International mining company Cliffs Natural Resources Inc. (NYSE: CLF - News) has proposed to increase its offer price for Spider Resources Inc. to 16.03 cents per share (16.5 Canadian cents) from the previous 12.6 cents (13 Canadian cents). The current proposal, which values Spider at $105.9 million (C$109 million), represents a 27% increase over its previous bid and a 106% premium over the closing price on May 21, 2010.

However, Cliffs’ offer has a supporting clause by which the Toronto-based Spider should terminate all merger agreements with the Montreal-based KWG Resources Inc., announced recently. The proposed support agreement, in turn, requires certain regulatory conditions to be fulfilled or waived by Cliffs.

Cliffs, Spider and KWG are partners in “Big Daddy, the Ontario-based chromite project. Cliffs already holds a 47% interest in the project, but intends to gain full control by acquiring Spider.

The Big Daddy project has chromite resources of 23.2 million tons. Cliffs owns 100% of its other chromite deposits − Black Thor and Black Label − located close to Big Daddy, so the company’s plans to fully own Big Daddy as well is in line with its existing portfolio. However, Cliffs plans to develop Thor and Label before focusing on Big Daddy. Chromite is used in the manufacture of stainless steel.

Cliffs had earlier intended to acquire KWG, where it already controls a 19.3% interest. It had requested KWG for a complete financial valuation on May 24, 2010. However, Cliffs has now annulled its plans of taking over KWG and has revoked its valuation request.

We think Cliffs’ current offer, which represents a premium of about 49% over Spider’s average trading price (approximately 11 cents) over the last three months, is profitable for the company. For now, we remain Neutral on Cliffs.

CLIFFS NATURAL RESOURCES INC (CLF): Read the Full Research Report

Zacks Investment Research