Iron ore and coal miner Cleveland-Cliffs Inc today said that it would acquire coal producer Alpha Natural Resources Inc for $10 billion in cash and stock, expanding its coal assets and positioning itself to capitalize on the boom in the global steel industry.

Alpha mines vast amounts of metallurgical coal, which is used primarily to make coke, a key component in steel making. It also produces steam coal, used mainly by utilities as fuel for electricity generation.

Under the terms of the deal, Alpha Natural investors will receive 0.95 Cleveland-Cliffs shares and $22.23 in cash for every share of Alpha Natural they own. The offer is valued at $128.12 a share based on Cleveland-Cliffs' closing price on Tuesday and represents a premium of 35 per cent to Alpha Natural's closing price yesterday. Cleveland-Cliffs expects to pay about $1.7 billion in cash and about 71 million new shares of common stock.

The combined company, which will be named Cliffs Natural Resources, will include nine iron ore facilities and more than 60 coal mines located across North America, South America and Australia. On closing, Alpha shareholders will own about 40 per cent of the combined company, while Cleveland-Cliffs shareholders will own about 60 per cent.

The boards of both companies have approved the deal, which is expected to close by the end of 2008. JPMorgan Chase Bank is providing an underwriting commitment for up to $1.9 billion to finance the deal.

Based on analysts' current expectations for Cleveland-Cliffs, the company expects the deal to boost 2009 earnings. Upon the transaction's close, Cliffs Natural Resources would have estimated combined pro forma 2008 revenue of nearly $6.5 billion and EBITDA of $1.9 billion.

The company's estimated 2009 revenue would reach $10 billion with estimated EBITDA of $4.7 billion. Cliffs Natural Resources expects to realize annual savings of at least $200 million beginning in 2010, mostly through enhanced coal processing and blending efficiencies.

The combined company will have a reserve base of about one billion tons of iron ore and about one billion tons of metallurgical and thermal coal, with annual sales volume of over 30 million tons of iron ore and nearly 18 million tons of metallurgical coal. It will ship about 17 million tons of thermal coal annually.

On closing, Cleveland-Cliffs' board will be expanded by two seats, to be filled by two current Alpha directors - Glenn Eisenberg and Alpha CEO Michael Quillen. Cleveland-Cliffs CEO Joseph Carrabba will serve as chairman and chief executive of the combined company, which will be based in Cleveland.

''Today's announcement represents a significant strategic milestone for both companies. Cliffs Natural Resources will be positioned as a diversified natural resources company with significant holdings in a variety of important minerals. By combining our companies' complementary operations and management capabilities, we will be well positioned to meet the world's increasing demand for raw materials,'' said Carrabba.

''Since its inception in 2002, Alpha has been highly respected for its industry leading expertise around both the operation and acquisition/integration of coal properties, and we are confident our two management teams and more than 8,900 employees will achieve great things together,'' he added.

Alpha CEO Quillen said, ''Together, Alpha and Cleveland-Cliffs will have the size, the management depth and the mining expertise to compete on the global stage as demand for raw materials continues to increase around the world. ''

''This transaction is financially compelling for Alpha's stockholders, who will benefit from enhanced value today alongside growth opportunities in the future. We look forward to working together with Joe Carrabba and the Cleveland-Cliffs management team to realize the substantial opportunities that this combination present,'' he added.

JPMorgan Securities Inc. acted as financial advisor to Cleveland-Cliffs Inc and Jones Day acted as legal counsel. Citibank acted as financial advisor to Alpha Natural Resources, and Cleary Gottlieb Steen & Hamilton LLP acted as legal counsel.

Cleveland-Cliffs Inc, headquartered in Cleveland, Ohio, is an international mining company, the largest producer of iron ore pellets in North America and a major supplier of metallurgical coal to the global steelmaking industry. The company operates six iron ore mines in Michigan, Minnesota and Eastern Canada, and three coking coal mines in West Virginia and Alabama.

Alpha Natural Resources is a leading supplier of high-quality Appalachian coal to the steel industry, electric utilities and other industries. Approximately 89 per cent of the company's reserve base is high Btu coal and 82 per cent is low sulfur, qualities that are in high demand among electric utilities that use steam coal.

Alpha is the largest supplier and exporter of metallurgical coal in the US, a key ingredient in steel manufacturing. Alpha and its subsidiaries currently operate mining complexes in four states, consisting of 57 mines supplying 11 coal preparation and blending plants.