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Hedge fund claims victory in Cliffs Natural Resources board vote

Cliffs Natural Resources is operator and partial owner of the Hibbing Taconite mine in Hibbing. (2009 file / News Tribune)

CLEVELAND — Casablanca Capital triumphed on Tuesday in its proxy battle with Cliffs Natural Resources Inc., preliminary estimates show, putting the hedge fund in a position to replace Cliffs’ chief executive and sell off underperforming assets.

Shareholders of Cleveland-based Cliffs voted onto the company’s board all six nominees put forward by Casablanca, the New York-based fund said, citing estimates from its proxy solicitor. That means they will make up a majority of the 11-person board.

Cliffs CEO Gary Halverson said at the company’s well-attended annual meeting in Cleveland that because of the contested nature of the elections, the results would be announced in the next three business days.

Shares in Cliffs, a producer of iron ore and metallurgical coal, jumped as much as 10.4 percent to $18.33 on the New York Stock Exchange.

Cliffs is a major player in Minnesota’s taconite iron ore business and among the largest employers in Northeastern Minnesota. The company owns United Taconite in Eveleth and NorthShore Mining in Silver Bay and Babbitt, and is part owner and operates Hibbing Taconite. It also owns and operates the Tilden-Empire operations in Michigan’s Upper Peninsula along with iron ore mines in Canada and Australia and several coal mines in the U.S. and abroad.

The vote outcome “is a culmination of years of frustration on behalf of shareholders,” said Garrett Nelson, a mining research analyst at BB&T Capital Markets.

Casablanca began a proxy fight in March against Cliffs, of which it owns 5.2 percent, accusing the company of destroying shareholder value through an ill-conceived expansion strategy. In the face of pressure from the hedge fund, Cliffs has cut costs and spending in recent months by closing its Wabush mine in Canada and scuttling plans to expand its Bloom Lake mine in Quebec.

Cliffs shares have fallen about 85 percent in the past three years, at a time when iron ore and coal prices have plunged.

The vote by Cliffs shareholders has “sent a resounding message of support for our efforts to drive meaningful change at Cliffs, bring true accountability to the company’s leadership, and restore shareholder value,” Casablanca Chairman Donald Drapkin said in a statement.

Casablanca has said it wants to replace Cliffs’ CEO with its preferred candidate, Lourenco Goncalves, a former CEO of Metals USA.

Other than naming a new CEO immediately, Casablanca will probably pursue the sale of three of Cliffs’ four operating segments: its Asia-Pacific iron ore business, its Eastern Canadian iron ore operations and its North American coal unit,

said Nelson, the mining research analyst.

In recent weeks, Cliffs has made a series of concessions to Casablanca, cutting down its slate of director nominees so that at least four of Casablanca’s candidates were likely to win seats, and promising to elect a new chairman after the annual meeting.

Casablanca called these moves “a desperate attempt to resist change.”

Cliffs has been critical of Casablanca’s CEO candidate, arguing that he does not have enough experience.

To be sure, three proxy advisory firms — Glass Lewis, Institutional Shareholder Services and Egan-Jones — had recommended that Cliffs retain a majority of the board, Cliffs said last week.

The six Casablanca nominees put forward for the board were: Goncalves, Robert Fisher, Joseph Rutkowski, James Sawyer, Gabriel Stoliar and Douglas Taylor, Casablanca’s CEO.

News Tribune staff writer Brady Slater contributed to this report.