Cliffs Stock Ignores Pending Secondary Offering Entirely (CLF)

How many companies can announce that they are raising cash and see shares rise or even remain flat going into the pricing of the offering?  Not many, but don’t tell that to Cliffs Natural Resources Inc. (NYSE: CLF).  The company is likely to price some 9,000,000 shares of common stock tonight or tomorrow in a secondary stock offering.

Usually stocks tend to sell off into secondary offerings.  Shares were up 0.1% at $86.94 earlier today and the shares were down only 0.1% at $86.75 with an hour until the close.  If the deal priced right here now, that 9 million shares would translate to gross proceeds of about $782 million.  If the full over-allotment option to purchase an additional 1,350,000 common shares gets exercised at-market today, the tally would be a hair shy of $900 million.

The shares are being sold by the company and the proceeds were listed as being “to pay repay borrowings under the company’s previously announced bridge credit facility.”  It turns out that this credit facility was tapped to help pay for its recent acquisition of Consolidated Thompson Iron Mines Limited.

If any proceeds are remaining, the funds are earmarked for the “general corporate purposes” use.  The underwriting group’s book-runners are J.P. Morgan Securities, BofA Merrill Lynch, and Citigroup Global.

Iron ore pellets, lump and fines iron ore, and metallurgical coal products must be holding up just fine.  Cliffs did previously close its acquisition of Consolidated Thompson back on May 12, 2011. The company forecast that its production ramp-up at Bloom Lake Mine is progressing as planned and the operation is anticipated to reach an 8 million ton annualized production rate by the end of 2011.

With shares at $86.75, the 52-week trading range is $44.20 to $102.48 and the market cap is $11.7 billion.  Maybe the consensus price target of about $124.00 per share is why shares have not sold off on the secondary offering.

Some stocks fall by a higher percentage than the actual implied dilution of an offering.  Some stocks fall a fraction of the implied dilution.  Then there is Cliffs where the offering seems to have already been factored in.

The full preliminary prospectus is here.

JON C. OGG