Cliffs Natural Resources plans to use cash, credit facility to fund $757 million acquisition

By Jennifer Lanning Drey

Portland, Ore., July 6 - Cliffs Natural Resources Inc. plans to use cash on hand and its current credit facility to purchase privately owned INR Energy, LLC for $757 million, Laurie Brlas, Cliffs' chief financial officer, reported Tuesday during a company conference call held to discuss the transaction.

INR is a producer and exporter of high-voltage metallurgical and thermal coal.

The purchase price is indicative of a cash-free and debt-free balance sheet. It is subject to a working-capital and net-worth adjustment at closing, Brlas said.

When asked about the company's plans to repay its revolving credit facility after completing the acquisition, Brlas said Cliffs expects to have some free cash flow available for debt repayment.

"We could consider taking on some additional debt at some point in time, although that's not in the current plans in the immediate future," she said in response to a question posed following her formal remarks.

Brlas also noted that Cliffs is comfortable with its projected pro forma liquidity following completion of the transaction but would be unlikely to consider many additional acquisitions without adjusting its liquidity.

Cliffs expects the acquisition to immediately be accretive to cash flow generation and EBITDA.

"Upon completion of this acquisition, Cliffs will remain in a position of financial strength, maintaining impressive credit metrics and a strong balance sheet," the CFO said during her formal remarks.

Cliffs had $550.4 million of cash and cash equivalents and $725 million of long-term debt at March 31, according to its most recent earnings release.

The company had no borrowings on its $600 million revolving credit facility at March 31.

Meets long-term goals

The acquisition includes a metallurgical and thermal coal-mining complex with a coal preparation and processing facility in West Virginia. It includes a long-life reserve base with an estimated 68 million tons of metallurgical coal and 51 million tons of thermal coal, according to a news release.

As a result, the transaction marks an additional step in Cliffs' stated goal of expanding its presence in the metallurgical coal market, Joseph Carrabba, Cliff's chief executive officer, said during the call.

"INR's operations are in line with all of our long-term strategic growth objectives including increasing our product diversification, geographic presence and operating efficiency, in addition to meeting all of Cliffs' acquisition criteria," he said.

The transaction is expected to close within 60 days and is subject to customary closing conditions.

Cliffs, a Cleveland-based producer of iron ore pellets and supplier of metallurgical coal, will use the proceeds for general corporate purposes.

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