Cliffs, Casablanca agree to postpone AGM, discuss possible settlement

Hedge fund Casablanca Capital, which owns 5.2% of Cliffs Natural Resources, says the iron ore miner’s board is ignoring suggestions that could improve shareholder value.

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Activist shareholder Casablanca Capital has rejected a proposed settlement with its target, Cliffs Natural Resources, Cliffs reported. Nevertheless, discussions between the two parties are apparently continuing.

“…In an attempt to avoid a costly and distracting proxy contest, the company has attempted in good faith to reach a settlement with Casablanca Capital that it believes would be in the best interest of all Cliffs shareholders,” said Cliffs.

In a March 6th letter, to James Kirsch, executive chairman of Cliffs Natural Resources, Casablanca’s chairman, Don Drapkin, CEO Douglas Taylor, and partner and portfolio manager, Gregory Donat, said they intend “to nominate six highly-qualified candidates for election to the Cliffs Natural Resources Inc. Board of Directors at the company’s annual meeting scheduled for May 13, 2014.

Casablanca contends that the majority of Cliffs’ current board of directors “presided over an 80% decline in value” for Cliffs.

The hedge fund is upset that the critical Phase II expansion project for Bloom Lake is now indefinitely suspended after $6.5 billion has been spent to date and that Cliffs reported a $14 million operating loss last year. Cliffs operates iron ore and coal mines in North America and an iron ore mining complex in Western Australia.

“The Bloom Lake acquisition is part of a broader $9 billion value-destroying diversification strategy for which members of the board are responsible,” Casablanca asserted. The hedge fund noted that Cliffs Far North Chromite project, in which $500 million was invested was suspended in the second-quarter 2013; the $500 million Amapa iron ore project was divested for a “nominal amount in 3Q 2013”; and the $285 million Wabush iron ore operation was idled in the first quarter of this year.

Casablanca said it is committed “to fixing Cliffs and restoring value” including proposing a “new strategy for Cliffs centered on its core U.S. business.”

See also: Cliffs shareholder Casablanca seeks foreign asset spin-off

The hedge fund also wants to appoint Lourenco Goncalves as Cliffs’ CEO, replacing current CEO Guy Halverson. The former CEO of Metals USA, Goncalves sold the company to Reliance Steel & Aluminum in April 2013.

Casablanca accused Cliffs of rushing Halverson into the CEO position “after months of failing to appoint a CEO.” However, Casablanca contends, “Mr. Halverson has no experience in leading a public company or in ferrous metals.”

Casablanca’s proposed slate of directors include former Goldman Sachs Managing Director Rip Fisher, Stillwater Mining Director Patrice Merrin, former Nucor Executive Vice President Joseph Rutkowski, former Vale CFO Gabriel Stoliar and Douglas Taylor.

The hedge fund wants Cliffs to refocus on its “core U.S. operations, cement customer relationships, position itself to capitalize on domestic growth opportunities, accelerate cost cuts and return additional capital to shareholders,” Casablanca is seeking the immediate divestiture of Cliffs’ Asia Pacific assets.

After a conversation involving Kirsch, Drapkin and Taylor, Cliffs said it has agreed to postpone its annual meeting of shareholders, originally scheduled to be held on May 13, 2014. “In accordance with this conversation, Cliffs’ board agreed to accommodate this request in order to pursue a potential settlement,” said Cliffs.

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