July 16 (Bloomberg) -- Cleveland-Cliffs Inc., North America's largest producer of iron-ore pellets, agreed to buy coal-mining company Alpha Natural Resources Inc. for $10 billion as demand for materials used in steelmaking surges.

Alpha Natural's investors will get 0.95 of a Cleveland- Cliffs share and $22.23 in cash, about $128.12 total based on yesterday's prices, for each share they hold, the companies said today in a statement. The offer is about 35 percent higher than Abingdon, Virginia-based Alpha's closing price yesterday.

Cleveland-Cliffs Chief Executive Officer Joseph Carrabba follows steelmakers ArcelorMittal and Posco by grabbing control of coal mines after prices rose to records. Global steelmakers including Nippon Steel Corp., Posco and ArcelorMittal will seek more acquisitions, Merrill Lynch & Co. said last month.

``There's been quite a problem in coal supply, and price increases this year have been pretty spectacular,'' said Charles Bradford, a metals and mining analyst at Soleil Securities in New York. ``The advantage for Cliffs is they already know the customers. The growth in metallurgical coal is going to be overseas.''

The merged company, to be named Cliffs Natural Resources, will have estimated 2008 sales of almost $6.5 billion and earnings before interest, taxes, depreciation and amortization, or ebitda, of $1.9 billion, the companies said. Revenue will rise to $10 billion in 2009, and ebitda will gain to $4.7 billion, the companies said.

60 Mines

The company will own nine iron-ore facilities and more than 60 coal mines in North America, South America and Australia. Iron-ore reserves will total about 1 billion tons and coal about the same, the Cleveland-based company said in the statement. The company expects annual sales of more than 30 million tons of iron ore and almost 18 million tons of steelmaking coal.

The transaction will deliver annual savings of at least $200 million starting in 2010, mainly in coal processing and administration, the company said.

Coal prices have risen to records this year as supplies were curbed by transport constraints in Australia and South Africa. Increasing demand has been led by Asia as China and India, the most populous nations, use more power and produce more steel to fire economic growth.

Annual benchmark contract prices for thermal coal more than doubled to $125 a metric ton for the year from April 1, and coking coal rose 200 percent to $300 a ton. The deals are typically struck between coal producers in Australia and Japanese clients.

`Bandwagon-Jumping'

``People who did not care about coal a year ago now do,'' said Brock Salier, an analyst at Ambrian Partners Ltd. in London, said today in a telephone interview. ``It's bandwagon-jumping of the highest magnitude now. I don't see coal prices coming down over the next couple of years.''

U.S. coal exports through May indicate total shipments this year will reach 52.9 million metric tons from 35.8 million tons last year, according to data published yesterday by London-based shipbroker Simpson, Spence & Young Ltd.

Posco said on June 30 it agreed to pay about A$424 million ($408 million) for a 10 percent stake in Macarthur Coal Ltd. ArcelorMittal said the day before it paid the same amount per share to increase its stake in Brisbane-based Macarthur to 19.9 percent.

To contact the reporter on this story: Dale Crofts in Chicago at dcrofts@bloomberg.net.

Last Updated: July 16, 2008 08:41 EDT