Mining giant Cleveland Cliffs gets bigger with merger
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Cleveland-Cliffs says it's merging with Alpha Natural Resources, A Virginia-based coal operation with 57 coal mines and 11 coal preparation plants in four northern Appalachian states.
The $10 billion cash and stock deal makes the new company, to be called Cliffs Natural Resources, a major player in iron mining and coal production. The coal mines give the company ownership of a key resource for making steel, and another product to sell.
Cleveland-Cliffs owns or operates three of Minnesota's active taconite mines, having just bought out Laiwu Steel's share of United Taconite in Eveleth.
Cliffs spokeswoman Maureen Talarico says the merger makes Cliffs even a stronger player.
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"By adding an additional ... 57 coal facilities, and additional iron ore facilities, it will just greatly strengthen our position not only in North America, but also globally," she said.
Talarico says the merger follows Cliffs' growth strategy.
"We've been trying to expand globally, and obviously diversify our company, and have been planning this and waiting for an opportunity like this to come along. When the opportunity obviously arose, we siezed the moment," said Talarico.
A Cliffs news release says the combined company will be well positioned to continue its aggressive growth.
"I will never underestimate Cleveland-Cliffs' strategic vision. They've done a brilliant job in the last 10 years."
Cleveland-Cliffs has come a long way over the past 10 years. The company bought out Evtac and LTV Steel after each of those Minnesota taconite operations failed.
Cliffs moved into the world markets by investing in iron ore and coal mines in Alabama, West Virginia, Australia, and Brazil.
Tony Barrett, an economics professor at the College of St. Scholastica, says Cliffs is trying to diversify from just producing iron ore.
"I will never underestimate Cleveland-Cliffs' strategic vision. They've just done a brilliant job in the last 10 years. They've expanded so much. It's incredible," said Barrett. "And this looks like a move to take what's been a small part of their business, coal mining, and go big in it."
Cliffs' rise can be attributed partly on savvy management, which snapped up some bargain Minnesota mining properties. An unprecedented world demand for iron and steel has given Cliff's an enviable cash position, making new investments possible.
Now, with coal, Barrett says, Cliffs can take some of the sting out of the typical up and down market cycles for iron.
"Coal is less cyclical than iron ore will be, simply because there's always going to be a baseline need for energy," said Barrett.
Cliffs Natural Resources will have a combined employment of 8,900 employees, and projected sales next year of $10 billion.
Cleveland-Cliffs' stock dropped today on news of the merger. Analysts speculate that Cliffs had been ripe for takeover, but a bigger and stronger Cleveland Cliffs is now going to be a lot harder to buy.
The merger is contingent on approval of the two companies' shareholders, and regulatory approvals. The deal is expected to be closed by the end of 2008.
