At a time when iron ore producers are pressured by low prices, Cliffs Natural Resources (CLF 0.19%) has another problem to deal with. Activist shareholder Casablanca Capital continues to seek control of Cliffs' board of directors. Tension between Cliffs and Casablanca started back at the beginning of the year, when Casablanca issued its proposals to enhance value for Cliffs' shareholders. Now, the battle continues, and it is far from being over.

Seeking to replace the CEO
In the latest round of this drama, Casablanca accused Cliffs of making threats to shareholders. Casablanca accused Cliffs that it was putting pressure on shareholders when stating that proposed changes to the company's board could trigger a repurchase in Cliffs' notes. Surely, Cliffs could not allow a rapid repurchase of its debt right now. That's why Casablanca stated Cliffs was trying to force shareholders to vote for the incumbent board or to be prepared for tough consequences.

In turn, Cliffs stated it was not threatening its shareholders. From the company's point of view, Casablanca's actions put shareholder value at risk. Back in March, Cliffs tried to settle the problem with Casablanca. The company offered Casablanca the opportunity to appoint two new independent directors to Cliffs' board and a third mutually agreed-upon director. Casablanca rejected the settlement offer and continued to seek the replacement of Cliffs' CEO.

Most Casablanca proposals don't seem viable
While Casablanca continues to seek control of Cliffs' board, let's take a look at what the fund proposed back at the beginning of the year. First, Casablanca proposed to separate Cliffs' operations into two parts -- "Cliffs USA" and "Cliffs International." However, the existence of "Cliffs International" would have been problematic, as Cliffs' Canadian iron ore segment continues to suffer from high costs.

Among other proposals, the most astonishing one was doubling the dividend. This one seemed to have come from the realm of fantasies back when it was issued. At present times, it looks even more ridiculous. Iron ore prices have just hit fresh lows on news that the Chinese central planning agency stated that the country's high steel demand period had passed.

In addition, supply from the big three iron ore producers -- Rio Tinto (RIO 0.34%), BHP Billiton (NYSE: BHP), and Vale (VALE 0.16%) -- continues to flood the market. In fact, the supply is growing not only in the near term, but in the long term as well. For example, Rio Tinto has just signed a massive deal to develop the southern part of the Guinean Simandou project. Rio Tinto stated that this mine is able to produce as much as 100 million tons of ore per year at full production, which makes the mine bigger than Cliffs' whole iron ore business.

In such conditions, doubling Cliffs' dividend is plain impossible. Such a move will put the company's financial stability at risk. Yet, it is not clear whether Casablanca is focused on its earlier-stated proposals now. In its latest letter to Cliffs' shareholders, Casablanca highlights its desire to replace current CEO Gary Halverson with Lourenco Goncalves. In this letter, nothing is stated about which previous proposals Casablanca still views as viable.

Apart from separation of the company and a dividend increase, these proposals included converting the company's U.S. assets into an MLP, reducing costs, and divesting infrastructure. Notably, the cost part of Casablanca's wishes seems to be fulfilled, as Cliffs has recently announced a reduction of its full-year capital spending by an additional $100 million.

Bottom line
It seems that a proxy fight with Casablanca Capital is around the corner for Cliffs. This is not good news for the company, whose shares trade at a pricey 44 forward P/E despite a 40% loss of value this year.