Cliffs Natural Resources to acquire Canadian iron ore miner

Wednesday, 12 January 2011 02:31:27 (GMT+3)   |  
       

Cleveland, Ohio-based iron and coal mining company Cliffs Natural Resources Inc. announced Tuesday that it has entered into a definitive arrangement agreement with Montreal, Quebec-based iron ore miner Consolidated Thompson Iron Mines Limited to acquire all of Consolidated Thompson's common shares in an all-cash transaction valued at approximately C$4.9 billion (US$4.95 billion) or C$17.25 (US$17.4) per share, which represents an implied premium of 30 percent to Consolidated Thompson's closing share price as of January 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 Q2 2011, subject to the satisfaction or waiver of various customary closing conditions. 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 percent of Consolidated Thompson's outstanding shares. Consolidated Thompson's directors and certain senior officers have also entered into support agreements with Cliffs.

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.

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 (mt) of iron ore concentrate, with an expansion in progress that is expected to double the company's annualized production to 16 million mt.

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

Consolidated Thompson's operations are close to Cliffs' existing operations at Wabush Mines in Eastern Canada, a 5.6 million mt 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.


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