CLF Acquires Consolidated Thompson

Mining operator Cliffs Natural Resources Inc. (CLF - Analyst Report) completed its acquisition of Consolidated Thompson Iron Mines Ltd. for C$4.9 billion ($4.95 billion). Consolidated Thompson shareholders, who will get 17.25 Canadian dollars ($17.92) per share, approved the acquisition at a special meeting in February 2011. Cliffs financed the transaction (including net debt) through committed financing, including a $1.25 billion term loan, $750 million in bridge financing and available cash on hand.

In January 2011, Cliffs agreed to buy Canada’s Consolidated Thompson Iron Mines for expanding its capacity to satisfy Asia’s appetite for iron ore.

With the acquisition of Consolidated Thompson, and on successful completion of its development projects, Cliffs will have significant exposure to the growing Asian markets, including the potential to generate over half of its revenues from customers outside North America.

Consolidated Thompson is a Cliffs’ subsidiary and will be rebranded under Cliffs’ name. Consolidated Thompson operates the Bloom Lake open-pit iron ore mine and two nearby properties in Quebec that are close to the existing Cliffs mines.

Consolidated Thompson is expected to be delisted from the Toronto Stock Exchange after the close of business on May 13, 2011.

Last month, Cliffs posted record revenues and earnings for the first quarter of 2011. Net earnings of $423 million or $3.11 per share in the first quarter were 449%, above last year’s $77 million or 57 cents. Earnings surpassed the Zacks Consensus Estimate of $2.25 per share.

Quarterly revenues came in at $1.2 billion, up 63% year over year. The increase was driven by certain factors, such as higher pricing in each of Cliffs’ business segments and the favorable effect of Cliffs’ previously disclosed negotiated settlement with ArcelorMittal (MT - Analyst Report).

Operating income in the quarter increased 377% year over year to $541 million.

The company anticipates global steel production to continue to grow in 2011, primarily driven by emerging economies such as China, India and Brazil.

Cliffs is a major global iron ore producer and a significant producer of high- and low-volatile metallurgical coal. Cliffs' strategy is to continually achieve greater scale and diversification in the mining industry by serving the world's largest and fastest growing steel markets.

Cliffs faces stiff competition from CONSOL Energy Inc. (CNX - Analyst Report), Massey Energy Co. (MEE) and Peabody Energy Corp. (BTU - Analyst Report).

We maintain our Neutral recommendation on Cliffs with a short-term Zacks #3 Rank (Hold) on the stock.

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