International mining company Cliffs Natural Resources Inc. (CLF) has increased its stake in the recently bought Spider Resources Inc., a junior resources company and one of the partners to the Canada-based chromite project, Big Daddy, where Cliffs already held a majority 47% share.
Last week, Cliffs acquired 7.8 million common shares of Spider Resources Inc. through its wholly owned subsidiary, Cliffs Greene B.V., at $0.1270 (C$0.1350) per share. The weighted average price was $0.1263 (C$0.1343). Cliffs had earlier agreed to pay 13 Canadian cents for each share of Spider Resources. The subsidiary now holds 27.4 million shares, or 4.2% of Spider’s outstanding stock.
Cliffs intends to gain full control of Big Daddy. The company is trying to acquire Spider and KWG Resources Inc., its two partners in the chromite project. Chromite is used in the manufacture of stainless steel. The Big Daddy project has chromite resources of 23.2 million tons. Cliffs owns 100% of its other chromite deposits − Black Thor and Black Label − located close to Big Daddy, and plans to fully own this one as well. Cliffs plans to develop Thor and Label before focusing on Big Daddy.
Cliffs plans to fund the Spider acquisition internally. The company has a healthy balance sheet, with debt to capital of 20%. It has a good liquidity position with cash and cash equivalents of $550 million as of Mar 31, 2010.
Cliffs Natural is the largest producer of iron ore pellets in the U.S. the company owns or manages iron ore mines in the northern U.S. and Canada and produces iron ore pellets. It also has coking coal operations in West Virginia and Alabama and iron ore mining facilities in Australia and Brazil.
Cliffs’ increasing international iron ore exposure, recovery in its coal business and longer-term diversification into the chromium business are huge positives for the stock. However, we are concerned about its high leverage. For now, we remain Neutral on Cliffs.
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