Added by Gary Dunn on January 15, 2011
The diversification strategy of Cliffs Natural Resources got a boost after it paid more than $4 billion to successfully purchase Canada’s Consolidated Thompson. The US based mining company has been trying to diversify into Asian markets.
Currently, it sells bulk of its North American production inside the country itself. This makes it susceptible to domestic influences, a problem which its competitors do not face.
Asian demand here is a very important factor because rapidly urbanizing countries like China and India have high demand for steel for infrastructure development, construction and other industries. This, according to Raymond James, analyst at Adam Low, is the biggest advantage that Cliffs Natural Resources will enjoy after the purchase.
Canada’s Consolidated Thompson has off-take agreements with 3 Asian buyers. These buyers take up bulk of its 8 million tone production. The deal will automatically help the buyer get a toehold in the market that supplies iron ore to the Asian giants.
The buyer intends to expand the Bloom Lake mine and extract 16 million tons per year by 2012 end. The mine has been into production since 2010. This will help the buyer get good prices as Asian demand has remained firm despite the recession that the world faced.