The fifth biggest iron ore business in Australia is in limbo today, after an apparent boardroom coup saw a hedge fund take control of American company Cliffs Natural Resources this morning.
Cliffs has been struggling to remain profitable in recent times as prices for its two main products, iron ore and coal, have slumped, and the austere conditions. That has prompted some shareholders to campaign for a change of control and a break-up of the assets.
Activist hedge fund Casablanca Capital has led that campaign, and claimed overnight that it had taken control of the Cliffs board at a meeting of the miners’ shareholders over night.
The official results of the vote have not been published, but Casablanca said six of its representatives had been voted onto the 11 member board of Cliffs.
Casablanca has long urged the Cleveland-based Cliffs to raise its dividend and sell foreign assets, which could mean its Australian iron ore assets will soon be put in the shop window.
Cliffs mines about 11 million tonnes of iron ore per year across three deposits near Koolyanobbing in Western Australia, and Credit Suisse analyst Nathan Littlewood said those assets were among those likely to be sold.
The business, which exports through Esperance on the south coast of WA, is profitable, having made $242 million in the 2013 calendar year, according to ASIC records.
The Koolyanobbing operations rank fifth behind Rio Tinto, BHP Billiton, Fortescue Metals Group and Arrium Limited on the list of Australia’s biggest iron ore exporters.
The production levels are marginally higher than Atlas Iron, which exported 10.9 million tonnes during the 2014 financial year.
But the assets, which were once owned by BHP, may be past their best with Cliffs previously suggesting that iron grades were declining while increasing amounts of waste ore were needing to be moved.
Cliffs recently reported the local assets as having production costs of about $US53 per tonne during the June quarter, which is more expensive than the $A49 to $A52 per tonne range that Atlas reported for the same quarter, and the $A34.03 per tonne production cost that Fortescue reported.
The Koolyanobbing assets are unlikely to be of interest to BHP, Rio or Fortescue, but could be a way for smaller miners to increase their export volumes without having to spend big on railways.
In a note to clients, Mr Littlewood suggested that ASX listed companies like Mineral Resources or Cazaly Resources could be a good fit.
‘‘It is not the sort of asset that strategic or Chinese SOE buyers generally get involved in,’’ he said, in reference to the relatively short mine life, which stands at 6 years.
‘‘A more likely buyer, in our view, would be a nearby corporate that sees some value in Cliffs’ infrastructure footprint.’’
Mr Littlewood said Casablanca would try to sell the Australian assets for between $US1 billion and $US1.5 billion, but the market value was possibly closer to a range between $US400 million and $US200 million.
He said a sale in the March quarter of 2015 could be the best time to divest the assets, because of seasonal factors in the Chinese steel industry.
The benchmark iron ore price was $US95.30 per tonne this morning.
Source: The Sydney Morning Herlad
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