Cliffs Natural Resources Inc. (CLF:US) shareholder Casablanca Capital LP urged the biggest U.S. iron-ore producer to spin off foreign assets and double its dividend.
Casablanca, the fourth-largest shareholder in Cliffs, also wants the Cleveland-based company to convert its U.S. assets to a master-limited partnership and “significantly cut costs,” according to a letter to Cliffs Chairman James Kirsch filed with regulators today. The New York-based investment adviser has 7.91 million shares in the company, about a 5.2 percent stake.
Cliffs is among mining companies struggling to increase profits and realize expansion plans as iron-ore prices have declined 17 percent in the past 12 months. The company delayed plans to expand a mine in Quebec and cut its dividend (CLF:US) last year as its chief executive officer and president of global operations resigned.
“Separation into a U.S. part and international part may not be the best way to enhance shareholder value,” Tony Robson, an analyst at BMO Capital Markets in London, wrote today in a note. “A better way may be to restructure Cliffs as combined U.S. and Australian iron-ore operations, and sell or close all other assets, leaving the company as a specialist iron-ore miner with profitable operations.”
Cliffs’ valuation would rise to about $53 a share if the changes were carried out, Casablanca said in the letter dated yesterday. Cliffs rose 2.1 percent to $19.81 at the close today in New York. The shares had dropped 46 percent in the 12 months through yesterday, compared with a 9.8 percent climb in the S&P 500 Materials Index.
Casablanca said it met Cliffs management twice in the past six weeks and had follow-up talks with executives, and that the company indicated it will “seriously consider our proposals and share them with the board.” Casablanca was founded by Donald Drapkin, a former lieutenant of Ronald Perelman, and Douglas Taylor.
Cliffs said in a separate statement today that the discussions with Casablanca were productive and it “looks forward to continuing the dialogue to better understand their assumptions, projections and overall views.”
The Casablanca proposal to split would be negative for Cliffs’ credit rating, with the remaining portions unlikely to be investment-grade, Carol Cowan, an analyst at Moody’s Investors Service Inc., wrote in a note today. The company’s actions last year created a stronger capital structure, lower debt and improved cost position, she wrote.
In November 2012, Cliffs announced it was delaying the expansion of its Bloom Lake iron-ore mine in Quebec, acquired when it bought Consolidated Thompson Iron Mines Ltd. for C$4.2 billion ($3.8 billion) in 2011. Cliffs cut its dividend (CLF:US) 76 percent in February to 15 cents, after three quarters of paying out a dividend more than twice the prior level.
CEO Joseph Carrabba and executive Laurie Brlas retired from Cliffs in 2013.
JPMorgan Chase & Co. is acting as Cliffs’ financial adviser and Wachtell, Lipton, Rosen & Katz is legal counsel.
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