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Cliffs Enters Agreement to Acquire Consolidated Thompson Iron Mines
01/12/2011 - Cliffs Natural Resources has entered into a definitive arrangement agreement to acquire all of Consolidated Thompson Iron Mines Ltd.'s common shares in an all-cash transaction valued at approximately $4.9 billion Canadian dollars (including net debt), or C$17.25 per share.
Cliffs Natural Resources Inc. has entered into a definitive arrangement agreement with Consolidated Thompson Iron Mines Limited to acquire all of Consolidated Thompson's common shares in an all-cash transaction valued at approximately $4.9 billion Canadian dollars (including net debt), or C$17.25 per share.
The acquisition price represents an implied premium of 30% to Consolidated Thompson's closing share price as of Jan. 10, 2011.
Cliffs' legacy and technical expertise in open-pit mining, combined with Consolidated Thompson's high-growth development profile, creates the opportunity for additional scale and leverage.
Upon consummation of the acquisition, Cliffs' global mine portfolio will include ten iron ore facilities, six coal mines and a pre-feasibility chrome-development project across North America, South America and Australia.
Cliffs believes that, with Consolidated Thompson's current operations and successful completion of its ongoing expansion projects, combined with Cliffs' global iron ore operations, the acquisition would position Cliffs to become a producer of up to 30 million tonnes of iron ore pellets, 16 million tonnes of iron ore concentrate, 11 million tonnes of lump and fines iron ore.
Cliffs has committed financing and available liquidity sufficient to fund the purchase price, and expects to arrange for permanent financing by accessing the capital markets, which may include long-term debt and equity.
The transaction has been approved by Consolidated Thompson's Board of Directors, and the Board also has recommended that its shareholders support the transaction, which would be completed by way of a statutory plan of arrangement subject to shareholder approval in a court-supervised process under Canadian law. In addition, Cliffs has entered into a support agreement with Consolidated Thompson's largest shareholder, Wuhan Iron and Steel (Group) Corp. of China, which owns nearly 19% 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.
All of Consolidated Thompson's current production capacity is contracted under long-term off-take arrangements at sales-per-ton rates that move with the global seaborne prices. This production capacity includes the existing strategic alliance with Wuhan Iron and Steel (Group) Corp., China's third-largest steel producer, and two large Asian commodity brokers. Upon completion of the acquisition, Cliffs expects to maintain and enhance these strategic relationships, thus enabling the company to strategically diversify its customer base beyond its historical North American steelmaking customers. Upon completion of the acquisition and completion of the planned ramp-up in production, it is expected that over half of the combined revenue base will be generated from customers outside of North America.
"The acquisition of Consolidated Thompson will combine a low-operating risk profile with access to high-growth global markets and broaden our exposure to seaborne iron ore prices,” said Joseph A. Carrabba, Cliffs' Chairman, President and CEO. “We have followed Consolidated Thompson closely since its founding in 2006, and have been very impressed with its significant progress and development to date. We are also enthusiastic about expanding our investment in Eastern Canada, where we have over 45 years of experience and where the regulatory environment, political system and environmental stewardship are consistent with our core values."
Upon completion of the acquisition, Consolidated Thompson will become an indirect wholly-owned subsidiary of Cliffs Natural Resources and be rebranded under the Cliffs name. It is anticipated that Consolidated Thompson will become part of Cliffs' North American Iron Ore business unit and will be led by Cliffs' executive leadership team.
The transaction, which is expected to be modestly accretive to Cliffs' earnings-per-share and cash flow in 2011 and 2012, is slated to close early in the second quarter of 2011, subject to the satisfaction or waiver of various customary closing conditions.
J.P. Morgan Securities LLC is acting as Cliffs' financial advisor and has committed bridge financing for the transaction. Jones Day and Blake, Cassels & Graydon LLP are acting as legal counsel.
Cliffs Natural Resources, an international mining and natural resources company, is the largest producer of iron ore pellets in North America, a major supplier of direct-shipping lump and fines iron ore out of Australia, and a significant producer of high and low volatile metallurgical coal. The company is organized through three geographic business units:
The North American business unit comprises six iron ore mines owned or managed in Michigan, Minnesota and Canada and six coal mines located in West Virginia and Alabama. The Asia Pacific business unit comprises two iron ore mining complexes in Western Australia and a 45% economic interest in a coking and thermal coal mine in Queensland, Australia. The Latin American business unit includes a 30% interest in the Amapá Project, an iron ore project in the state of Amapá in Brazil.
Other projects under development include a biomass production plant in Michigan and Ring of Fire chromite properties in Ont., Canada. Over recent years, Cliffs has been executing a strategy designed to achieve scale in the mining industry and focused on serving the world's largest and fastest growing steel markets.
