Cliffs Sells Unit - Analyst Blog

Freewest Resources Canada Inc., a wholly owned subsidiary of Cliffs Natural Resources Inc. (CLF) entered into an agreement to sell its two mineral properties to Viking Gold Exploration Inc. VGC, subject to the approval of the TSX Venture Exchange and certain other closing conditions.

As per the agreement, Viking Gold would purchase 70% interest in a Verneuil property comprising 44 claims in Verneuil Township, in the Abitibi region of Quebec, and 100% of the Larose property including 16 claims in Moss Township in northwestern Ontario. Verneuil is subject to an existing 1% Net Smelter Royalty and Larose to a 3% Net Smelter Royalty.

The agreement calls for Viking Gold to issue 1,000,000 common shares from treasury and grant a Net Smelter Royalty of 0.5% on both properties to Freewest, in exchange for its interest in these properties.

Recently, Cliffs completed its acquisition of Consolidated Thompson Iron Mines Ltd. for C$4.9 billion ($4.95 billion). Consolidated Thompson shareholders, who will get 17.25 Canadian dollars ($17.92) per share, approved the acquisition at a special meeting in February 2011. Cliffs financed the transaction (including net debt) through committed financing, including a $1.25 billion term loan, $750 million in bridge financing and available cash on hand.

Last month, Cliffs posted record revenues and earnings for the first quarter of 2011. Net earnings of $423 million or $3.11 per share in the first quarter were 449%, above last year's $77 million or 57 cents. Earnings surpassed the Zacks Consensus Estimate of $2.25 per share.

Quarterly revenues came in at $1.2 billion, up 63% year over year. The increase was driven by certain factors, such as higher pricing in each of Cliffs' business segments and the favorable effect of Cliffs' previously disclosed negotiated settlement with ArcelorMittal (MT - Analyst Report).

The company anticipates global steel production to continue to grow in 2011, primarily driven by emerging economies such as China, India and Brazil.

Cliffs is a major global iron ore producer and a significant producer of high- and low-volatile metallurgical coal. Cliffs' strategy is to continually achieve greater scale and diversification in the mining industry by serving the world's largest and fastest growing steel markets.

Cliffs faces stiff competition from CONSOL Energy Inc. (CNX), Massey Energy Co. (MEE) and Peabody Energy Corp. (BTU).

We maintain our Neutral recommendation on Cliffs with a short-term Zacks #3 Rank (Hold) on the stock.