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Cleveland-Cliffs Closes PinnOak Resources Acquisition
08/02/2007 - Cleveland-Cliffs has closed its previously announced acquisition of PinnOak Resources,a premium-quality metallurgical coal producer located in the United States.
Cleveland-Cliffs Inc. has closed its previously announced acquisition of PinnOak Resources, LLC, a premium-quality metallurgical coal producer located in the United States.
Cliffs agreed to pay $450 million in cash for PinnOak and assumed approximately $160 million in debt, which is being refinanced. Payment of approximately 25% of the cash portion is deferred until December 31, 2009. The agreement includes an earnout provision contingent on progressively improving performance.
PinnOak operates two mines in West Virginia and one mine in Alabama that produce a high-quality product ideal for meeting growing worldwide demand for high-yield coking coal. PinnOak controls reserves of approximately 140 million tons.
“The acquisition of PinnOak is the latest in a series of transactions designed to further Cliffs’ position as an international mining entity,” said Joseph A. Carrabba, Cliffs’ Chairman, President and CEO. “Approximately 80% of PinnOak’s sales in 2007 are expected to reach international customers. With its position in the expanding global market, PinnOak fits well with our strategy to capitalize on international demand for steelmaking raw materials.”
Cliffs indicated it expects PinnOak’s production to reach approximately two million tons for the remainder of 2007 and approximately five million tons in 2008. As a result, PinnOak is projected to contribute approximately $130 million to Cliffs’ revenues in 2007. The acquisition is expected to produce approximately $30 million in EBITDA and have a minimal earnings impact due to acquisition and integration costs in the current year. In 2008, Cliffs anticipates that PinnOak will contribute approximately $400 million to Cliffs’ revenue and $100 million in EBITDA.
“PinnOak’s operations are running substantially below their rated capacity of more than seven million tons per annum,” added Carrabba. “Our goal is to forge sales agreements with new and existing customers for PinnOak’s premium product and to increase production accordingly.”
Headquartered in Cleveland, Ohio, Cleveland-Cliffs is an international mining company, the largest producer of iron ore pellets in North America, and a major supplier of metallurgical coal to the global steelmaking industry. The company operates six iron ore mines in Michigan, Minnesota and Eastern Canada, and three coking coal mines in West Virginia and Alabama. Cliffs also 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. In addition, the company has a 30% interest in the Amapá Project, a Brazilian iron ore project, and a 45% economic interest in the Sonoma Project, an Australian coking and thermal coal project.
