Mining company Cliffs Natural Resources Inc. (CLF) is reviewing its plans of making a formal offer for acquiring KWG Resources Inc., one of the smaller partners in Big Daddy, the Canada-based chromite project. Cliffs already holds a majority 47% share in the project and was seeking full ownership.
However, Cliffs’ erstwhile partners in Big Daddy — Spider Resources Inc. and KWG — each own 26.5% and have the option to earn up to 30% each. In its previous release, Cliffs had stated that the acquisition of either company would meet its objective of a majority ownership in Big Daddy. Following a binding letter agreement to merge with Spider Resources, Cliffs is having second thoughts about its proposal to KWG.
Cliffs has already acquired 7.8 million common shares of Spider Resources Inc. last week 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. Cliffs now holds 27.4 million shares, or 4.2% of Spider’s outstanding stock.
The Canada-based chromite 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. Cliffs plans to develop Thor and Label first and later focus on Big Daddy.
Cliffs Natural Resources 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 Cliffs’ high leverage.
For now, we remain Neutral on Cliffs.
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