Dahlman Rose Comments On Cliffs Natural Resources Recent Acquisition

Cliffs Natural Resources CLF announced an all-cash offer of C $17.25 per share for Consolidated Thompson Iron Mines CLM, which represented a 29% premium from where the shares closed. Dahlman Rose likes the enhanced project pipeline the acquisition will give Cliffs and believe that $75 million in synergies is an achievable goal. Consolidated Thompson is ramping up its Bloom Lake project to 8 million tons of iron ore production on an annualized basis and an expansion project is underway which should take production to 16 million tons. This low-cost iron ore tonnage will be shipped to the seaborne market, where price realizations are typically higher than Cliffs North American price realizations. While management has indicated that this deal would be modestly accretive, Dahlman believes that it could add as much as $1.50 to EPS in 2012 and substantially more earnings power when the Bloom Lake project is ramped up to 16 million tons of annual iron ore production. Dahlman Rose also believes that management should be able to achieve the $75 million in synergies that it indicated are likely, and it is possible that this level of synergies may prove to be conservative. CLF is trading higher at $88.80