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Cliff analysis paper

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(1) Describe and evaluate the company's business strategy. Do you think it is viable?

The opening of the first mine in the Upper Peninsula of Michigan ,Cliffs has remained in the

vanguard of the steelmaking industry, successfully adapting operations to major changes that

drove many competitors out of business.

While North American operations have long provided the core of their business, in 2008 Cliffs’

strategic efforts increased exposure to seaborne markets and the high global demand for

steelmaking raw materials.

• Diversifying into other end-markets and other steel-related minerals

• Expanding geographically into low-political-risk geographies

• Emphasizing cash-flow positive, profitable, commercial-stage businesses

• Evaluating opportunities in the early stage of development

The execution of this strategy has positioned Cliffs as a top ten global producer of iron ore,

and one of the fastest-growing companies in the S&P 500 Index.

They have three customers which individually account for more than 10 percent of its

consolidated product revenue. Total revenue from these customers represents approximately $1.6

billion, $1.1 billion, and $1.0 billion of total consolidated product revenue in 2008, 2007 and

2006, respectively, and is attributable to North American Iron Ore and North American Coal

business segments.

The Company is organized through a global commercial group responsible for sales and delivery

of Cliffs products and a global operations group responsible for the production of the minerals

the Company markets. Cliffs operates iron ore and coal mines in North America and two iron ore

mining complexes in Western Australia. In addition, Cliffs has a major chromite project, in the

pre-feasibility stage of development, located in Ontario, Canada.

Cliffs operates under a strong framework of Core Values globally. These core values include:

• Safe Production

• Group and Individual Accountability

• Customer Focus

• Integrity

• Creating Economic Value

• Teamwork

• Bias for Action

• Recognize and Reward Achievement

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• Trust, Respect and Open Communicaon

• Environmental Stewardship

The company evaluate segment performance based on sales margin, defined as revenues less

cost of goods sold identifiable to each segment. This measure of operating performance is an

effective measurement as it focus on reducing production costs throughout the Company.

(2). Why did the attempt to purchase the company in late 2008 fail?

The attempt to purchase the company in late 2008 failed of the definitive merger agreement with

Alpha Natural Resources, Inc., under which cliff would have acquired all outstanding shares of

Alpha.

The cliff’s Board of Directors and Alpha’s Board of Directors made the decision after

considering various issues, including the current macroeconomic environment, uncertainty in the

steel industry, shareholder dynamics, and the risks and costs of potential litigation. Considering

these issues, each board determined that termination of the merger agreement was in the best

interest of its equity holders.

Under the terms of the settlement agreement, the merger agreement terminated, Cliffs paid

Alpha $70 million, Alpha dismissed the Delaware litigation with prejudice and the parties

released each other from all obligations with respect to the proposed transaction as well as from

any claims arising out of or relating to the merger agreement.

(3.) How productive were the company's mines in 2008? What metrics are you using?

In Cliffs’ North American Iron Ore business segment, equity pellet production was 22.9 million

tons – up from the record 21.8 million tons posted last year. In Asia Pacific Iron Ore segment,

the planned maintenance shutdown of Portman’s processing plant and limited production from

our Cockatoo Island joint venture resulted in a decrease in output of approximately 700,000

tonnes to 7.7 million tonnes, from 8.4 million tones in the prior year. In North American Coal, it

produced 3.5 million tons versus 1.1 million tons in the final fi ve months of 2007. The Sonoma

Coal Project produced 2.4 million tonnes of coal in 2008, and is expected to increase that to 3-4

million tonnes in 2009. It continued to face challenges with its minority-owned Amapá Iron Ore

Project in Brazil, where ongoing construction and production delays restricted output to 1.2

million tonnes of iron ore concentrate in 2008.

In 2008, New economic reserve analyses were performed at Empire, Tilden, Hibbing and

Wabush. Each of the new reserve analyses incorporate updates to both iron ore pellet pricing and

operating costs. Changes in the reserve estimates are as follows:

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(1) Describe and evaluate the company's business strategy. Do you think it is viable? The opening of the first mine in the Upper Peninsula of Michigan ,Cliffs has remained in the vanguard of the steelmaking industry, successfully adapting operations to major changes that drove many competitors out of business.? ? While North American operations have long provided the core of their business, in 2008 Cliffs' strategic efforts increased exposure to seaborne markets and the high global demand for steelmaking raw materials.?? Diversifying into other end-markets and other steel-related minerals Expanding geographically into low-political-risk geographies Emphasizing cash-flow positive, profitable, commercial-stage businesses Evaluating opportunities in the early stage of development The execution of this strategy has positioned Cliffs as a top?ten global producer of iron ore, and?one of the fastest-growing companies in the S&P 500 Index. They have three customers which individually account for more than 10 percent of its consolidated product revenue. Total revenue from these customers represents approximately $1.6 billion, $1.1 billion, and $1.0 billion of total consolidated product revenue in 2008, 2007 and 2006, respectively, and is attributable to North American Iron Ore and North American Coal business segments. The Company is organized through a global commercial group responsible for sales and delivery of Cliffs products and a global operations group responsible for ...
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