Should also point out for those of you who haven't had a chance to read the independant valuations prior to being retracted, that Cormark values the incremental value of KWG's staked railroad right of way over the next best alternative path to be $250-$400 Million. This is the additional amount of money that would be required spent to develop a railroad right of way other than that which KWG has already staked.

As a component of their valuation, Cormark ascribes $25 to $40 million, or 10% of the NPV to KWG's Equity Value. I can tell you now that this is exceptionally conservative for a couple of reasons. First I believe a company would be willing to pay considerably more than 10% of NPV, provided the assumptions of the valuation hold. Second, without access to the model itself I think it's reasonably safe to assume that Cormark utilized the same discount rate for the NPV of the railway right of way as they had for the rest of the KWG valuation - 12.5%. This reflects the incremental value of the right of way (over an unspecified duration of time), and implies that 12 months from the initial date of the valuation, that provided the other assumptions of the valuation still hold, that this value will have increased 12.5% ($280 to $450). The interesting thing about this, is that Cliff's ROE is presently only 10.5% (TTM) implying that at this discount rate, ceteris paribus, the railway is becoming 'relatively' more expensive for Cliff's to purchase with each passing day, month, year. Unless Cliff's anticipates a more economically viable alternative than those postulated by Cormark for moving chromite ore, it would be imprudent to leave such a strategically important asset unsecured for too long...

I think Cliff's played a strong hand taking Spider first. If the merger had gone through, with Cliffs still on the board of KWG, they would have had to have continued with the independant valuation prior to completing their bid on the new company; no doubt resulting in a higher price paid. Now that they have taken Spider on the cheap, I suspect they will be willing to pay for KWG a bit more than what they would have actually paid for Spider too had it come down to it.

The part I'm uncertain of, is the legal ramifications of what should happen if they do bid for KWG after publically denouncing their intentions to further pursue them. Obviously this was material for Spider shareholders in the decision to either vote for the merger or to tender their shares; I wonder what legal ramifications exist for Spider shareholders if Cliff's should indeed decide now to pursue KWG, and also how Cliff's could potentially skirt this issue entirely were they so inclined (and they are).