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UPDATE 1-Cliffs Natural says activist investor rejected offer to end proxy fight

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* Says offered to let Casablanca appoint two independent directors to the board

* Says a third director was to be appointed on mutual agreement

March 7 (Reuters) - Iron ore producer Cliffs Natural Resources Inc said Casablanca Capital LP rejected an offer to settle a proxy fight, and the activist investor was seeking full control of the company's board.

Cliffs said it offered to allow Casablanca appoint two independent directors to the board. A third director was to be appointed on mutual agreement.

"We are disappointed that Casablanca seems intent on waging a public campaign rather than continuing its private engagement with Cliffs' board and management team," Cliffs said on Friday, adding that it was ready to engage with Casablanca.

Casablanca, Cliffs' fifth-largest shareholder, nominated six directors for election on Thursday.

The investor, which owns about 5.2 percent of Cliffs Natural, started its activist campaign in January and wants the company to spin off its "riskier" international operations from its cash-generating U.S. assets.

Casablanca, whose slate of directors includes Chief Executive Douglas Taylor and former Metals USA CEO Lourenco Goncalves, has named Goncalves as its preferred candidate for leading Cliffs.

The company appointed Gary Halverson to the top job earlier this month.

Cliffs' shares closed at $19.10 on Thursday. They have slipped 27 percent since the beginning of the year.

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