UPDATE 1-Cliffs eyes Bloom Lake partner as activist battle heats up

Fri Feb 14, 2014 12:16pm EST
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(Recasts with comments on Bloom Lake from conference call; adds
Casablanca's response)
    By Allison Martell
    Feb 14 (Reuters) - Cliffs Natural Resources Inc,
gearing up for a proxy battle with an activist fund, said on
Friday it could idle, sell or work out a deal with a strategic
partner, perhaps one of its customers, at its Bloom Lake iron
ore mine in Quebec.
    Chief Executive Gary Halverson said Cliffs will not rule out
idling Bloom Lake if prices drop significantly and for an
extended period. On a call with analysts and investors,
Halverson also referred to "customer interest" in a partnership.
He said selling the asset is also a possibility.
    The comments came after Cliffs' fourth-quarter financial
results topped expectations, and the company published a letter
critical of activist fund Casablanca Capital, which said on
Wednesday it will launch a proxy campaign against Cliffs.    
    Bloom Lake was once seen by analysts as a key growth project
for Cliffs, but the mine's first phase has been plagued by
higher-than-expected costs, and Cliffs is no longer considering
building a second phase on its own. 
    Steelmakers frequently invest in mines to secure access to
iron ore, the primary raw material used to make steel, and some
operate their own mines.
    Major Chinese steelmaker Wuhan Iron & Steel Co 
already has a stake in Bloom Lake. On the call, P. Kelly
Tompkins, Cliffs' president, global commercial, said Wuhan
recently cut its investment to 17 percent from 25 percent, but
that they are still in "active dialogue" on the project.
    "With the inroads we've made in other Asian markets ... some
of these current and prospective customers could be potential
partners down the road," said Tompkins. "We've got a range of
things we'll look at."
    In an emailed statement, Casablanca said Cliffs changes have
not gone far enough.
    "In the meantime we are encouraged by the discussions we
have had with many fellow investors who support our efforts to
generate shareholder value," it said.
    Last month Casablanca, which owns about 5.2 percent of
Cliffs, urged the iron ore and coal miner to spin off its
international operations, form a master limited partnership from
its U.S. assets and double its dividend.
    On Wednesday, Casablanca said it was launching a proxy
campaign and backing Lourenco Goncalves, former chief executive
of Metals USA, to take over as chief executive. 
    Asked on Wednesday whether he would carry out Casablanca's
detailed proposals as chief executive, Goncalves told Reuters
the fund's plan offered "good alternatives, but they are
alternatives, they are possibilities." 
    Goncalves argued Cliffs should focus on supplying U.S.
steelmakers instead of selling into the competitive global iron
ore market, but said it was too early to discuss in detail what
he would do with Cliffs' international assets.
    Even so, Cliffs' Friday letter to shareholders focused on
Casablanca's January comments. If Cliffs was split up, it said,
both companies would be at risk of "negative rating actions."
    The Cleveland-based company said it has been studying the
possibility of forming a master limited partnership for several
months, but the structure is not usually used in volatile
    Master limited partnerships are investment vehicles that can
pass profit to investors in regular payouts before it is taxed,
popular in some industries with steady earnings such as the oil
pipeline sector.
    Cliffs also said Casablanca has failed to show that doubling
its dividend would not put operations at risk.
    The miner's shares rose after Thursday's earnings release,
and were up 4.7 percent at $22.93 on the New York Stock Exchange
on Friday. 

 (Reporting by Allison Martell; editing by Sofina Mirza-Reid)