Cliffs Natural Resources to be one of America’s largest

Cleveland-Cliffs and Alpha Natural Resources have approved a definitive merger agreement under which Cleveland-Cliffs will acquire all outstanding shares of Alpha in a cash and stock transaction valued at approximately $10 billion. The combined company, which will be renamed Cliffs Natural Resources, will become one of the largest US mining companies and be positioned as a leading diversified mining and natural resources company. Its mine portfolio will include nine iron ore facilities and more than 60 coal mines located across North America, South America and Australia. The company’s significant position in both iron ore and metallurgical coal will make it a major supplier to the global steel industry, as well as provide a platform for further diversification both geographically and in terms of the mineral and resource products it sells. Upon the transaction’s close, Cliffs Natural Resources would have estimated combined pro forma 2008 revenue of nearly $6.5 billion and EBITDA of $1.9 billion. The company’s estimated 2009 revenue would reach $10 billion with estimated EBITDA of $4.7 billion.

Joseph A. Carrabba, Cleveland-Cliffs’ Chairman, President and CEO, said, “Today’s announcement represents a significant strategic milestone for both companies. Cliffs Natural Resources will be positioned as a diversified natural resources company with significant holdings in a variety of important minerals. By combining our companies’ complementary operations and management capabilities, we will be well positioned to meet the world’s increasing demand for raw materials. Since its inception in 2002, Alpha has been highly respected for its industry leading expertise around both the operation and acquisition/integration of coal properties, and we are confident our two management teams and more than 8,900 employees will achieve great things together.”  

Michael J. Quillen, Alpha’s Chairman and CEO, said, “Together, Alpha and Cleveland-Cliffs will have the size, the management depth and the mining expertise to compete on the global stage as demand for raw materials continues to increase around the world. This transaction is financially compelling for Alpha’s stockholders, who will benefit from enhanced value today alongside growth opportunities in the future.  We look forward to working together with Joe Carrabba and the Cleveland-Cliffs management team to realize the substantial opportunities that this combination presents.”  

The combined company’s enhanced size and scale will enable it to efficiently offer a broad portfolio of various iron ore and metallurgical coal types to meet the growing needs of world steel producers. Cliffs Natural Resources will have a reserve base of approximately 1,000 Mt each of iron ore and metallurgical and thermal coal. The company anticipates having an annual sales volume in excess of 30 Mt of iron ore and some 16 Mt of metallurgical coal, making it one of the largest suppliers to the world’s steel industry.  

The combined company will have a more diverse revenue stream and will be well-positioned to continue its aggressive growth.  In addition to leading positions in iron ore and metallurgical coal, the company will also ship approximately 15 Mt of thermal coal.

The combined company is expected to have a strong credit profile. Year-end 2008 pro forma leverage is expected to be 1.2 x EBITDA. The company expects to generate substantial free cash flow, enabling significant debt reduction and supporting future growth. In 2009, the transaction is expected to be accretive to current analyst expectations for Cleveland-Cliffs.  

Cliffs Natural Resources expects to realise annual synergies of at least $200 million beginning in 2010, with the majority being achieved through enhanced coal processing and blending efficiencies along with elimination of duplicative administrative expenses associated with two public companies.  

Under the terms of the transaction, Cleveland-Cliffs will acquire all of the outstanding common shares of Alpha Natural Resources for aggregate consideration of approximately $10 billion.  For each share of Alpha common stock, Alpha stockholders would receive 0.95 Cleveland-Cliffs common shares and $22.23 in cash.   The aggregate consideration comprises $1.7 billion in cash and approximately 71 million new shares of Cleveland-Cliffs common stock. JPMorgan Chase Bank, N.A. is providing an underwriting commitment for up to $1.9 billion which will be used to finance the transaction. The combined company expects to generate strong operating cash flow which it will use to pay down debt.  Upon completion of the transaction, Alpha stockholders would own approximately 40% of the combined company and Cleveland-Cliffs shareholders would own approximately 60%.  

Following the close of the transaction, Cleveland-Cliffs’ Board of Directors will be expanded by two seats to be filled by two current Alpha Natural Resources directors, Michael Quillen and Glenn Eisenberg.  Joseph Carrabba will serve as Chairman and CEO of the combined company, and Michael Quillen will serve as non-executive Vice Chairman.   Cliffs Natural Resources will have two operating divisions-Iron Ore and Coal. Kevin Crutchfield, currently president of Alpha Natural Resources, will become President of the combined company’s coal businesses.  Donald Gallagher, currently Cleveland-Cliffs’ President, North American Business Unit, will become president of the combined company’s iron ore businesses.  Cleveland-Cliffs’ executive Vice President and CFO, Laurie Brlas, will remain chief financial officer of the combined company.   Cliffs Natural Resources’ world headquarters will be located in Cleveland. The iron ore business will operate from Cleveland and the coal business from Abingdon, Virginia.