Cliffs Launches New Initiatives to Enhance Financial Flexibility
05/13/2009 - Cliffs Natural Resources announces several proactive initiatives designed to enhance financial flexibility, including a public offering of common shares, a reduction in the quarterly dividend, and compensation reductions across the organization.
Cliffs Natural Resources Inc. announced plans for a number of proactive initiatives designed to enhance the company’s financial flexibility. Initiatives include a public offering of common shares, a reduction in the company’s common-share quarterly dividend, and compensation reductions across the organization, including Board Members, executives and virtually all other salaried positions.
“While we currently have an enviable balance sheet and adequate financial flexibility, we believe the actions announced today will fortify and enhance these positions,” commented Joseph Carrabba, Cliffs’ Chairman, president and CEO. “There are high degrees of uncertainty in both our industry — particularly around the outcome of annual iron ore benchmark settlements — and the macroeconomic environment in general.”
Carrabba explained that the company has asked all of its stakeholders to “make sacrifices that will better position Cliffs to weather the direst of economic scenarios, while at the same time positioning the company to take advantage of possible opportunities when the environment improves. These could include distressed asset or possible bolt-on acquisitions. In addition, the change in capital structure could provide Cliffs better access to capital markets that have not been available to the company in the past.”
As one of its initiatives, Cliffs announced that it is offering to sell, subject to market and other conditions, 12,000,000 shares of common shares through an underwritten offering. The company said it intends to use net proceeds from the offering for general corporate purposes, which could include, among other things, funding certain capital expenditures, repayment of indebtedness or strategic transactions.
In addition to the common share offering, Cliffs will enact a 55% reduction in the company’s quarterly common share dividend, bringing it to $0.04 from the previous $0.0875. The company said the action would result in an annual cash savings of approximately $22 million.
Cliffs’ Board of Directors and senior executive team also agreed to a number of reductions to compensation, effective July 1, 2009, including:
- A 10% reduction for CEO Joseph Carrabba’s base compensation and the Board of Directors fee compensation
- A 7% reduction in base compensation for all executives at the Senior Vice President level or higher
- A 3 to 5% reduction in compensation for other salaried employees
Finally, Cliffs will also suspend all 401(k) company contributions for salaried employees.
The above changes are expected to result in savings of approximately $15 million in 2009.
Cliffs indicated that while the above actions are necessary given today’s uncertainty, the Company is committed to continuously monitoring the macro and industry environments and would make reinstatements as conditions warrant.
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 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 Eastern Canada, and two coking coal mining complexes 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, as well as a number of smaller greenfield projects not yet in production.
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.
