0 8.3 7.3
Cockatoo Island Joint Venture* -- -- -- 0.4
Total Asia Pacific Iron Ore Production 2.2 2.0 8.3 7.7

(1) Tonnes of Lump or Fines of 2,205 pounds
*Reflects Cliffs Natural Resources Pty Ltd 50% share
Fourth-quarter production in Asia Pacific Iron Ore was 2.2 million tonnes, up 10% when compared with the fourth quarter of 2008. Full-year production in 2009 was 8.3 million tonnes, up 8% compared with 7.7 million tonnes in 2008.

Sonoma Coal

In the fourth quarter of 2009, Cliffs’ share of sales volume for its 45% economic interest in the Sonoma Coal Project was 405,000 tonnes. Revenues and sales margin loss generated for Cliffs were $33.1 million and $2.7 million, respectively. Cliffs noted that unfavorable exchange rate variances during the quarter impacted costs at Sonoma by $9.3 million.

Cliffs’ share of sales volume for the full year was 1.4 million tonnes. Revenues and sales margin generated during the year were $144.7 million and $21.4 million, respectively.

Amapá Iron Ore

Cliffs has a 30% ownership interest in the Amapá Iron Ore Project. During the fourth quarter, Amapá produced approximately 900,000 tonnes. Equity loss related to the project was $8 million in the quarter and $62 million for the year. Cliffs’ total cash contributions for the year were approximately $70 million, which includes approximately $11 million in capital spending.

Cliffs Natural Resources Global Exploration Group

As noted above, in 2009, Cliffs established a Global Exploration Group to form partnerships with mining and exploration companies around the world. This group is responsible for understanding the size, scope and quality of these companies’ mineral deposits and assessing their commercial viability. In 2010, Cliffs expects to invest $25 million to $30 million in exploration and development activities with the objective of securing potentially significant future reserves.

Liquidity

At year-end, Cliffs had $502.7 million of cash and cash equivalents, with no borrowings drawn on its $600 million revolving credit facility. For the year, Cliffs generated more than $185 million in cash from operations. The Company typically collects cash at year-end in its North American Iron Ore business for shipments that will not occur until the following year. At the end of 2009, one of the Company’s customers did not pay $148 million that was due by Dec. 31, 2009, under the terms of the contract. The customer did pay the full amount on Jan. 4, 2010, but the cash is not reflected on the year-end balance sheet or included in cash flow.

Major uses of cash in 2009 included approximately:

• $116 million for capital expenditures;

• $70 million in contributions to fund Amapá; and,

• $27 million to fund investments in various ventures including Cliffs’ initial investment?in Freewest Resources, renewaFUEL, KWG Resources and other global exploration efforts.

The Company had $525 million in long-term borrowings, comprised of a $200 million term loan due in 2012, and $325 million in Senior Notes in two tranches due in 2013 and 2015, respectively.

Outlook

Cliffs expects continued stabilization of the macroeconomic environment throughout 2010 and corresponding improvements for steelmaking raw material demand. The Company noted that annual price settlements for iron ore products in 2010 are not yet concluded. As such, Cliffs is using the following assumptions based on an average of widely published industry analyst estimates to provide expectations for its iron ore businesses. Cliffs' iron ore businesses use settlement prices as factors in determining individual customer pricing. Average realized price will be impacted by any deviation from the following assumptions:

• Increases of 40% for world blast furnace iron ore pellet price settlements;

• Increases of 35% and 30%, respectively, for Australian lump and fines benchmark price settlements; and,

• North America hard coking coal prices of $125 per short ton FOB mine.

Based on the above assumptions, the following table provides a summary of Cliffs’ 2010 guidance for its three business segments (with further detail below):

2010 Outlook Summary
North American North American Asia Pacific
Iron Ore Coal Iron Ore
Current Previous Current Previous Current Previous
Outlook Outlook Outlook Outlook Outlook Outlook
Sales volume (million tons/tonnes) 25.0 23.0 3.4 3.0 8.5 8.5

Revenue per ton/tonne $90 - $95 -- $115 - $120 -- $80 - $85 --

Cost per ton/tonne $65 - $70 -- $105 - $110 -- $50 - $55 --

North American Iron Ore Outlook

For 2010, Cliffs said it is increasing sales volume expectations to approximately 25 million tons, up from a previous expectation of 23 million tons, due to improving demand from customers.

The Company used a number of widely published analyst estimates, which call for an average 40% increase in blast furnace pellet pricing settlements, in providing guidance on average revenue per ton in its North American Iron Ore segment. Applying this assumption, along with a 2010 range for hot band steel pricing of $550 - $650 per ton and no inflation for any other factors contained in its current supply agreements, Cliffs expects revenue per ton in North American Iron Ore to be $90 - $95. This expectation also considers the contractual base price changes, lag year adjustments and pricing caps and floors contained in Cliffs’ North American Iron Ore supply agreements. Actual realized average revenue per ton will ultimately depend on sales volume levels and customer mix, blast furnace pellet price settlements, production input costs and/or steel prices (all of which are factors in the Company’s formula-based pricing in the North American Iron Ore business segment).

In addition, Cliffs said the following approximate sensitivities would impact its actual realized price:

• For every 10% change from the above average analyst expectation for blast furnace pellet price settlements, Cliffs would expect its average realized revenue per ton in North American Iron Ore to change by $4 - $5; and,

• For every $25 change from the estimated 2010 hot rolled steel prices noted above, Cliffs would expect its average revenue per ton in North American Iron Ore to change by $0.40.

Cliffs said it expects 2010 production of approximately 25 million tons in its North American Iron Ore business segment. At this production level, 2010 cost per ton is expected to be $65 - $70. This expectation includes a $5 per ton benefit from increased volume, offset by increased costs related to the Wabush Mines acquisition, increases in labor costs as well as maintenance spending that was deferred in 2009.

North American Coal Outlook

In its North American Coal business segment, Cliffs said it is increasing its sales volume expectations to approximately 3.4 million tons, up from a previous expectation of 3.0 million tons.

Cliffs begins 2010 with approximately 1.4 million tons of coal priced and under contractual obligation, or approximately 40% of its current annual production guidance. This coal is priced at an average of $110 per ton, which includes production earmarks to fulfill obligations for 2009 international contracts ending March 31, 2010. Cliffs indicated approximately 30% of its 2010 production volume is committed, but not yet priced, as benchmark pricing has not yet settled. The Company currently expects to sell the remaining 30% of uncommitted production on a spot basis throughout the year.

In 2010, Cliffs anticipates cost per ton for the year of approximately $105 - $110, with approximately $14 per ton comprised of depreciation, depletion and amortization.

Asia Pacific Iron Ore Outlook

Asia Pacific Iron Ore 2010 sales volume is expected to be 8.5 million tonnes, with production of 8.6 million tonnes. With annual price settlements for iron ore in 2010 not yet concluded, Cliffs used an average industry analyst estimate of an increase for Australian lump and fines benchmark price settlements of 35% and 30%, respectively, in providing guidance on average revenue per tonne in its Asia Pacific Iron Ore business segment. With these estimates, Cliffs expects 2010 revenue per tonne in Asia Pacific Iron Ore to be $80 - $85 and costs per tonne to be approximately $50 - $55.

Outlook for Sonoma Coal and the Amapá Iron Ore Project

Cliffs has a 45% economic interest in Sonoma Coal. In 2010, the Company expects total production of approximately 3.3 million tonnes. Sonoma expects sales volume of 3.5 million tonnes with an approximate 65%/35% mix between thermal and metallurgical coal, respectively. Cliffs anticipates average revenue per tonne for Sonoma in 2010 to be $85 - $90. Per-tonne costs at Sonoma are expected to be $80 - $85.

Cliffs has a 30% interest in the Amapá Iron Ore Project. In 2010, assuming a 30% increase in iron ore pricing settlements for iron ore concentrate products, Cliffs expects to report an equity loss of approximately $10 million to $20 million.

SG&A Expenses and Other Expectations

SG&A expenses are anticipated to be approximately $130 million in 2010. As described above, Cliffs intends to incur costs of approximately $25 million to $30 million related to its global exploration efforts. The Company anticipates an effective tax rate of approximately 24% for the year and depreciation and amortization of approximately $275 million.

Cliffs recently completed its previously announced acquisition of Freewest Resources and, under the terms of the acquisition agreement, issued approximately 4.2 million shares. As a result, the Company currently has total diluted shares outstanding of approximately 136 million.

2010 Capital Budget and Other Uses of Cash

Based on the above guidance, Cliffs expects to generate more than $900 million in cash from operations in 2010. The Company expects capital expenditures of approximately $200 million, comprised of approximately $110 million in sustaining capital and approximately $90 million earmarked for expansion, including the following projects:
• $40 million related to installation of a new long-wall mining system at the Pinnacle Mine in West Virginia, which is expected to be complete in the fourth quarter of 2010;

• $15 million related to an upgrade of the Pinnacle Complex Preparation Plant, which is expected to be complete in the third quarter of 2011; and,

• $20 million related to installing a new mine shaft closer to current mining areas at Oak Grove Mine in Alabama, which is expected to be complete in the first quarter of 2011.

Combined, the above projects are anticipated to enable future production from Cliffs North American Coal assets to ramp to 5.0 million tons annually from an expectation of 3.4 million tons in 2010. Other expected uses of cash in 2010 include, approximately:
• $90 million related to the acquisition of Cliffs’ partners’ 73.2% interest in Wabush Mines;

• $30 million for Cliffs’ investment in the Amapá Project, including expected losses and capital spending;

• $70 million related to reduction of Cliffs’ debt obligation at the Amapá Project;

• $15 million related to renewaFUEL’s build-out of its first commercial-scale production facility in Michigan; and,

• $10 million related to Cliffs’ recently acquired chromite project in Ontario, Canada.

Cliffs Natural Resources will host a conference call to discuss its fourth-quarter and full-year 2009 results tomorrow, Feb. 18, 2010, at 10 a.m. ET. The call will be broadcast live on Cliffs’ website at www.cliffsnaturalresources.com. A replay of the call will be available on the website for 30 days. To be added to Cliffs’ e-mail distribution list, please click on the link below: http://www.cpg-llc.com/clearsite/clf/emailoptin.html .

Cliffs Natural Resources Inc. is an international mining and natural resources company. A member of the S&P 500 Index, 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 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 Latin American business unit includes a 30% interest in the Amapá Project, an iron ore project in the state of Amapá in Brazil.

Other projects under development include a biomass production plant in Michigan and Ring of Fire chromite properties in Ontario, Canada. 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: Has anyone seen a company pursue two hostile takeovers at once?
That’s what CLF is doing. If CLF gets control of either of the two target
companies, CLF will control a chromite mining region in a remote part
of northern Ontario called Big Daddy, which is adjacent to the chromite
mines CLF acquired from a company called Freewest in 2009 in a deal
I was critical of (#msg-43909449). The strategic value of these chromite
mines is that chromite is a component of stainless steel, and these mines
are the only significant source of chromite in North America. Still, I think
CLF is in over its head on this project and would rather see them stick
to their knitting, which is iron ore and coal.

http://finance.yahoo.com/news/Cliffs-Natural-Resources-Inc-bw-1507801449.html?x=0&.v=1

›Cliffs Natural Resources Proposes Transactions to Acquire KWG Resources Inc. and/or Spider Resources Inc.

Acquisition of Either Company Would Meet Cliffs’ Objective of Majority Ownership of “Big Daddy” Chromite Project

Monday May 24, 2010, 9:13 pm EDT

CLEVELAND--(BUSINESS WIRE)--Cliffs Natural Resources Inc. (NYSE: CLF ) (Paris: CLF) today announced that it intends to make take-over bids pursuant to which Cliffs or an affiliate would acquire all of the common shares of each of KWG Resources Inc. (“KWG”) (TSXV: KWG) and/or Spider Resources Inc. (“Spider”) (TSXV: SPQ) not owned by Cliffs or its affiliates.

Neither of the proposed take-over bids, which will be funded with Cliffs’ existing cash resources, is conditional on the completion of the other.

Cliffs intends to offer to acquire KWG at a price of Cdn.$0.13 in cash per KWG common share. This represents a premium of 62.5% over the closing price of the common shares of KWG (the “KWG Shares”) on the TSX-V on May 21, 2010. This offer price implies a total value for KWG of Cdn.$100 million. Directly or indirectly, Cliffs currently holds an aggregate of 111,733,215 KWG Shares and warrants to acquire 48,460,049 KWG Shares. This represents approximately 19.4% of the issued and outstanding KWG Shares on a fully-diluted basis.

Cliffs intends to offer to acquire Spider, also at a price of Cdn.$0.13 in cash per Spider common share, before giving effect to any share consolidation. This represents an identical 62.5% premium over the closing price of the common shares of Spider (the “Spider Shares”) on the TSX-V on May 21, 2010. The offer price implies a total value for Spider of Cdn.$86 million. Cliffs holds an aggregate of 19,642,500 Spider Shares representing approximately 3% of the issued and outstanding Spider Shares on a fully-diluted basis.

On May 21, 2010 and May 23, 2010, Cliffs proposed a transaction to the board of directors of each of KWG and Spider, respectively, to acquire all of the outstanding common shares of KWG and Spider not owned by Cliffs or its affiliates at the offer prices mentioned above. Each proposal contained a “go shop” clause providing KWG and Spider with the opportunity to proactively canvass the market for a third party offer at a price superior to that proposed to each by Cliffs. However, neither KWG nor Spider agreed to the transaction terms proposed by Cliffs within the timeframe that Cliffs had established [hence the decision to go “hostile”].

Cliffs currently owns a 47% interest in the “Big Daddy” chromite project located in the McFaulds Lake area of Northern Ontario. KWG and Spider each own 26.5% of Big Daddy and have the option to earn-in up to 30% each. Cliffs’ objective, which can be achieved by acquiring either KWG or Spider, is to obtain majority ownership of Big Daddy.

William C. Boor, president of Cliffs’ Ferroalloys business unit, said, “While we intend to provide each company’s shareholders the opportunity to receive a significant cash premium, we only need to acquire either KWG or Spider in order to satisfy our strategic objectives with respect to the Big Daddy deposit. It would be a satisfactory outcome for Cliffs if either proposed acquisition were successful, leaving Cliffs as majority owner and operator of Big Daddy with one junior partner. Preliminary estimates indicate that our wholly-owned Black Thor deposit is larger and wider, making it more amenable to open pit operations than Big Daddy, so our current plan is to develop Black Thor and our other wholly-owned Black Label chromite deposit first. However, obtaining control of Big Daddy would enable Cliffs to develop the most appropriate integrated long-term mine plan for moving this new mining district forward.”

Cliffs believes that its proposals, which in aggregate imply an equity value for these two companies, on a fully diluted basis, of Cdn.$186 million, should be highly attractive to KWG and Spider. Neither KWG nor Spider has significant assets other than their combined 53% interest in Big Daddy. By comparison, earlier this year Cliffs acquired Freewest Resources Canada Inc. for approximately Cdn.$240 million. Freewest’s assets were indisputably superior to the combined holdings of KWG and Spider, as in addition to its 47% interest in Big Daddy, Freewest owned 100% of the Black Thor and Black Label properties, certain non-core gold assets, common shares of Quest Uranium with a market value of Cdn.$13 million at closing and Cdn.$8.0 million in cash.

Transaction Details

A formal offer has not yet been made to shareholders of KWG or Spider. In the case of the proposed offer for the KWG Shares, Cliffs is a KWG insider, so it has formally requested that the board of directors of KWG, through an independent committee, selects a valuator and directs it to prepare as soon as practicable a formal valuation of the KWG Shares as required by applicable securities laws prior to Cliffs or an affiliate making a formal offer for the KWG Shares. No such valuation is required in respect of the Spider Shares.

In connection with Cliffs’ proposal, Richard Fink, Cliffs’ vice president, technical business development, resigned from the KWG board of directors, effective May 21, 2010.

Cliffs intends to mail a take-over bid circular, including its offer to purchase and other related materials, to Spider shareholders as soon as practicable, and to KWG shareholders conditional upon receipt and review of the requested valuation.

Both take-over bids are expected to have substantially similar conditions, including a condition that there shall have been validly deposited under the bid and not withdrawn at the time of expiry of the bid such number of common shares of the issuer that, together with such common shares held by Cliffs and its affiliates, constitutes at least 66 2/3% of the common shares then outstanding (calculated on a fully-diluted basis). In each case, if the conditions of the bid, including such minimum tender condition, have not been satisfied at the time of expiry of the bid, Cliffs will not be subject to any obligation to acquire any shares tendered to the bid, or to waive any conditions of the bid or extend the bid.

Cliffs has retained BMO Capital Markets as its exclusive financial adviser and Blake, Cassels & Graydon LLP as its legal adviser.

KWG Shareholders, banks and brokers who have questions or requests for assistance regarding the proposed transactions should contact Georgeson, Cliffs’ information agent, toll free at 1-866-656-4118. Spider Shareholders, banks and brokers can call Georgeson toll free at 1-866-656-4120. Georgeson can also be contacted via email at [e-mail].

About Cliffs Natural Resources Inc.

Cliffs is an international mining and natural resources company. A member of the S&P 500 Index, Cliffs is 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, Cliffs’ colleagues across the globe endeavor to provide all stakeholders operating and financial transparency as embodied in the Global Reporting Initiative (GRI) framework. Cliffs 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.

Other projects under development include a biomass production plant in Michigan and Ring of Fire chromite properties in Ontario, Canada. 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]

Revisiting CLF’s chromite assets in Ontario:

Thanks to dewophile for catching the increase in anticipated cap-ex for CLF’s chromite project in Ontario to >$3B, as set forth in the PR issued on 1/19/12. Although I posted the PR in #msg-71102089, I missed the detail that the potential chromite expenditures had ballooned from the original $1B estimate at the time of the acquisition in Nov 2009 (#msg-43909449). The ballooning of these expenses came up on CLF’s 4Q11 CC last week, and the answers were not entirely satisfactory, IMO:

http://seekingalpha.com/article/372341-cliffs-natural-resources-ceo-discusses-q4-2011-results-earnings-call-transcript

Michael F. Gambardella (JPM): I have a question on the chromite project… I thought when you initially purchased the properties, the estimated capital cost to develop the property was about $1 billion or less than $1 billion. And most recently, I think you were around $3 billion now, maybe even higher with the roads. Can you comment on that? And the change and the scope of the project, inflation on the cost, what's changed so dramatically?

Joseph A. Carrabba (CEO): Initially, we did go out with $1 billion price tag for this project and we are [now] in about the $3.3 billion range. I think what's really happened is, one, the sharpening of the estimate as we go through prefeasibility. And we are not through prefeasibility. So we expect to cross that line in May, June. We're going to stay in prefeas as long as we need to and get the appropriate work done to try and get this thing framed up. So we'll have an even better number on that. But as you know, when you come out with these numbers initially, they've got a wide plus or minus 30% or 40% onto your side. I think the second thing, certainly, is the transportation on the road. It has gotten more expensive in this segment than we expected.

Michael F. Gambardella (JPM): Right. But your internal take on the returns on this project on $1 billion cost versus $3 billion plus cost must have changed dramatically. I mean, is this still a viable project?

Laurie Brlas (CFO): Yes, sure, Mike. They definitely have changed, but at this point, it is absolutely still a viable project with a return that exceeds our cost of capital. And at every phase along the way, we will continue to evaluate that.

Joseph A. Carrabba (CEO): …the original project scope was just built around about 600,000 tons of ferrochrome. We've also added about 1 billion tons of chrome concentrate to the design of the volume that we'll do. So the economics around the project have changed somewhat, too.

Perhaps the skepticism I expressed about the chromite deal at the time of the acquisition was well founded after all; in #msg-43909449 (from Nov 2009) I said:

…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. …this project sounds like a black hole of delays, cost overruns, and forays into the capital markets.

I also commented on this in #msg-50560331 (from May 2010):

The Ring of Fire project is going to require a huge amount of capital and expertise to commercialize, and it doesn’t leave much margin for error if the global economy turns soft again.

Despite all this, CLF is one of my favorite natural-resources stocks: it’s an increasingly prominent participant in The Global Demographic Tailwind, the valuation is dirt cheap, and it has buyout vig (#msg-71869156). However, I think CLF’s chromite deal was probably a bad one; perhaps management will end up deciding not to develop the project.

Feedback welcome.

[DewDiligence]

CLF sells “Ring-of-Fire” chromite assets for $20M in cash:

http://finance.yahoo.com/news/cliffs-natural-resources-inc-agrees-110000634.html

I never liked CLF’s foray into chromite, as noted in the prologue of #msg-43909449.