Replies to post #1945 on The Rising Influence of Rising Affluence

[DewDiligence]

More on the CLF deal from the WSJ….

http://online.wsj.com/article/SB10001424052748703791904576076322191204698.html

›Cliffs to Buy Canadian Iron-Ore Miner

JANUARY 12, 2011
By ROBERT GUY MATTHEWS

In a bid to capture more international markets, U.S.-based mining company Cliffs Natural Resources Inc. said it agreed to buy Canada's Consolidated Thompson Iron Mines Ltd. for about 4.9 billion Canadian dollars (US$4.95 billion).

The deal, an all-cash offer of C$17.25 a share already approved by Consolidated Thompson's board, is expected to be completed in the second quarter.

If approved, Cliffs, a Cleveland-based coal and iron-ore producer, would add about eight million metric tons of capacity to its existing 40 million metric tons of capacity located in Canada, the U.S., Australia and Brazil. [I.e., CLF is shelling out cash worth about 50% of its market cap to increase iron-ore production capacity by 20% immediately and 40% eventually. When viewed in these terms, the deal does not seem to be such a no-brainer, IMO.]

The company expects to double Consolidated Thompson's current iron-ore production by 2013.

The deal would also expand beyond Cliffs' existing customer base. Its three biggest customers—ArcelorMittal, Severstal SA and Essar Steel Algoma Inc.—all have operations located in North America.

"This will mitigate the risk of three large customers that make up 46% of total revenue," said Joseph A. Carrabba, Cliffs' chairman, president and chief executive.

Mr. Carrabba said that once the deal is completed, he expects nearly half of the combined company's iron-ore production in North America will be exported.

Thompson's iron-ore production will be part of the seaborne trade in iron ore, able to tap into lucrative markets in Asia, which has more growth potential than North America, said Mr. Carrabba.

The deal is expected to generate about $75 million in synergies and would add to Cliffs per-share earnings and cash flow beginning this year.

Cliffs said it is confident that it won't face opposition from the Canadian government over its plans to buy Thompson. Last year, Canada shut down Anglo-Australian miner BHP Billiton's attempt to buy Canadian potash producer Potash Corp. of Saskatchewan Inc.

"We have been working in Eastern Canada for 45 years. We are not a Johnny-come-lately to the area," he said. "So we have exercised our social responsibility."

Cliffs said that there isn't likely to be a problem in Canada from an antitrust standpoint.

Mr. Carrabba said that by offering an all-cash deal, it would be the "speediest" way to get a deal done in Canada. He also said that he had been talking with Thompson for about a year before cementing the deal offer.

Thompson, 19%-owned by China's Wuhan Iron & Steel Co., also owns the Lamalee-Peppler development project in Quebec, with resources of 302 million metric tons.

For months, Cliffs has signaled that it was looking to expand and acquire new companies. But after this acquisition, the company said that it would likely focus on integrating and expanding operations before looking for more deals.‹

[DewDiligence]

CLF issues $1B of 10-/30-year bonds to help pay for the $5B Consolidated Thomson acquisition (#msg-58708254):

http://finance.yahoo.com/news/Cliffs-Natural-Resources-Inc-prnews-3032625726.html?x=0&.v=1

The issue consists of $700M of 10-year bonds @4.9% and $300M of 30-year bonds @6.25%.

As previously noted, I have mixed feelings about this deal, which will surely require a large equity offering at some point. However, I’m glad that at least a portion of the deal will be funded with debt.

p.s. CLF was up 6% today.

[DewDiligence]

Canada approves CLF’s acquisition of Consolidated Thompson:

http://finance.yahoo.com/news/Cliffs-Natural-Resources-Inc-prnews-361529708.html?x=0&.v=1

As previously noted, this is a bet-the-company deal for CLF.

[wow_happens28]

That CLF deal makes me sort of convinced that we can't profit off of US coal going to China. It is already factored in or the Carlyle private deal will make the money. The world is awash in natuiral gas, but plants switching from coal to gas could move natural gas a bit.

DewDiligence, do you know of any side plays that use natural gas?
http://www.matthewsbuses.com/compressed-natural-gas-bus-delivered-leon-county-district-schools-florida

[DewDiligence]

CLF Plans 2012 Cap-Ex of $1B

[About half of this is for expansion of the Bloom Lake iron mine in Quebec, which was the main property CLF acquired in its $5B acquisition of Consolidated Thompson on year ago (#msg-58708254). In this PR, CLF also provides more detail than previously furnished on the development costs for the chromite assets in Ontario; these expenses will occur mainly in 2014 and beyond.]

http://finance.yahoo.com/news/Cliffs-Natural-Resources-Inc-prnews-678732531.html?x=0

›19-Jan-2012 4:30pm ET

CLEVELAND, Jan. 19, 2012 /PRNewswire/ -- Cliffs Natural Resources Inc. (NYSE: CLF) today announced projected full-year 2012 capital expenditures expectations. Cliffs plans to invest approximately $1 billion, comprised of approximately $300 million of sustaining capital and $700 million of growth and productivity-improvement capital. Cliffs' 2012 capital budget represents an expected 12% increase over the Company's 2011 capital expenditures of approximately $880 million. Cliffs indicated this amount was less than its previous estimate of $900 million and an original 2011 budget of $1 billion.

While plans will continue to be reviewed and adjusted in response to changes in market conditions and other factors, Cliffs' 2012 capital budget is primarily intended to fund the organic growth pipeline the Company has acquired through the completion of a number of strategic transactions in recent years. These transactions have meaningfully diversified Cliffs' business and provided the Company significant exposure to customers outside of its historical North American steelmaking customer base.

In addition to the anticipated $300 million of 2012 sustaining capital, listed below are the significant growth and productivity projects earmarked within each of Cliffs' business segments.

U.S. Iron Ore

In its U.S. Iron Ore business segment, Cliffs anticipates spending $60 million in 2012 related to its previously disclosed project to extend the life of Empire Mine to 2015. This project is expected to allow Empire to continue producing at a rate of approximately 3 million tons of iron ore annually through its remaining mine life.

Eastern Canadian Iron Ore

In its Eastern Canadian Iron Ore business segment, Cliffs anticipates spending the following amounts related to growth of its operations:

• $470 million related to Bloom Lake's Phase II expansion to 16 million tons
• $45 million related to port and rail upgrades in Eastern Canada

Asia Pacific Iron Ore

In its Asia Pacific Iron Ore business segment, Cliffs anticipates capital spending of approximately $40 million related to the ongoing capacity expansion of the Koolyanobbing Complex in Western Australia to 11 million tons.

North American Coal

In its North American Coal business segment, Cliffs anticipates capital spending of approximately $50 million related to growing high-volatile metallurgical coal production capacity from its continuous mining operations in West Virginia.

Preliminary Capital Estimates for Cliffs Chromite Project in Northern Ontario

As previously disclosed, Cliffs controls three large chromite deposits in Northern Ontario, Canada. With a timeline to begin production in 2015 from its wholly owned Black Thor deposit, Cliffs is currently in the prefeasibility study phase of the project. As part of prefeasibility, the Company continues to evaluate many factors, scenarios and strategic alternatives that may ultimately impact future investment and timing of the project.

At the time of Cliffs' initial investment in chromite assets in 2009, the Company predicated preliminary comments for capital requirements on a baseline expectation of a project annually producing approximately 600,000 tons of ferrochrome. Subsequently, and after significant additional prefeasibility work, Cliffs now anticipates an expanded project annually producing 1 million tons of export chromite ore concentrate in addition to the original 600,000 tons of ferrochrome.

Preliminary capital estimates for the project, based on prefeasibility work completed to date, include the following major engineering components:

• Mine development – Approximately $150 million
• Near-mine Concentrating Plant – Approximately $800 million
• Ferrochrome Processing Facility – Approximately $1.8 billion

Cliffs also estimates that an integrated transportation system, including an all-weather road servicing the project, would require further investment totaling approximately $600 million, which was not included in Cliffs' initial investment estimate. However, because this transportation system is provincial infrastructure required for the general use of remote northern communities and other Ring of Fire mining projects, Cliffs anticipates its commitment to invest in the all-weather road would be partial, with the balance to be contributed by other industry participants and government entities.

Cliffs indicated that, although it believes the chromite deposits it controls are world-class, a number of additional studies, including feasibility, and other project milestones need to be achieved before the Company begins allocating a significant portion of capital to the project's construction. Based on the completion of these, Cliffs anticipates a majority of the project's anticipated capital requirements would be made in 2014 and 2015, with an early works program initiated prior to 2014 to maintain project execution timeline. More information about the project will be provided upon completion of the prefeasibility study in the first half of 2012.‹