By Aatreyee Dasgupta and Nathan Gomes

(Reuters) -Cleveland-Cliffs will buy Canadian steelmaker Stelco Holdings for C$3.85 billion ($2.8 billion), it said on Monday, marking its first acquisition since a failed bid for rival U.S. Steel last year.

North American steel producers have been consolidating to reduce production costs in the face of cheap imports from China that have weighed on the industry.

"Stelco is a plug-and-play asset for Cleveland Cliffs...," CEO Lourenco Goncalves said in an investor call. "(It) will be the lowest cost and highest EBITDA margin flat-rolled asset in our entire footprint."

Cliffs has offered C$60.00 in cash and 0.454 shares of its common stock for each Stelco share held, or a total of C$70.00. That compared with Stelco's last close of C$37.36.

Stelco jumped about 74% to C$64.82 in morning trade, while Cliffs was up about 1%.

U.S. Steel had called Cliffs' unsolicited $7.3 billion offer "unreasonable" and instead decided to merge with Japanese steel giant Nippon Steel for $14.9 billion. That deal has, however, attracted opposition from lawmakers and tough scrutiny from regulators.

"A Stelco acquisition would mean Cliffs is unlikely to pursue an acquisition of US Steel in its entirety if the Nippon deal is blocked," Jefferies analysts wrote in a note.

Stelco, which reported revenue of C$2.92 billion in 2023, supplies customers in the appliance, automotive, energy, construction, and pipe and tube industries in North America.

The company operates in two sites in Ontario, one a steelmaking facility in Lake Erie Works and the other a downstream finishing and cokemaking facility in Hamilton Works.

The deal has received support from David McCall, international president of the United Steelworkers (USW) union, and is set to close in the fourth quarter. It is expected to be immediately add to its 2024 and 2025 per-share profit, Cliffs said.

Canadian approval is a potential concern given recent headlines but would note that steel is not an official critical mineral and these mills were previously U.S. owned, Citi analysts said in a note.

($1 = 1.3641 Canadian dollars)