Here's looking at you, Cliffs

US COAL and iron ore producer Cliffs Natural Resources recently received advice on how to more than double its market value from its 5.2% stakeholder Casablanca Capital.

Blair Price

In a joint letter from Casablanca’s chairman, CEO and portfolio manager to CNR executive chairman James Kirsch, Casablanca first urged CNR to spin off its export-orientated iron ore assets at Bloom Lake in Canada and the Koolyanobbing mine in Western Australia into “Cliffs International”.

Casablanca also wanted CNR to take the following steps.

  • Double the dividend (which would be paid by Cliffs USA going forward)
  • Convert the US assets to a master limited partnership
  • Significantly cut selling, general, administrative and exploration expense
  • Optimise cash costs and operating profitability
  • Divest infrastructure and other non-core assets
  • Set clear objectives for return on capital
  • Hire strategic and financial advisors to assist in evaluating and executing these measures.

“Casablanca believes that implementing these recommendations would create substantial shareholder value and result in an implied valuation range with a midpoint of $53 per Cliffs share – over 2.5 times Cliffs’ most recent trading price,” the activist hedge fund said.

In response CNR said it welcomed open communications with all of its shareholders.

“Cliffs has held productive preliminary conversations with Casablanca Capital and looks forward to continuing the dialogue to better understand their assumptions, projections and overall views,” CNR said.

“As part of the company`s goal to enhance shareholder value, over the last year Cliffs has made significant changes to strengthen its board of directors and management team, including the addition of four new board members and a new chairman.

“Since these changes were made, the company has taken steps to improve its financial and operating performance across all of its businesses.

“Looking ahead, Cliffs expects to continue making progress on reducing costs, strengthening its balance sheet with cash flows from operations and taking a disciplined approach to capital spending.

“Cliffs will continue to evaluate the strategic fit and value creation potential of all the company`s assets as part of that process.”

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