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Company Prefers to Sell Assets Rather Than Separate Into Two Firms
Cliffs Natural Resources Inc. CLF +1.19% ‘s new chief executive wants to sell less-profitable mining assets at the right price rather than separate into two firms.
“I’ve made it clear, I don’t support splitting up the company,” said Lourenco Goncalves, a steel industry executive recently installed as chairman and chief executive following a boardroom coup orchestrated by hedge fund Casablanca Capital LLC.
One option floated by the fund had been to divide Cleveland-based Cliffs, the U.S.’s largest iron-ore miner, and refocus the company around its most profitable business segment: five iron-ore mines in Minnesota and Michigan. Anglo-Australian miner BHP Billiton BHP.AU -0.08% and Canton, Ohio’s steel and steel parts maker Timken Co. TKR +0.40% recently carried out similar restructurings.
Iron ore is the main ingredient in the making of steel, and Cliffs’s U.S. mines have benefited from the resurgence of the Detroit auto industry, drill-pipe demand for natural-gas wells and a geographical advantage over iron-ore superpowers Brazil and Australia.
Other Cliffs assets, such as coal mines in the U.S., iron-ore assets in Australia and Canada and a suspended chromite project in Canada, have been less profitable. Cliffs, one of the worst performers on the S&P 500 index in the past two years, has been hurt by declining iron-ore prices, which have fallen 20% in the past year, mostly because of oversupply. Cliffs reported a $1.9 million loss in the second quarter, compared with a $133.1 million profit a year earlier. Revenue dropped 26%.
Mr. Goncalves said he would treat those less-profitable assets as noncore and seek to turn them around while entertaining offers to sell.
“If somebody offered me a train of money for the U.S. iron-ore assets, I would not sell, because that is core” he said in an interview. “But if an asset is noncore and you want to monetize the asset by selling, we’d sell for the best bid as long as the best bid meets the criteria for what we think the asset is worth.” The first priority would be to make all divisions profitable, he said.
Casablanca declined to comment.
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