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Cleveland-Cliffs to Acquire Metallurgical Coal Producer PinnOak Resources

06/15/2007 - Cleveland-Cliffs Inc. has agreed to acquire PinnOak Resources, a domestic producer of high-quality, low-volatile metallurgical coal, for $450 million in cash plus approximately $150 million in debt.

Cleveland-Cliffs Inc. has agreed to acquire PinnOak Resources, LLC, and its subsidiary operating companies, for $450 million in cash plus approximately $150 million in debt.
 
Privately owned PinnOak is a domestic producer of high-quality, low-volatile metallurgical coal. Its acquisition is expected to increase Cliffs' 2008 revenues by approximately $400 million and add approximately $100 million in EBITDA. Due to customer transition issues, full-year 2007 revenues are expected to be approximately $300 million. The transaction will have minimal earnings impact to Cliffs in 2007 as it covers acquisition and integration costs.

PinnOak's operations include two complexes comprising three underground mines — the Pinnacle and Green Ridge mines in southern West Virginia, and the Oak Grove mine near Birmingham, Ala. Combined, the mines have the capacity to produce in excess of seven million tons of premium-quality metallurgical coal annually.
 
The Pinnacle complex, located in Pineville, W. Va., comprises the Pinnacle and Green Ridge properties. In operation since 1969, Pinnacle produces a high-quality, low-volatile metallurgical coal and boasts the only longwall plow system in the United States. The Green Ridge mine, opened in 2004, also produces a premium-quality product. Coal from both mines is processed by the Pinnacle Preparation Plant and then shipped via the Norfolk Southern rail line and exports from the port of Norfolk, Va.
 
Located in Adger, Ala., the Oak Grove mine has been in operation since 1975 producing high-quality, low-volatile, very low-sulfur product, which is in high demand due to its excellent coking characteristics. Processing from this mine is done at the Concord Preparation Plant and product is transported domestically by rail, barge or truck. International shipments initiate from the port of Mobile, Ala.

"This acquisition represents an attractive expansion opportunity for our company. When combined with our Australian coking and thermal coal operation, the Sonoma Project, the company will control a 10-million-ton position, with the majority being for export," commented Joseph A. Carrabba, Cleveland-Cliffs Chairman, President and CEO. "It marks yet another step in the execution of our strategy to deepen Cliffs' exposure to faster growing international markets and further diversify its mineral sales."
 
Approximately 80% of PinnOak's total 2007 production is slated for the international steel market, with the balance committed to integrated steelmakers in the United States. The company produced approximately 3.9 million tons of coal in 2006 and has current estimated reserves of 140 million tons.
 
"We are excited to welcome the PinnOak team to the Cliffs organization as they provide a depth of experience and an additional growth platform consistent with the company's strategic objectives," Carrabba added.
 
Payment of 25% of the cash portion will be deferred until December 31, 2009. The transaction is expected to close within 60 days and is subject to regulatory clearances.
 
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 Inc 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.