Iron Will: Cleveland-Cliffs and the Mining of Iron Ore, 1847-2006

7. Reinventing Cleveland-Cliffs, 2000–2006

I n October 2001 the Wall Street Journal published an article by Clare Ansberry with the headline “Seizing the Moment: Steelmakers’ Troubles Create an Opening for an Iron-Ore Giant—In Sinking Economy, Some Exploit Opportunities Where Others Retrench.” Ansberry described how American steel companies had begun to go bankrupt even before the sharp decline of the market after the terrorist attack on the World Trade Center on September 11. The mining interests of these bankrupt steel companies were now attractive bargains. “Standing at this decisive crossroads, Cliffs’ Chairman John Brinzo has decided to act,” Ansberry wrote, “trying to snap up some of those properties while he can—and while the price is right. ‘Time is of the essence,’ he says. ‘We’re trying to walk the line between husbanding resources and taking advantage of an opportunity.’” Ownership of its mines would liberate Cleveland-Cliffs from dependency on partnerships , allowing the company to regain its independence as an ore merchant. “Every good idea has its time,” Brinzo told Ansberry. “Now is the time.”1 Brinzo had proposed this idea in 1990 as the steel companies emerged from their first bankruptcies. Then the acquisitions would have required significant capital. What made Brinzo’s strategy to acquire the mining interests of bankrupt partners feasible in 2001 was the even greater distress of the steel industry and the recognition that some companies would have to liquidate. The bankruptcies of steel partners in the 1980s had forced the company to renegotiate ownership percentages in an effort to keep Cliffs’ mines operating at capacity. Then owning large shares in its mines was considered a liability. However, as the amount of ore produced for its own accounts increased, the company’s commercial group gained 7 REINVENTING CLEVELAND-CLIFFS, 2000–2006 244 CHAPTER 7 experience selling this ore through multiyear contracts, becoming skilled negotiators in the process. When the steel industry recovered in the 1990s, the company made a profit on these pellets. Unlike rivals Oglebay Norton and M. A. Hanna, Cleveland-Cliffs developed a “merchant flavor,” with members of its commercial group gaining reputations as honest deal makers who drove a hard bargain.2 Company executives also became thoroughly versed in issues related to the bankruptcy of Cliffs’ partners through service on unsecured creditors’ committees, often taking leadership roles to protect Cliffs’ interests. As in the case of Weirton Steel, Cliffs was sometimes willing to take an equity position or loan capital to ailing steel customers in exchange for multiyear sales contracts. Building on this expertise in sales and issues related to bankruptcies, Brinzo spearheaded the transformation of Cleveland-Cliffs. He had been a careful steward of the company’s finances for three decades. Bill Calfee commented that Brinzo had a keen sense of finance but also “thought like a commercial person.”3 A graduate of Kent State University, Brinzo had started his career at National City Bank. After he completed his MBA at Case Western Reserve University in 1968, he decided that commercial banking did not provide him with enough opportunity to use the ideas and strategies he had learned in business school. He joined Cliffs’ five-person financial analysis department in the spring of 1969 where he delved into budgets, analyzed capital expenditures, and did feasibility studies for about two years. Tom Moore, then company controller, asked him to transfer to Ishpeming to work in the company’s central office in Michigan. Previously most financial activities had been carried out in Cleveland, but the company’s increasingly complex pellet operations favored decentralization and demanded on-site financial expertise. This organizational restructuring was pushed by Tom Moore. Brinzo, then twenty-nine, moved with his wife and two small sons to Ishpeming. Within a year Brinzo was named controller of the John Brinzo (b. 1942) took the helm as president in 1997, just before the second wave of steel bankruptcies took place. He saw a “window of opportunity” to buy the ownership interests of the company’s steel partners as the steel industry consolidated and positioned Cliffs as a global supplier of iron pellets. After returning the company to strong profitability he retired as chairman of the board in 2006. (Courtesy of Cliffs Natural Resources, Inc.) REINVENTING CLEVELAND-CLIFFS, 2000–2006 245 Empire mine, the company’s flagship operation at that time.4 Brinzo liked the atmosphere of...