Cliffs Aims for Asia in $5B Iron Ore Deal

NEW YORK (TheStreet) -- Cliffs Natural Resources (CLF), the iron ore miner, gladdened investors with its plan to acquire a Canadian rival for nearly $5 billion, expanding its mining assets amid a boom in the market for industrial raw materials.

Cliffs announced the all-cash takeover of Consolidated Thompson after the market close Tuesday. Wednesday morning, shares of the Cleveland-based miner bounced sharply, touching $89.92 at one point shortly after the open, a new 52-week high. The stock was trading recently at $87.69, up 3.2%, on heavy volume.
 Consolidated Thompson

Cliffs said the purchase will be "modestly accretive" and that it could achieve $75 million in synergies. Consolidated Thompson, which owns iron ore mines in northern Quebec, not far from assets controlled by Cliffs, has plans to double its production capacity to 16 million metric tons per year by 2012.

Thompson gives the North American-focused Cliffs greater exposure to the lucrative seaborne iron ore trade with Asia and, in particular, China, home to the world's largest steel industry.

Thompson, which started commercial production at its main mine, called Bloom Lake, only last year, sells most of its ore to Chinese steelmakers and traders via the spot market, where iron ore generally fetches higher prices than Cliffs does in North America. Consolidated Thompson's largest shareholder, in fact, is also one of its largest customers: the Chinese steel giant Wuhan Iron & Steel, which owns 19% of the company.

Analysts viewed the deal favorably. "This acquisition may transform CLF into a solid global iron ore producer, and helps move the needle back to the Company's center of gravity," wrote Mark Parr, metals and mining analyst at KeyBanc Capital Markets, in a Wednesday morning note to clients.

In recent years, Cliffs has attempted to diversify its portfolio of assets by expanding into chrome and low-grade coal used both for power production and as a coking coal in the steelmaking process, Parr said.

Cliff noted that its strategy now is to get its hands into that profitable Asian trade -- or, as the company worded it, "to build scale by owning expandable and exportable steelmaking raw material assets serving international markets."

Parr expects Consolidated to add $1 to $1.20 per share to Cliffs' bottom line for the full year 2011. Wall Street on average is calling for Cliffs to earn $9.67 a share in 2011.

Anthony Rizutto, who covers metals and mining stocks for the investment firm Dahlman Rose in New York, was also bullish on the deal. He said Consolidated could add as much as $1.50 to Cliffs' EPS in 2012.

-- Written by Scott Eden in New York

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