TORONTO (miningweekly.com) – US iron-ore and coal miner Cliffs Natural Resources on Friday said that activist shareholder, hedge fund Casablanca Capital, had rejected a proactive settlement offer.

Casablanca said that it planned to continue its effort to seek full control of Cliffs’ board and to replace Cliffs’ recently installed CEO Gary Halverson through a proxy contest.

Cliffs said that in an attempt to avoid a costly and distracting proxy contest, it had attempted in good faith to reach a settlement that it believed would be in the best interest of all Cliffs shareholders.

Cliffs charged that Casablanca had requested that Cliffs postpone the record date for its annual meeting of shareholders. In order to accommodate this request and to continue negotiations about a potential settlement, Cliffs said that it had decided to indefinitely postpone the record date for its annual meeting, originally scheduled for May 13.

However, Casablanca later in the day issued a statement, condemning Cliffs for indefinitely postponing its annual meeting.

"The board that owns virtually no shares and has presided over an 80% value destruction is in our view showing its true colours by indefinitely postponing a shareholder vote and falsely suggesting that the delay was advocated by Casablanca. We look forward to engaging in a substantive dialogue with other Cliffs shareholders," the investment advisor said in a statement.

Further still, Cliffs again hit back late on Friday, clarifying that its chairperson James Kirsch had a telephonic conversation with Casablanca chairperson Donald Drapkin and CEO Douglas Taylor, during which Drapkin made the suggestion that Cliffs postpone the record date for Cliffs’ annual meeting of shareholders. 

"In accordance with this conversation, Cliffs’ board agreed to accommodate this request in order to continue to pursue a potential settlement. Cliffs’ board and management team stand by its decision to postpone the record date and is ready to engage with Casablanca," the company said.

Cliffs said that it had offered to allow Casablanca to appoint two new independent directors to its board and a third mutually agreed upon director to be named at a later date.

Cliffs maintained that Casablanca’s representation was “entirely disproportionate” to its recently acquired stake in the company and that it did not offer Cliffs’ shareholders a control premium.

“We are disappointed that Casablanca seems intent on waging a public campaign rather than continuing its private engagement with Cliffs’ board and management team to address the company’s concerns relating to Casablanca's proposal to, among other things, break up the company."

JP Morgan and Bank of America Merrill Lynch were acting as financial advisers to Cliffs and Wachtell, Lipton, Rosen & Katz and Jones Day were acting as legal counsel.

COMPANY BREAK-UP?

New York-based investment fund manager Casablanca in January urged Cliffs to spin out its international assets and double its dividend.

Casablanca manages funds that own about 5.2% of the outstanding common stock of Cliffs, making it one of the company’s largest shareholders.

In an open letter to Cliffs, the fund manager advocated that Cliffs spin off its Bloom Lake iron-ore mine, in Quebec, together with Asia Pacific, to create ‘Cliffs International’.

Cliffs operates two distinct iron-ore businesses with very different risk/reward profiles. The Cliffs International assets are directly exposed to the competitive ‘seaborne’ iron-ore market, and the large Bloom Lake project is still in the development stage.

In contrast, the ‘Cliffs USA’ iron-ore assets benefit from unique supply and demand characteristics and barriers to entry in the Great Lakes, generate strong cash flow and enjoy long-term contracts, which provide volume and price visibility.

The activist shareholder also urged the board to double the dividend, which would be paid by Cliffs USA going forward; convert the US assets to a master limited partnership; significantly cut selling, general and administrative expenses and exploration expenses; optimise cash costs and operating profitability; divest infrastructure and other noncore assets; set clear objectives for return on capital; and hire strategic and financial advisers to assist in evaluating and executing these measures.

Casablanca said it believed that implementing these recommendations would create substantial shareholder value and result in an implied valuation range with a midpoint of $53 per Cliffs share - over 2.5 times Cliffs’ most recent trading price.

It said Cliffs had significantly underperformed both its peer group and the broader market in recent years. For most of 2013, the company held the title of "biggest loser" in the S&P 500, finishing the year in the number two spot, and remained one of the most shorted equities in the index.

Cliffs’ stock price has lost more than 80% in value since its five-year high of $101.43 in mid-2011.