Home > Mergers & Acquisitions > Cliffs to buy Canadian iron-ore miner

Cliffs to buy Canadian iron-ore miner

January 18, 2011

“In a bid to capture more international markets, U.S.-based mining company Cliffs Natural Resources Inc. said it agreed to buy Canada’s Consolidated Thompson Iron Mines Ltd. for about 4.9 billion Canadian dollars (US$4.95 billion).

The deal, an all-cash offer of C$17.25 a share already approved by Consolidated Thompson’s board, is expected to be completed in the second quarter. If approved, Cliffs, a Cleveland-based coal and iron-ore producer, would add about eight million metric tons of capacity to its existing 40 million metric tons of capacity located in Canada, the U.S., Australia and Brazil.”

Source: Wall Street Journal, January 12 2011

Observations:

  • The combined company will have a market capitalization of approx $16bln; Cliffs being 3 times the size of Consolidated Thompson.
  • To place the combined capacity of 48mln tons in perspective: BHP Billiton, the 3rd largest iron ore producer, produced 114mln tonnes of iron ore in 2009.

Implications:

  • Submission for approval by the Canadian authorities will have to prove the net benefit for Canada under the Investment Canada Act. Although the operational benefits for the mines that are located closely together are easy to point out, Cliffs will have to convince the government that jobs will be secure and tax income for the country will not decrease. The expansion plans for Bloom Lake mine will be helpful in this discussion.
  • Cliffs expansion helps to create a significant international player for the USA in the market. As the USA still is a large steel market, a large part of Northern American iron ore is consumed in the States. Cliffs gains access to the customer portfolio of Thompson, including Wuhan Iron & Steel, enabling it to sell iron ore internationally at higher prices.

©2011 | Wilfred Visser | thebusinessofmining.com

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  1. October 17, 2011 at 8:01 am
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