Casablanca Capital Wins Battle for Cliffs Natural Resources

Casablanca Capital Wins Battle for Cliffs Natural Resources

Major iron and coal miner Cliffs Natural Resources (NYSE:CLF) and Casablanca Capital, which owns about 5.2 percent of Cliffs, have been locked in battle over Cliffs’ future for the better part of this year. 

The companies have sent a steady stream of open letters back and forth during that time, but the crux of the matter is fairly simple: so-called activist investor Casablanca wants Ohio-based Cliffs to spin off its international assets, rather than pursue the more stringent cost-cutting measures Cliffs favors.

Why? Explaining its stance in a January letter to Cliffs, Casablanca said that Cliffs’ Asia Pacific assets are “directly exposed to the competitive ‘seaborne’ iron ore market, and the large Bloom Lake project is still in the development stage,” while the company’s US iron ore assets “benefit from unique supply and demand characteristics and barriers to entry in the Great Lakes, generate strong cash flow and enjoy long-term contracts, which provide volume and price visibility.”

Casablanca’s plans may sound extreme, but yesterday’s vote on the issue at Cliffs’ annual general meeting proves that the company’s shareholders are alright with them — they voted all six of Casablanca’s nominees —a majority — onto Cliffs’ board of directors. They’ll begin their terms immediately, subject to the certification of final results by an independent elections inspector.

Casablanca is of course pleased with that result. Lourenco Goncalves, one of the nominees elected to Cliffs’ board, said in a press release, “[t]he conclusion of this proxy contest marks not an end but a beginning. We look forward to working collaboratively with the continuing members of Cliffs’ Board and the Company’s hardworking, dedicated and talented employees to set Cliffs on a course to improve performance and restore shareholder value. Cliffs has tremendous inherent value and we are confident there is much we can and will do to refocus Cliffs and steer it in a new strategic direction.”

No word yet as to what Cliffs thinks.

There’s also been little news of what Casablanca will do now that its board members have been elected, though Douglas Taylor, co-founder of Casablanca, has said that installing Goncalves as CEO will be its first step.

That said, there’s been plenty of talk amongst market participants about what Casablanca’s victory means for the company. Already, some analysts have expressed doubt about Cliffs’ new leadership — The Wall Street Journal quotes Dan Rohr of Morningstar as saying, “[g]eology and China are going to do a lot more to determine this company’s fate than any actions taken by Casablanca’s slate,” while Charles Bradford of Bradford Research noted, “[i]t’s unclear who would want to buy what they’d be selling.”

Casablanca’s success is also being looked at in terms of its context in the market. For instance, The Wall Street Journal states that the fact that Casablanca’s campaign even went to a vote is unusual as “[i]t is rare for activists to seek control of a board and has become rare for a campaign to actually go to a vote.” Indeed, only 19.5 percent of proxy fights have gone to vote in 2014, down from 34.5 percent from 2008 to 2013. Certainly one situation does not a trend make, but it will be interesting to see whether such battles become more common — one playing out right now is between Chaparral Gold (TSX:CHL) and Waterton Precious Metals Fund II Cayman.

Shares of Cliffs jumped as high as $18.14 after yesterday’s announcement, having started the day at about $16.85. Currently they’re selling for $17.24.


Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article. 

Related reading: 

Cliffs Natural Resources Faces Off Against Casablanca

Are Large Shareholders a Burden for Junior Miners?

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