TORONTO (miningweekly.com) - Cleveland-based Cliffs Natural Resources has agreed to buy Canadian iron-ore producer Consolidated Thompson Iron Mines for C$4,9-billion, including net debt, or C$17,25 a share.

Consolidated Thompson's flagship mine is its Bloom Lake operation in Quebec, from which it shipped the first iron-ore concentrate to China in July, and which is ramping up to an initial eight-million tons a year. The company plans to boost output at the operation to 16-million tons a year.

Cliffs is looking to increase its exposure to rising iron-ore prices and growing demand for the steelmaking ingredient in Asia.

China's Wuhan Iron & Steel (Wisco), which owns a 19,9% stake in Consolidated Thompson and a 25% holding in the Bloom Lake asset, has entered into agreements to back the Cliffs offer, the companies said on Tuesday. Consolidated Thompson directors, senior officers and other insiders have also agreed to vote in favour of the deal.

The C$17,25 a share offer is 29% higher than Consolidated Thompson's closing price on Tuesday of C$13,38 a share.

"The acquisition of Consolidated Thompson will combine a low-operating risk profile with access to high-growth global markets and broaden our exposure to seaborne iron ore prices," Cliffs CEO Joseph Carrabba said in a statement.

Cliffs operates coal and iron-ore mines in the US and Australia, has iron-ore mines in Canada and also owns a 30% stake in the Amapa iron-ore project, in Brazil. The company bought chromite assets in Canada's Ring of Fire last year, when it acquired Freewest Resources Canada and bought control of another junior, Spider Resources.

The group also exercised a right of first refusal on stakes held by its joint venture partners, US Steel Canada and ArcelorMittal Dofasco, in a joint venture that owned the Wabush Mines iron-ore operations in eastern Canada.

The Bloom Lake mine is located about 30 km from Cliffs' existing operations at Wabush, a 5,6-million-ton iron-ore pellet operation with integrated rail and port infrastructure that Consolidated Thompson currently uses for Bloom Lake.

Cliffs could potentially use its facilities to further process concentrates from Bloom Lake into pellets, and the companies see opportunities to blend production from Wabush and Bloom Lake to maximise the product being shipped to Asia, CFO Laurie Brlas said on a conference call on Tuesday evening.

The high quality of the Bloom Lake ore means that customers are prepared to pay a premium over the benchmark industry prices.

The offer requires approval by shareholders representing two-thirds of Consolidated Thompson shares and is expected to close early in the second quarter 2011, Cliffs said.

Besides its holdings in Consolidated Thompson and Bloom Lake, Wisco also has offtake rights on up to 60% of the iron-ore produced over the life of the Bloom Lake operation, at market prices.

The Chinese firm will sell its shares in Consolidated Thompson but will retain its 25% in the asset itself and fund its share of any expansions, Brlas said.

Cliffs is hopeful that it can develop the relationship with Wisco into a broader strategic partnership, Carrabba said.

Tuesday's announcement comes amid a bidding war for another Canadian iron-ore asset - Baffinland Iron Mines and its Mary River project in Nunavut.