Update: Cliffs sidelines Cons. Thompson with own Wabush bid

Friday’s US$120-million bid by Consolidated Thompson Iron Mines (CLM-T) for a 100% interest in the Wabush Mines iron ore joint venture in Quebec and Labrador has quickly fizzled.

One of the JV owners, Cliffs Natural Resources (CLF-N) on Monday announced that it will exercise its right of first refusal and acquire U.S. Steel Canada’s 44.6% interest and ArcelorMittal (MT-N) subsidiary ArcelorMittal Dofasco’s 28.6% interest in the Wabush Mines joint venture, giving it a 100% interest.

The move also stymies Consolidated Thompson’s plans to become a bigger player in eastern Canada’s iron ore scene.

On Friday, Consolidated Thompson had locked up agreements with both U.S. Steel and ArcelorMittal to sell their stakes in the JV for a combined US$88 million in cash, and had only been waiting for a response from Cliffs whether or not it would exercise its right of first refusal.

Cliffs now expects its own buy-out to close before year’s end.

Cliffs notes that, with Wabush Mines’ 5.5 million tonnes of rated capacity, the acquisition of the remaining 73.2% interest will boost its North American iron ore rated equity production capacity by about 4.0 million tonnes.

The company adds that it has been the JV’s operator since it opened in 1965, and so is “thoroughly familiar with the unique attributes, opportunities and challenges” of Wabush Mines’ assets, including the ore body and transportation system.

“Cliffs is enthusiastic about the opportunity to own 100% of Wabush Mines,” said Donald J. Gallagher, Cliffs’ president of North American business, in a statement. “Our commercial team has had great success marketing the blast furnace pellets produced there to a diverse customer set, including steelmakers in North America, Europe and Asia. Wabush also has an excellent operating team that understands how to run mines and a dedicated and skilled workforce.”

Cliffs has about 770 employees at Wabush Mines and the hourly workforce is represented by United Steelworkers.

At Dec. 31, 2008, Wabush Mines had 75 million tonnes of proven reserves (iron ore pellet equivalent) and over the previous five years has produced between 3.8 million and 5.2 million tonnes of iron ore pellets annually. It produced 4.2 million tonnes of pellets in 2008.

The Wabush Mines JV’s assets include the Scully iron ore mine near the city of Wabush in Labrador, a pellet plant and port facilities at Point Noire, Que., integrated rail facilities and an equity position in an electricity generation utility in Labrador that powers its mining operations.

The iron ore assets are in the same region where Consolidated Thompson is developing its substantial Bloom Lake iron ore deposit.

On Monday in New York trading, Cliffs stock nudged up only US$0.35 to US$35.89 on the news it would buy out its JV partners, while in mid-day trading on Tuesday in Toronto (Monday was a trading holiday north of the border), Consolidated Thompson’s shares had fallen C$0.47, or 8%, to C$5.39.