Cliffs fights for its life against hedge fund – by John Myers (Duluth News Tribune – July 28, 2014)

The view from Cliffs Natural Resources’ Minnesota operations looks pretty good.

One of the state’s largest players in the taconite iron ore business, the company’s Northshore Mining, United Taconite and Hibbing Taconite plants are running near capacity with solid domestic markets and long-term contracts with U.S. steelmakers.

The company has more than 1,850 employees on the Iron Range with a payroll of $251 million.

There even was good news from Michigan’s Upper Peninsula this year when Cliffs announced its Empire taconite operations wouldn’t close after all, with a new contract for its ore keeping it running into 2017.

Even after weathering a cold spring and slow start to the shipping season, the company expects to produce about 22 million tons of taconite in the U.S. this year, up from 21 million tons last year. Northshore Mining is back to near full capacity after a temporary slowdown in 2013.

But on a global scale the view is less rosy. The Cleveland-based mining company is fighting for its life, with the decisive battle set for Tuesday. That’s when Cliffs will hold its annual shareholder meeting and election of corporate officers, and it’s when New York-based hedge fund Casablanca Capital will make its play to take over Cliffs.

Casablanca in January announced that it wanted to take control of Cliffs, saying the company was overextended overseas and was spending too much money on new projects. Casablanca, which owns about 5.2 percent of Cliffs stock, claims that Cliffs’ “incompetent and entrenched” board has “destroyed shareholder value,” and Casablanca wants Cliffs to sell some of its riskier overseas operations and send more cash to shareholders.

Casablanca also has proposed replacing Cliffs’ top management with a slate of its own, hand-picked leaders, and has engaged in a proxy war to get shareholders to vote for its team.

It will be up to shareholders on Tuesday to decide the fate of a company, formerly Cleveland-Cliffs, that traces its roots back to 1847 and which has been a part of Minnesota iron mining for decades.

Tough times

Clearly, Cliffs has struggled through tough times recently. Its stock value has plummeted from about $89 per share three years ago to about $16 as of Friday’s close of trading. That’s in large part because global iron ore prices have been halved during that period, from nearly $200 per ton to less than $90 now.

Without its own steel mills to feed, Cliffs has to sell everything it mines. And while the company can produce taconite iron ore in Minnesota for about $67 per ton, the current global price is about the same as what it costs Cliffs to produce ore at its Canadian operations, leaving little or no room for profit.

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