Slide 1: The Case for Change at Cliffs
THE CASE FOR CHANGE AT CLIFFS June 2014
Slide 2: Disclaimer
Disclaimer 1 This presentation with respect to Cliffs Natural Resources, Inc. ("Cliffs" or the "Company") is for general informational pur pos es only. It does not have regard to the specific investment objective, financial situation, suitability or particular need of any specific person who may rec
Slide 3: Table of Contents
2 Table of Contents I Executive Summary A The Casablanca Solution II Cliffs’ History of Failed Empire - Building III Deceptive Communications Mask Ongoing Problems IV Governance Concerns: Entrenchment and Disorganization A A History of Poor Board Oversight and Decision - making a Strategic Planning
Slide 4: Executive Summary
CASABLANCA CAPITAL | Executive Summary
Slide 5: How did Cliffs' Board waste $9 billion?
4 How d id Cliffs’ Board waste $9 billion?...
Slide 6: Cliffs has lost its focus
5 Cliffs has lost its focus… U.S. Iron Ore Eastern Canadian Iron Ore Asia Pacific Iron Ore North American Coal Development Projects U.S. Iron Ore 62% Asia Pacific Iron Ore 31% NA Coal 7% U.S. Iron Ore 13% Asia Pacific Iron Ore 9% NA Coal 15% Eastern Canadian Iron Ore 63% 2013 Segment EBITDA (a) 2013
Slide 7: ...and remains burdened by legacy problems
6 …and remains burdened by legacy problems
Slide 8: Shareholder value has plummeted by 85%
7 Shareholder value has plummeted by 85%… Note: Reflects closing price on June 20, 2014. $14.54 Jan 2011: Announced acquisition of Bloom Lake for $4.9 billion. Share price closed at $ 84.96 Jul 2011: Share price reached 5 - year high of $101.43 0.00 20.00 40.00 60.00 80.00 100.00 $120.00 1/1/11 7/31
Slide 9: Cliffs one of the worst-performing stocks
8 2013 (a) Cliffs was dropped from the S&P 500 Index on March 26, 2014. Reflects pricing through June 20, 2014. YTD 2014 (a) (17%) (19%) (20%) (21%) (22%) (26%) (27%) (27%) (32%) (50%) (60%) (40%) (20%) 0% Mosaic Co/The CenturyLink HCP FirstEnergy Corp Intuitive Surgical Teradata Corp Peabody Energy
Slide 10: Bets against Cliffs at record highs
9 …with bets against Cliffs at record highs… 35.0% Cliffs Short Interest Since January 2011 0.0% 10.0% 20.0% 30.0% 40.0% 1/15/11 8/8/11 2/29/12 9/21/12 4/14/13 11/5/13 5/29/14 1/1/11 5/30/14
Slide 11: Total returns have consistently underperformed
10 Note: Reflects closing price on June 20, 2014. XME reflects peer group utilized by Company in its proxy materials. Iron ore majors comprised of BHP, RIO, FMG and VALE. 1 Year Return 3 Year Return 5 Year Return …as total returns have consistently underperformed… (15%) 24% 20% 26% (100%) (50%) 0% 5
Slide 12: Board continued to reward Management
11 …yet the Board continued to reward Management $10.2 $16.0 $23.8 $21.0 $26.8 0.0 5.0 10.0 15.0 20.0 25.0 $30.0 2009 2010 2011 2012 2013 Management Compensation ($mm) Source: Cliffs proxies dated June 10, 2014; April 1, 2013; March 23, 2012; April 4, 2011 and March 26, 2010.
Slide 13: The Casablanca Solution
CASABLANCA CAPITAL A The Casablanca Solution
Slide 14: We believe fundamental change is needed
13 We believe fundamental change is needed • Race to scale • Growth at any price • De - emphasis of U.S. Iron Ore • Shift from operator to developer • Bloated overhead • Expansion beyond core iron ore • Increased exposure to seaborne commodity market Missteps during commodity supercycle 2001 – 2011
Slide 15: The Casablanca plan
14 The Casablanca plan Install new leadership Refocus on core U.S . business Stop the bleeding at Bloom Lake Exit i nternational Divest non - core assets Address cost structure Return capital to shareholders Explore second - stage value - creation opportunities
Slide 16: Casablanca's Board nominees are highly qualified
15 Casablanca’s Board nominees are highly qualified… Lourenco Goncalves Former Metals USA CEO Gabriel Stoliar Former Vale CFO and EVP Rip Fisher Former Goldman Sachs Head of Mining Patrice Merrin Former Luscar CEO Joseph Rutkowski Former Nucor EVP Douglas Taylor Managing Partner and CIO, Casablanca
Slide 17: Deep experience across multiple disciplines
16 …with deep experience across multiple disciplines Financial/Transactional Metals & Public Company Experience Experience Mining Other Investment Principal Name Experience CEO Executive Board Banking Investing Lourenco Goncalves x x x x Rip Fisher x x x x Patrice Merrin x x x x Joseph Rutkowski x x
Slide 18: Our Board nominee qualifications
17 Our Board nominee qualifications Nominees Key Qualifications Lourenco Goncalves CEO Candidate Hired as CEO of Metals USA in February 2003; took the company private in November 2005; IPO’d the company in April 2010 and sold the company to Reliance Steel & Aluminum in April 2013 CEO of Californ
Slide 19: Casablanca is not seeking to take control of Cliffs
18 Casablanca is not seeking to “take control” of Cliffs • Wrong to assert Casablanca seeks “full control of Cliffs’ Board… without paying a control premium” • All of our nominees would be independent directors at Cliffs and owe fiduciary duties equally to all shareholders • Five of our director nom
Slide 20: Key terms of the settlement that Cliffs rejected
19 Key terms of the settlement that Cliffs rejected: Casablanca and Cliffs shook hands on a settlement agreement during an in - person meeting in New York on March 14, 2014 • Casablanca appoints three directors to a nine - member Board • Board size reduced from eleven to nine • Mr. Goncalves is inst
Slide 21: Entrenchment tactics employed by the Board
20 Entrenchment tactics employed by the Board Indefinitely delayed Annual Meeting • Falsely asserted Casablanca requested delay (a) • Waited until Casablanca threatened consent solicitation to schedule meeting • Scheduled meeting ~3 months late Misleading statements regarding settlement objectives •
Slide 22: Entrenchment tactics employed by the Board (cont'd)
21 Entrenchment tactics employed by the Board (cont’d) “Dead hand” change of control provisions in employee severance agreements • New provision in employee severance agreements • Vests severance in successful proxy contests — even if dissident’s nominees are approved by incumbents Attempted to revo
Slide 23: Continuing a pattern of historical behavior
22 Continuing a pattern of historical behavior Annual Meeting Company - Sponsored Proposals to Strip Shareholders of Important Rights Result 2012 Remove shareholder right to approve bylaw amendments Failed 2013 Remove shareholder right to approve bylaw amendments Failed Eliminate cumulative voting F
Slide 24: Notes
23 (a) Cliffs’ record date was originally set for March 7, 2014 — a deadline that was only four days away when the Company contacted Casa blanca on March 3, 2014, and indicated its desire to discuss a settlement. In this highly - preliminary discussion, Casablanca suggested that delaying the impendi
Slide 25: Cliffs' History of Failed Empire-Building
II Cliffs’ History of Failed Empire - Building 24
Slide 26: Board pursued a failed strategy of empire-building
25 Cliffs’ Board has pursued a failed strategy of empire - building… • Cliffs has operated as a viable, U.S. - based iron ore miner for over 165 years • In the past decade, Management — with Board support — chose to expand beyond its core Great Lakes iron ore franchise, in what we believe was a purs
Slide 27: A poster child for deworsification
26 …creating a poster child for “deworsification”… Selected Expansion Attempts: Strategy Bloom Lake Coal (a) Chromite (b) Amapá (c) Wabush (d) Total Diversify into New Commodity x x Diversify Geographically x x x x New Project Development x x x Cost ($ in millions) $6,400 $ 1,350 $500 $500 $285 $9,0
Slide 28: Starving shareholders
27 …starving shareholders… Capital Allocation $290 $290 $92 $518 $619 ($862) ($2,870) ($3,253) ($9,000) ($7,000) ($5,000) ($3,000) ($1,000) $1,000 Share Repurchases Common Dividends Capital Spending ($7,293) ($8,671) Capital Spending ( inc l . M&A) 5 Year (c) 3 Year (b) 1 Year (a) ($mm) s (a) From Q
Slide 29: Unnecessarily running up debt
28 …unnecessarily running up debt… Debt (a) $440 $525 $525 $1,713 $3,684 $4,055 $3,044 0 750 1,500 2,250 3,000 3,750 $4,500 2006 2007 2008 2009 2010 2011 2012 2013 Rapid increase over last four years ($mm) ~$1.0 billion dilutive equity issuance (a) Each of the years ended 12/31.
Slide 30: Continuing to reward Management
29 …but continuing to reward Management $10.2 $16.0 $23.8 $21.0 $26.8 0.0 5.0 10.0 15.0 20.0 25.0 $30.0 2009 2010 2011 2012 2013 Management Compensation ($mm) Source: Cliffs proxies dated June 10, 2014; April 1, 2013; March 23, 2012; April 4, 2011 and March 26, 2010.
Slide 31: The Bloom Lake money pit
CASABLANCA CAPITA Pe "The Bloom Lake money pit
Slide 32: Bloom Lake: a $6.4 billion misadventure
31 Bloom Lake: a $6.4 billion misadventure Cost: $6.4 billion • $4.9 billion to acquire asset (Jan. 2011) • $1.5 billion capex spent since acquisition Results: • Phase II expansion on hold • Phase I remains loss making • Up to $800 million ongoing capex needs (a) • Ongoing liabilities • Take - or -
Slide 33: A $1.4 billion lump of coal
32 A $1.4 billion lump of coal Cost: $1.4 billion • $750 million to acquire asset (July 2010) • $600 million capex spent since acquisition Results: • Expected to be loss - making in 2014 (a) • Revenue ($/t): $80 – $85 • Cash cost ($/t): $85 – $90 • Management synergy expectations never realized • Ac
Slide 34: Ring of Fire consumes $500 million
33 Ring of Fire c onsumes $500 million Cost: $500 million • $230 million to acquire asset (Nov 2009 / May 2010) • $270 million capex spent since acquisition Results: • Presumed a $2 billion road would appear • Ontario regulators rejected Cliffs’ request for land rights to build a road — without road
Slide 35: Notes
34 (a) Based on $757 million acquisition of West Virginia Coal (7/6/10) plus ~$470 million cumulative capex between 2010 and 2013. Exc ludes impact of Sonoma Coal (acquired for $140 million (1/9/07), divested for $141 million (7/10/12)). 2014 breakeven assumption based on midpoint of Company guidanc
Slide 36: Deceptive Communications Mask Ongoing Problems
III Deceptive Communications Mask Ongoing Problems 35
Slide 37: Cliffs Management asserts it is addressing its problems
36 Cliffs Management asserts it is addressing its problems
Slide 38: Capex cuts mask future spending obligations
Cliffs Claim: “FY 2014 capital spending budget decreased 65%” 37 Capex “cuts” mask current future spending obligations… Casablanca Observations • Add Back: • ~$800 million sustaining capex forecast on Bloom Lake over next four years (a) • No disclosure on status of remaining capex requirements Defer
Slide 39: Bloom Lake operating losses
38 …and don’t address money - losing Bloom Lake operations $175 – $475 million potential operating losses over next five years at Bloom Lake Bloom Lake Phase I Casablanca Estimates 2014 2015 2016 2017 2018 Iron Ore Price $114.0 $100.0 $100.0 $100.0 $100.0 Freight Differential (25.0) (22.5) (22.5) (2
Slide 40: Claims of SG&A cuts strike us as misleading
Cliffs Adjusted Decrease Q1 2014 Q1 2013 ($ mm) % SG&A (46.1) (48.4) (2.3) (5%) Exploration (4.2) (22.7) (18.5) (81%) Total (50.3) (71.1) (20.8) (29%) Q1 2014 Results Cliffs Claim (a) : “SG&A and Exploration expenses decreased 30% (a) ” 39 Similarly, claims of SG&A strike us as misleading … (a) Sour
Slide 41: Claims on headcount reduction
Executives 2014 Gary Halverson, CEO William Boor Terry Fedor Terrance Paradie Clifford Smith Kelly Tompkins David Webb Timothy Flanagan Cliffs Claim: "39% decrease in Officer - level executives over the last 12 months” 40 …as are claims on headcount reduction… Casablanca Observations • 5 people cut
Slide 42: Many people still at Corporate
41 …with over 440 people still at Corporate… (a) Cliffs Natural Resources 2013 10 - K; information as of December 31, 2013. Eastern North Asia CorporateU.S. CanadianAmerican Pacific & Support Iron Ore Iron Ore Coal Iron Ore Services Other Total Salaried 700 407 379 177 442 28 2,133 Hourly 2,825 973
Slide 43: A sprawling global footprint
Corporate Offices (a) : 42 …and a sprawling global footprint (a) Cliffs Natural Resources 2013 10 - K. Cliffs has seven Corporate offices
Slide 44: Governance Concerns: Entrenchment and Disorganization
IV Governance Concerns: Entrenchment and Disorganization 43
Slide 45: Casablanca's governance concerns
44 Casablanca’s governance concerns: Poor Board oversight and decision - making Entrenchment tactics Poor alignment with shareholders Poor director and executive qualifications
Slide 46: ISS QuickScore
45 ISS Quickscore: 8 [ Source: ISS Governance QuickScore Profile.
Slide 47: A History of Poor Board Oversight and Decision-making
A A History of Poor Board Oversight and Decision - making 46
Slide 48: Poor Board oversight and decision-making
47 Poor Board oversight and decision - making Board Responsibility Decision Consequences Setting Strategy Diversify into international seaborne iron ore market • Increased risk by moving Cliffs into highly - volatile international commodity markets • Put Company in direct competition with large - ca
Slide 49: Poor Board oversight (cont'd): acquisitions
48 Poor Board oversight and decision - making (cont’d) Board Responsibility Decision Consequences Approving Acquisitions Acquire Consolidated Thompson / Bloom Lake • $4.9 billion, plus additional $1.5 billion capex spent on further development • Remains unprofitable and became a significant valuatio
Slide 50: Poor Board oversight (cont'd): capex and finance
49 Poor Board oversight and decision - making (cont’d) Board Responsibility Decision Consequences Approving Capex Budget Continue spending money to develop Bloom Lake • Company became one of the most shorted stocks on the S&P 500 as outcome of development became increasingly cloudy Continue investin
Slide 51: Poor Board oversight (cont'd): compensation and succession
50 Poor Board oversight and decision - making (cont’d) Board Responsibility Decision Consequences Setting Compensation Secret & subjective benchmarking • Opaque “fudge factor” in determining bonuses • Bonuses paid at or over target in most years, regardless of results No capex / ROE weighting for ca
Slide 52: Majority of existing Board approved Bloom Lake
51 Majority of existing Board approved Bloom Lake Directors Cliffs Director Since Richard K. Riederer 2002 Susan M. Cunningham (a) 2005 Barry J. Eldridge 2005 Susan M. Green 2007 Janice K. Henry 2009 James Kirsch 2010 Andrés R. Gluski (a) 2011 Timothy W. Sullivan 2013 Mark E. Gaumond 2013 Gary B. Ha
Slide 53: Strategic Planning Paralysis
a Strategic Planning Paralysis 52
Slide 54: Strategic planning paralysis
53 Strategic planning paralysis
Slide 55: The old strategy: growth at any cost
54 The old strategy : growth at any cost Screenshot of Cliffs Website Source: http:// www.cliffsnaturalresources.com/EN/aboutus/GrowthStrategy/Pages/default.aspx as of March 5, 2014. Cliffs’ website as of March 5, 2014 (Removed after Casablanca criticized it)
Slide 56: The new non-strategy: a wheel of platitudes
55 The new non - strategy: a wheel of platitudes Source: http://www.cliffsnaturalresources.com/EN/aboutus/VisionMission/Pages/default.aspx as of June 20, 2014. Cliffs’ website as of June 20, 2014 Pretty, but no substance, in our view
Slide 57: Entrenchment Tactics
CASABLANCA CAPITAL B Entrenchment Tactics
Slide 58: The Board has gone to great lengths to entrench itself
57 The Board has gone to great lengths to entrench itself
Slide 59: Entrenchment tactics employed by the Board
58 Entrenchment tactics employed by the Board Indefinitely delayed Annual Meeting • Falsely asserted Casablanca requested delay (a) • Waited until Casablanca threatened consent solicitation to schedule meeting • Scheduled meeting ~3 months late Misleading statements regarding settlement objectives •
Slide 60: Entrenchment tactics employed by the Board (cont'd)
59 Entrenchment tactics employed by the Board (cont’d) “Dead hand” change of control provisions in employee severance agreements • New provision in employee severance agreements • Vests severance in successful proxy contests — even if dissident’s nominees are approved by incumbents Attempted to revo
Slide 61: Details on the Board's proxy put brinksmanship
60 Some details on the Board’s proxy put brinksmanship: • Board implicitly threatened to use “Proxy Put ” to preserve power • Cliffs Preliminary Proxy: Election of majority Casablanca slate could trigger a change of control under the senior notes, potentially compelling Company to repurchase notes •
Slide 62: The Board's new dead-hand employment agreements
61 The Board’s new “dead - hand” employment agreements... Key Provisions of Change in Control Severance Agreements (a) Summary Actual Language “Change in Control” triggered if Incumbent Board is replaced… “‘Change in Control’ means: … (ii) individuals who, as of the date hereof, constitute the Board
Slide 63: Continue a pattern of historical behavior
62 …continue a pattern of historical behavior Annual Meeting Company - Sponsored Proposals to Strip Shareholders of Important Rights Result 2012 Remove shareholder right to approve bylaw amendments Failed 2013 Remove shareholder right to approve bylaw amendments Failed Eliminate cumulative voting Fa
Slide 64: Notes
63 (a) Cliffs’ record date was originally set for March 7, 2014 — a deadline that was only four days away when the Company contacted Casa blanca on March 3, 2014, and indicated its desire to discuss a settlement. In this highly - preliminary discussion, Casablanca suggested that delaying the impendi
Slide 65: Poor Alignment with Shareholders
C Poor Alignment with Shareholders 64
Slide 66: The Board's approach to executive compensation
65 The Board’s approach to executive compensation…
Slide 67: Rewarding Management for failed strategies
66 …rewarding Management for failed strategies… • Short - term executive bonus review process lacks transparency • Undisclosed and discretionary “corporate strategic objectives” factor given significant weight and was funded over target in most years (see following slide for details) • Earnings fact
Slide 68: Using a fudge factor to calculate bonuses
67 …using a “fudge factor” to calculate bonuses… • Undisclosed “Corporate Strategic Objectives” factor is key executive bonus component • Factor is subjective and determined by Compensation Committee • The Company maintains that the criteria for determining this factor is confidential for competitiv
Slide 69: Rewarded Management for Bloom Lake and Chromite
68 …that rewarded Management for Bloom Lake and Chromite… (a) Bloom Lake 2013 capex and operating figures estimated by Casablanca based on Company’s disclosed figures for Eastern Canadian Ir on Ore segment, backing out estimated figures for Wabush of $30 million 2013 sustaining capex and operating m
Slide 70: Questionable Management incentives
Weighting Factors of Executive Short-Term Incentive Plan 2009 2010 2011 2012 2013 Earnings Earnings Metric Used for Bonuses Adj. Pre-tax Earnings Adj. Pre-tax Earnings None Net Income Adjusted EBITDA Target 50.0% 50.0% – 20.0% 20.0% Funded 38.1% 37.6% – 0.0% 26.2% Operating Production Volumes – – 25
Slide 71: Without regard for shareholder returns
70 …without regard for shareholder returns Year - on - Year Total Shareholder Returns 2009 2010 2011 2012 2013 5 - Year Total $5.4 $5.6 $6.4 $6.2 $10.7 (a) $34.3 (60%) (40%) (20%) 0% 20% 40% 60% 80% CLF XME Cliffs underperforms the benchmark XME ETF (a) Includes $7.1 million severance. 2013 figures
Slide 72: Buried details on Executive Chairman compensation
71 Buried details on Executive Chairman compensation… 2013 Executive Compensation (a) Where is James Kirsch’s compensation as Executive Chairman? Details on James Kirsch’s 2013 Compensation James Kirsch 2014 Compensation Opportunity (b) (a) Per Cliffs proxy dated June 10, 2014. (b) Per Letter Agreem
Slide 73: James Kirsch has never paid a penny for Cliffs stock
72 $0 Note : Calculation of cash investment excludes shares granted as part of director and executive compensation. …yet James Kirsch has never paid a penny for Cliffs stock Jim Kirsch
Slide 74: Gary Halverson is paid richly as a novice CEO
73 Gary Halverson is paid richly as a novice CEO… Gary Halverson’s 2013 Compensation (a) Gary Halverson’s 2014 Compensation Opportunity (a) (a) Per Cliffs proxy dated June 10, 2014. Paid $60,000 per day for 43 days’ work as CEO - in - training Target Max Base Salary $950,000 $950,000 Target Bonus 1,
Slide 75: Halverson did not invest in Cliffs stock
74 $0 Note : Calculation of cash investment excludes shares granted as part of director and executive compensation. …yet did not invest any of his winnings in Cliffs stock Gary Halverson CEO
Slide 76: Economic Exposure of Board Shares
Economic Exposure of Board Shares Shares Purchased Granted for Cash Executive Chairman 39,975 0 CEO 97,560 0 Other Board Members (Aggregate) 91,651 3,460 Total 229,186 3,460 Board of Directors Insiders Name Common Stock Ownership $ Value % Out. Gary Halverson 97,560 $1,418,522 0.06% James Kirsch 39,
Slide 77: Poor Director and Executive Qualifications
D Poor Director and Executive Qualifications 76
Slide 78: The Board's rushed CEO appointment
77 The Board’s rushed CEO appointment…
Slide 79: A poor exercise of its fiduciary duties
78 …was a poor exercise of i ts fiduciary duties (a) Announced October 25, 2013. Mr. Halverson assumed the President and COO position effective November 18, 2013. One day later, Board deems Halverson ready to become CEO February January December November Casablanca’s Interpretation: Halverson needed
Slide 80: Gary Halverson is ill-equipped to be CEO
79 Our view: Gary Halverson is ill - equipped to be CEO • Lack of track record at Barrick Gold • Three - month stint as interim Chief Operating Officer of Barrick Gold • One of five COOs in the last two years • NO experience as a CEO or as a public - company director • NO proven leadership experienc
Slide 81: Board has become a refuge for failed CEOs
80 Cliffs’ Board has become a refuge for failed CEOs % Shareholder Loss as CEO James Kirsch (Nov ‘05 – Nov ’12 ) Richard Riederer (Nov ‘95 – Jan ’01) Stephen Johnson (Dec ‘09 – Oct ‘13) Gary Halverson (a) (Nov ’13 – present) (86%) (39%) (72%) (47%) (100%) (80%) (60%) (40%) (20%) 0% (a) Halverson ser
Slide 82: James Kirsch: CEO Experience
Casablanca’s Views CEO (Nov ‘05 – Nov ‘12) Cliffs Director (Mar ‘10 – Present) • Oversaw 86% value destruction as CEO of Ferro • During Kirsch’s tenure, over - invested in a trendy solar energy strategy • Stock recovered 413% after Kirsch departed (a) • As a Cliffs Board member, approved similarly -
Slide 83: Stephen Johnson: CEO Experience
Casablanca’s Views CEO (Dec ‘09 – Oct ‘13) Cliffs Director (Oct ‘13 – Present) • Oversaw 39% value destruction as CEO of McDermott • Stock recovered 26% after Johnson’s departure (a) • Cliffs’ announcement of Johnson’s directorship: 82 Stephen Johnson: CEO Experience 5.00 12.00 19.00 $26.00 Dec-09 D
Slide 84: Richard Riederer: CEO Experience
Casablanca’s Views CEO (Nov ‘95 – Jan ‘01) Cliffs Director (Jun ‘02 – Present) • Sole CEO experience was at $200 million market cap company • Market cap declined by 72% to ~$50 million while Riederer served as CEO • Has served on Cliffs’ Board for 12 years — oversaw hiring of both Carrabba and Halve
Slide 85: Gary Halverson: CEO Experience
Casablanca’s Views • No CEO or board experience before joining Cliffs • Joined Cliffs as CEO - in - training (CEO spot left empty) • Market cap declined by 47% since Halverson joined in Nov 2013 84 Cliffs Stock Price under Halverson 47% Shareholder Loss COO (Nov ‘13 – Feb ‘14) CEO (Feb ‘14 – Present
Slide 86: The Casablanca Plan to Unlock Value
V The Casablanca Plan to Unlock Value 85
Slide 87: Multi-pronged plan
86 Multi - pronged plan Install new leadership Refocus on core U.S . business Stop the bleeding at Bloom Lake Exit i nternational Divest non - core assets Address cost structure Return capital to shareholders Explore second - stage value - creation opportunities
Slide 88: New Cliffs would be a regional champion
87 “New Cliffs” would be a regional champion • Reduced commodity risk • Geographically protected market • Single, high - quality, reliable product • Strong market share • Premier end markets • Simplified story • Focused management • Healthy balance sheet • Lean operating structure • Tangible growth
Slide 89: Stop the bleeding at Bloom Lake
88 Producing at a loss is imprudent — a more proactive approach is needed • Move quickly to stop bleeding • No more producing at a loss per incremental ton • Implement robust strategic review process • Expand range of strategic solutions • Aggressively restructure take - or - pay contract • Reengage
Slide 90: Exit international
89 Cliffs is too small to compete head - to - head with the iron ore majors • Exit seaborne markets in most efficient way possible • Many potential mechanisms (spin - off, sponsored spin, partial sale or total sale) • Asia Pacific should be sold now • Holds greatest strategic value today • Value dec
Slide 91: Divest non-core assets
90 Non - core assets are a distraction and drag on the balance sheet • Development portfolio became a slush fund for disparate endeavors • Chromite • Nickel • 10% interest in Zenyatta Ventures (TSX: ZEN) — graphite • Other development projects • Coal • 115 MW Silver Bay power plant Divest non - core
Slide 92: Address cost structure
91 Cliffs must adopt an ownership attitude towards costs • Corporate footprint remains bloated and far - flung • 442 people in corporate • Seven offices on 3 continents • Cost cutting opportunity far exceeds Company guidance, in our view: Casablanca estimates an additional $75 – $100 million per yea
Slide 93: Refocus on core U.S. business
92 • Geographically protected niche • Largest iron ore producer in the United States • Close to 60% of the iron ore production capacity in the Great Lakes • Current production rates imply 40+ years of mine life on proven reserves • Long - term supply contracts buffer commodity price swings • We beli
Slide 94: Return capital to shareholders
93 Shareholders have received too little for too long • Refocused Cliffs should have capacity to increase its dividend payout without eroding credit metrics • Increased return of capital should : • Instill financial discipline • More clearly communicate priorities to investors Return capital to shar
Slide 95: Explore second-stage value-creation opportunities
94 After implementing our plan, Cliffs will be well positioned for additional second - stage value creation o pportunities Explore second - stage value - creation opportunities • Domestic expansion • Cliffs ideally suited for direct reduced iron ( DRI) opportunity • Large market opportunity for Cl
Slide 96: Notes
95 (a) Implied SG&A Margin calculated as Pro Forma SG&A divided by Casablanca forecast 2014 revenues of $4,771 million . (b) Illustrative Value per Share calculated as SG&A reduction valued at 5.0x multiple, divided by current diluted shares outstanding. (c) Run Rate calculated as last quarter annua
Slide 97: Effective Board and New Leadership for Cliffs
A Effective Board and New Leadership for Cliffs 96
Slide 98: Casablanca's Board candidates are highly qualified
97 Casablanca’s Board candidates are highly qualified Financial/Transactional Metals & Public Company Experience Experience Mining Other Investment Principal Name Experience CEO Executive Board Banking Investing Lourenco Goncalves x x x x Rip Fisher x x x x Patrice Merrin x x x x Joseph Rutkowski x
Slide 99: Our Board nominee qualifications
98 Our Board nominee qualifications Nominees Key Qualifications Lourenco Goncalves CEO Candidate Hired as CEO of Metals USA in February 2003; took the company private in November 2005; IPO’d the company in April 2010 and sold the company to Reliance Steel & Aluminum in April 2013 CEO of Californ
Slide 100: Casablanca is not seeking to take control of Cliffs
99 Casablanca is not seeking to “take control” of Cliffs • Wrong to assert Casablanca seeks “full control of Cliffs’ Board… without paying a control premium” • All of our nominees would be independent directors at Cliffs and owe fiduciary duties equally to all shareholders • Five of our director nom
Slide 101: Lourenco Goncalves: 30 years of experience
100 • Metals USA • Served as President and Chief Executive Officer from February 2003 until the sale of Metals USA to Reliance Steel & Aluminum in April 2013 • Metals USA was one of the largest metals service center businesses in the United States, operating 48 locations • California Steel Industrie
Slide 102: Creating value for shareholders at Metals USA
101 Creating value for shareholders at Metals USA February 2003 • Lourenco Goncalves joins Metals USA as its President and CEO • Stock price: $3.08 January / July 2007 • Metals USA pays a total of $275 million in dividends to its shareholders August 2012 • Apollo completes a $59 million secondary of
Slide 103: Goncalves personally invested $1.5 million in Cliffs
102 $1.5 million Aligned with shareholders: personally invested $1.5 mm in Cliffs Lourenco Goncalves
Slide 104: Implementation Plan
CASABLANCA CAPITAL B Implementation Plan
Slide 105: Comprehensive preparation for the first days
104 Comprehensive preparation for the first 90 days • Board - level • Board nominees have regularly convened telephonically and in - person • Implementation plan conceived, reviewed and iterated by all nominees • CEO - level • Mr. Goncalves has engaged in an in - depth process to establish the CEO’s
Slide 106: Plan for the First Days
105 Plan for the First 90 Days Employee Communications • Communicate the new strategy and new direction to all employees, from direct reports down to the rank and file • Set clear expectations • Emphasize ownership approach • Implement a phone and web - based hotline, allowing employees to communica
Slide 107: Plan for the First Days (cont'd)
106 Plan for the First 90 Days (cont’d) Internal Controls • Implement a new, simplified and objective Management Information Reporting System to generate mission - critical daily, weekly and monthly information • Establish benchmarks to identify what is and is not working • Meet with internal and in
Slide 108: Plan for the First Days (cont'd)
107 Plan for the First 90 Days (cont’d) Customers • Engage with key customers and internal relationship managers • Assess status of relationship • Communicate objectives • Review all customer contracts Creditor Engagement • Meet with banks • Meet with rating agencies • Clearly articulate goals and c
Slide 109: Closing Thoughts
CASABLANCA CAPITA Pe Vi Closing Thoughts
Slide 110: Cliffs' objections and our responses
109 Cliffs’ (actual and illustrative ) objections and our responses • Plan does not fundamentally alter organizational structure • Cost - cutting opportunity is far greater than Management has indicated • Strategic review appears to lack intensity • No obvious self - help solutions • Cliffs has rule
Slide 111: Cliffs' objections and our responses (cont'd)
110 Cliffs’ (actual and illustrative) objections and our responses (cont’d) • Diversified earnings benefit M anagement, not shareholders – Hide inefficiencies – “Cookie jar” to manage earnings • Fit - and - focus benefits of narrower operations would far outweigh supposed diversification benefits •
Slide 112: Conclusion
111 Conclusion • As a significant shareholder, Casablanca is alarmed by the value destruction that has occurred under this Board's watch • The status quo is unacceptable in our view and shareholders have suffered enough • Cliffs desperately needs a new strategy and leadership with a fresh perspectiv
Slide 113: Vote the GOLD proxy card
112 Vote the GOLD proxy card • Casablanca urges shareholders to vote the GOLD proxy card • For additional information, please contact our proxy solicitor: 437 Madison Avenue, 28th Floor New York, N.Y. 10022 (212) 297 - 0720 Stockholders Call Toll - Free at: (877) 274 - 8654 E - mail: info@okapipartn
Slide 114: Appendix
CASABLANCA CAPITAL Appendix
Slide 115: Lourenco Goncalves
114 Lourenco Goncalves • Mr. Goncalves served as Chairman of the Board, President and Chief Executive Officer of Metals USA Holdings Corp., a leading American manufacturer and processor of steel and other metals, from May 2006 through April 2013, and was President , Chief Executive Officer and a dir
Slide 116: Rip Fisher
115 Rip Fisher • Mr. Fisher serves as the President and Chief Executive Officer of George F. Fisher , Inc ., a private investment company that manages a portfolio of public and private investments , and has done so since 2002 • Mr . Fisher served in various positions with Goldman, Sachs & Co., an Am
Slide 117: Patrice Merrin
116 Patrice Merrin • Ms. Merrin has been a director of Stillwater Mining Company, which mines and refines PGMs, since May 2013 • At Stillwater Mining Company, she is also Chairman of the Corporate Governance and Nominating Committee, a member of the Compensation Committee and was Chairman of the CEO
Slide 118: Joseph Rutkowski
117 Joseph Rutkowski • Mr. Rutkowski spent 21 years at Nucor Corporation (“Nucor”), the largest steel producer in the United States prior to his departure in 2010 • Mr . Rutkowski began his career with Nucor in 1989 at Nucor Cold Finish, a division of Nucor and the largest cold finished bar producer
Slide 119: Gabriel Stoliar
118 Gabriel Stoliar • Mr. Stoliar currently serves as managing partner of Studio Investimentos, an asset management firm focused on Brazilian equities, where he has served since 2009 • Mr. Stoliar serves as Chairman of the board of directors at Tupy S.A., a publicly - traded foundry and casting comp
Slide 120: Douglas Taylor
119 Douglas Taylor • Mr. Taylor has served as Managing Partner and Co - Chief Investment Officer of Casablanca Capital LP, a hedge fund, since he co - founded it in 2010 • Prior to Casablanca , Mr. Taylor was a Managing Director at Lazard Freres & Co. LLC, a leading financial advisory and asset mana