Cleveland-Cliffs, Stelco Agree to Sell Wabush Interest
06/07/2007 - Cleveland-Cliffs and Stelco have entered an agreement to sell their 26.8% interest and 44.6% interest, respectively, in the Wabush Mines joint venture to Consolidated Thompson Iron Mines for $64.3 million cash, 3.0 million warrants of common shares, and Consolidated’s assumption of ongoing employee and asset retirement obligations.
Cleveland-Cliffs Inc. and Stelco Inc. have entered an agreement to sell their 26.8% interest and 44.6% interest, respectively, in the Wabush Mines joint venture to Consolidated Thompson Iron Mines Ltd.
Under the definitive purchase agreement, Consolidated Thompson would acquire the 71.4% of the Wabush Mines joint venture owned directly or indirectly by Cleveland-Cliffs and Stelco Inc. for $64.3 million in cash plus 3.0 million warrants of common shares and Consolidated’s assumption of ongoing employee and asset retirement obligations.
Cleveland-Cliffs' pro-rata share would be $24.1 million in cash and warrants, entitling Cleveland-Cliffs to purchase approximately 1.1 million Consolidated common shares at CAD$5.10 per share for a two-year period. As part of the transaction, Cleveland-Cliffs would enter into an off-take agreement whereby Consolidated Thompson will sell to Cleveland-Cliffs a portion of its pro-rata share of the 4.8 million tons of committed annual pellet production from the date of closing until December 31, 2009.
For Stelco, the deal represents an estimated value of $163.4 million. The total includes cash of $44.4 million, assumed liabilities estimated at $94.6 million, approximately 1.9 million warrants to purchase shares of Consolidated valued at $1.7 million, and an agreement for Consolidated to supply iron ore pellets to Stelco until December 31, 2009 valued at $22.7 million. In addition, Stelco will retain its share of the Wabush iron ore inventory, which is valued at approximately $35.7 million.
Dofasco Inc., a subsidiary of Mittal Steel Co. NV, holds the remaining 28.6% of the Wabush Mines joint venture. The acceptance of Consolidated’s offer by Cleveland-Cliffs and Stelco triggers a 90-day purchase option that may be exercised by Dofasco, as Dofasco has a right of first refusal.
"The Wabush mine requires some redevelopment work which has an associated capital requirement. Consolidated is better positioned to complete this work given operating synergies available to them with their neighboring mining interests," said Rodney Mott, President and CEO. "This transaction will improve our financial position and accelerates our efforts to surface value in Stelco," added Mott.
“This is a good transaction for all of the parties involved,” said Cleveland-Cliffs President—North American Iron Ore Donald J. Gallagher. “As previously discussed, Wabush has long-term issues with its pit, and adding Consolidated's new resource to the existing mine and plant bodes well for both the long-term life of the Scully Mine and the Point Noire operations and the jobs associated with those facilities. In addition to the cash proceeds, Cliffs will be relieved of significant liabilities and will be able to allocate its available resources to longer lived assets in North America and its global growth strategies," he concluded.
Completion of the transaction is subject to a number of conditions, including receipt of requisite regulatory approval and the execution of definitive agreements. Closing would occur shortly after a Dofasco waiver is executed or expiration of Dofasco’s 90-day purchase option.
Wabush, located in Canada, has been operating since 1965. It produced 4.1 million tons of pellets in 2006, and includes the Scully Iron Ore Mine near Wabush, Newfoundland, Labrador; the pellet plant and port facilities at Point Noire, Quebec; and integrated rail facilities and other related assets.
Stelco, one of Canada's largest steel companies, is focused on its two Ontario-based integrated steel businesses located in Hamilton and in Nanticoke. These operations produce high quality value-added hot rolled, cold rolled, coated sheet and bar products.
Headquartered in Cleveland, Ohio, Cleveland-Cliffs Inc. is the largest producer of iron ore pellets in North America, selling the majority of its pellets to integrated steel companies in the United States and Canada. Cleveland-Cliffs operates a total of six iron ore mines located in Michigan, Minnesota and Eastern Canada. The company owns 80% of Portman Limited, a large iron-ore mining company in Australia, serving the Asian iron ore markets with direct-shipping fines and lump ore. It also has a 30% interest in the Amapa Project, a Brazilian iron-ore project, and a 45% economic interest in the Sonoma Project, an Australian coking and thermal coal project.
