Part-owner Wuhan Steel backs sale, US ore supplier says
NEW YORK - Cliffs Natural Resources Inc agreed to buy Canada's Consolidated Thompson Iron Mines Ltd for about C$4.9 billion ($4.96 billion) to expand iron ore sales to Asia, the world's largest market for the steelmaking raw material.
Cliffs, North America's largest iron-ore producer, is paying C$17.25 a share, the Cleveland-based company said on Tuesday. Cliffs said the deal has the support of Wuhan Iron & Steel Co, China's third-biggest steelmaker, which owns 19 percent of Consolidated Thompson. The acquisition will give Cliffs production in Quebec that's shipped to Asian customers.
"Diversifying into Asia is extremely important to our growth," Cliffs Chief Executive Officer Joseph Carrabba said. "North America and Europe continue to move rather slowly."
Iron ore prices more than doubled in the past two years, according to the Steel Index, on a surge in demand from India and China.
Cliffs is paying a 31 percent premium on top of Consolidated Thompson's average share price over the past 20 days. That compares with an average premium of 52 percent in 65 announced bids for iron-related companies in the past year, according to data compiled by Bloomberg. The purchase price includes net debt.
"$5 billion is a big price, but you'd expect them to pay high as there aren't many targets of size in that part of the world," Peter Arden, a mining analyst at Ord Minnett Ltd. "It's going to be a very strong market for iron ore for many years."
The deal indicates interest in Canada's iron ore resources is growing among foreign steelmakers. ArcelorMittal, the world's biggest steelmaker, and Nunavut Iron Ore Acquisition Inc are bidding against each other to acquire Toronto-based Baffinland Iron Mines Corp.
Most iron ore from Cliffs' Wabush mine in Labrador, northeast Canada goes to Asia, Carrabba said. The company, which has two mining operations in Western Australia, got 22 percent of its revenue from the Asia-Pacific region in the quarter that ended Sept 30. Cliffs forecast in October it would sell about 27 million tons from its North American iron-ore business and 9 million tons from its Asia-Pacific unit.
Consolidated Thompson operates the Bloom Lake mine in Quebec. It plans to double production to 16 million tons a year by 2012.
Consolidated Thompson, which is based in Montreal, rose 1.2 percent to C$13.38 at the close in Toronto trading, before the deal was announced. It has gained 67 percent in the past year. Cliffs rose 3 percent to $84.96 in New York, bringing its gains to 61 percent in the past 12 months.
Cliffs said it expects to arrange financing for the deal, which may include long-term debt and equity.
JPMorgan Chase & Co advised Cliffs. Consolidated Thompson was advised by BMO Capital Markets and the mining company's transaction committee was advised by GMP Securities LP.
Cliffs dropped a planned $10 billion acquisition of metallurgical coal producer Alpha Natural Resources Inc in 2008 amid opposition to the deal by Philip Falcone's Harbinger Capital Partners, which owned 15 percent of Cliffs. Harbinger pared its stake in Cliffs to about 0.3 percent as of Sept 30, according to Bloomberg data.
Bloomberg News
