Cleveland-Cliffs Plans to Take Control of Portman After Buyback

June 19, 2008

June 20th (Bloomberg) – Cleveland-Cliffs Inc., North America’s largest iron-ore producer, plans to take full control of its Portman Ltd. unit in Australia after a share buyback boosts its stake in the business to 89 percent.

Buying out the remaining 11 percent of Portman, Australia’s third-largest iron-ore producer, would cost “several hundred million” dollars and could be financed this year, Chief Executive Officer Joseph Carrabba and Chief Financial Officer Laurie Brlas said yesterday in an interview at the company’s headquarters in Cleveland.

Portman, with a market value of A$3.03 billion ($2.88 billion), trails only Rio Tinto Group and BHP Billiton Ltd. in iron-ore output in Australia and ships about 8 million tons a year. The company last month offered to buy back as many as 16.5 million shares, or 9.4 percent of the stock, which would raise Cliffs’ stake in the remaining shares to 89 percent from 80 percent.

“If all the shares are tendered that are authorized, the pie shrinks and by default our ownership moves up to 89 percent,” Brlas said. “It isn’t in anyone’s best interest for that 11 percent to be indefinitely out there traded,” she said.

Iron-ore prices have gained by a record amount this year. Cia. Vale do Rio Doce is charging Asian steelmakers about 65 percent more, and BHP and Rio are seeking to boost prices by even more. Cliffs said it expects to know the results of the Portman share repurchase by July 2.

Portman fell 44 cents, or 2.5 percent, to A$17.26 in Australian Stock Exchange trading today and has gained 64 percent this year. Cliffs rose 24 cents to $105.74 as of 12:17 p.m. on the New York Stock Exchange. The shares have more than doubled this year.

Time Frame

Carrabba and Brlas didn’t give a precise time frame for when they would buy the remaining stake.

Cliffs said it paid about $500 million, including debt, in 2005 to boost its stake in Portman to about 80 percent, short of the 90 percent threshold that would have allowed it to compulsorily buy the whole company.

“There are scenarios that this year we would have the cash to easily finance it,” Brlas said of the stake. “Obviously, we want to be cautious there isn’t a shareholder who decides to hold us hostage if we say, `At any cost we’re going to finish this.”’

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