UPDATE 1-Cliffs eyes Bloom Lake partner as activist battle heats up
(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. CLIFFS STRIKES BACK 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 industries. 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)
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