TORONTO (miningweekly.com) – An activist New York-based investment fund manager on Tuesday urged US-focused iron-ore miner Cliffs Natural Resources to spin out its international assets and double its dividend.

Casablanca Capital 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 said it had met with the company twice over the past six weeks, advocating Cliffs to 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 expense; 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 time 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.

“Cliffs USA would have significant growth and capital-return opportunities. Its US iron-ore assets are ideally positioned to participate in the recovery of the US automotive and construction sectors, the high-quality pellets it produces are well suited for the emerging direct reduced iron manufacturing process, and the company’s North American coal assets continue to show signs of recovery,” Casablanca said.

Cliffs retorted in a statement, confirming that it had held “productive preliminary conversations with Casablanca Capital” and was looking forward to “continuing the dialogue to better understand their assumptions, projections and overall views”.

Cliffs said that, as it focused on executing its strategy to improve its financial and operating performance, the company was open to constructive dialogue with all shareholders. “As a result, Cliffs will continue to review and consider ideas that may create additional value,” the company said.

It had appointed JP Morgan to act as financial adviser to the company and Wachtell, Lipton, Rosen & Katz to act as legal counsel.

According to Cliffs, its yearly dividends had dropped 72% from $2.16 in 2012, to $0.60 a share in 2013.

Cliffs’ NYSE-listed shares closed up 2.11% at $19.81 a share, having traded as high as $21.90 apiece in early morning deals.