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Cliffs boosts its taconite holdings in Canada

Cliffs Natural Resources on Monday demonstrated its faith in the future of demand for taconite, perhaps a good sign for its operation in Silver Bay.

North America's largest producer of iron ore pellets announced plans to become the sole owner of the Wabush Mines, with operations in Newfoundland, Labrador and Quebec. Cliffs will pay about $88 million to buy out partners U.S. Steel Canada and ArcelorMittal Dofasco, which own 44.6 percent and 28.6 percent shares of Wabush, respectively. Cliffs already holds a 26.8 percent stake in Wabush.

Consolidated Thompson offered Friday to buy Wabush for $120 million and was poised to complete the acquisition, but Cliffs announced Monday it will exercise its right of first refusal, meaning it will complete the transaction under the same terms negotiated by Wabush.

Tony Robson, an analyst for BMO Capital Markets, views Cliffs' decision to buy Wabush as a sign of industry confidence.

"Especially since it's a relatively high-cost producer versus the Minnesota mines, you need a pretty positive price environment to make Wabush work," he said.

Peter Kakela, a professor at Michigan State University and a taconite industry expert, referred to Cliffs' announcement Monday as "a pretty strong statement."

Robson saw Cliffs' plans to purchase Wabush as "somewhat surprising," given its prior attempts to sell its stake in the Canadian mine operations.

Wabush Mines has a rated annual capacity of 5.5 million tons.

Kakela noted that while Wabush is the smallest Canadian taconite operation, it enjoys special access to the European market because of its location at the far eastern end of the St. Lawrence Seaway.

Cliffs has been a managing partner at Wabush since it began operating in 1965. Wabush employs about 770 people.

As of the end of 2008, Wabush had proven reserves sufficient to produce at least 75 million tons of pellets.

In Minnesota, Cliffs owns United Taconite Co., with operations in Forbes and Eveleth; and Northshore Mining Co., with operations in Silver Bay and Babbitt.

The company also manages and has an ownership stake in Hibbing Taconite Co.

Wabush Mines includes the Sully Iron Ore Mine near Wabush, Newfoundland, Labrador; the pellet plant and ore dock facilities at Point Noire, Quebec, plus related rail facilities. Wabush Mines also owns an equity position in a Newfoundland power plant that serves its mining operations. News of Cliffs' pending Wabush acquisition met with little reaction on Wall Street. The stock rose 35 cents or about 1 percent from its opening price to close Monday at $35.89 per share