Cleveland-Cliffs to buy Alpha Natural for $8.3 bln

By Euan Rocha

NEW YORK (Reuters) - Iron ore pellet maker Cleveland-Cliffs Inc (CLF.N: Quote, Profile, Research, Stock Buzz) on Wednesday said it agreed to acquire coal miner Alpha Natural Resources Inc (ANR.N: Quote, Profile, Research, Stock Buzz) for about $8.3 billion, expanding its coal assets and positioning itself to capitalize on the boom in the global steel industry.

Alpha mines vast amounts of metallurgical coal, which is used primarily to make coke, a key component in steelmaking. It also produces steam coal, used mainly by utilities as fuel for electricity generation.

The combined company, which would be named Cliffs Natural Resources, would be the largest North American producer of metallurgical coal, with more than 60 mines located across North America, South America and Australia, the companies said on Wednesday.

"This merger will make us the largest iron ore and metallurgical coal producer in the U.S., allowing us to meet the growing needs of global steel makers," Cleveland-Cliffs Chief Executive Officer Joseph Carrabba told Wall Street analysts on a conference call.

The combined company expects 2009 revenue of $10 billion and earnings before interest, taxes, depreciation and amortization (EBITDA) of $4.7 billion. On a stand-alone basis, analysts had forecast 2009 EBITDA for Cleveland-Cliffs and Alpha of $2.3 billion and $1.1 billion, respectively.

"This is a good strategic fit for Cleveland-Cliffs, as it gives them a stronger presence in the very tight metallurgical coal market and complements their iron ore business," said Brian Hicks, co-manager of U.S. Global Investors Inc's Global Resources Fund, which owns stock in both companies.

"Longer-term this consolidation may make Cliffs an even more attractive target for a steel producer looking to vertically integrate their operations."

Stockholders of Alpha, an Appalachian coal producer, would receive 0.95 Cleveland-Cliffs share and $22.23 cash for each of their shares.