Update: Cliffs counters Noront’s offer for Freewest

Not to be outdone by a junior, mining heavyweight Cliffs Natural Resources (CLF-N) has come back with a higher offer for Freewest Resources Canada (FWR-V) that the major believes will bury Noront Resources (NOT-V) aspirations for good.

Freewest’s board of directors is unanimously supporting Cliffs’ enhanced offer, which works out to a 5.9% premium to Freewest’s closing price on Dec. 2.

Under the terms of the amended arrangement agreement with Cliffs, Freewest shareholders would receive a fraction of a Cliffs share representing a fixed value of 90¢ for each Freewest share, above Noront’s final bid of 86¢ per share in shares and warrants, and valuing Freewest at about $211 million.

Cliffs had previously offered 70¢ per share, with 15¢ of that in the form of a planned spinoff of Freewest’s non-chromite assets. In the new offer, Cliffs plans to acquire all of Freewest – including its non-chromite assets. (Currently Cliffs indirectly holds 29.03 million Freewest shares representing about 12.4% of Freewest’s outstanding shares.)

Under Noront’s offer, Freewest shareholders would receive two Noront shares for every seven Freewest shares tendered, plus one Noront warrant, with each full warrant entitling the holder to acquire one Noront share, for every seven Freewest shares tendered. The warrants will have a strike price of $4 per Noront share and will expire five years after the date on which Noront first pays for Freewest shares tendered to the offer.

“This transaction [with Cliffs] is clearly superior to the amended offer made by Noront Resources, comprised of uncertain value in the form of Noront shares and warrants,” Mackenzie I. Watson, Freewest’s president and chief executive officer, said in a statement. “Cliffs’ proposal provides not only a higher value, it is also far less volatile than Noront’s hostile bid, which offers a fixed ratio of Noront shares and warrants for each Freewest share as consideration, and therefore a fluctuating value.”

Watson added that Cliffs’ offer gives Freewest shareholders highly liquid shares in a company with a market capitalization of more than US$6 billion.

But Wes Hanson, president and chief executive of Noront, sees it very differently. “If the reason you invested in Freewest to begin with was to have exposure to the Ring of Fire — one of the most unique mineral districts in the world — then you’d tender your shares to Noront as opposed to Cliffs,” he said in a telephone interview, adding that Noront had no intention of raising its offer to match Cliffs. “They can raise the bar by one or two cents and it’s not a game we’re interested in playing.”

Hanson said Noront’s offer was a “better deal” that included the value of the future warrants and the company’s rising share price. “I don’t really see their offer as being significantly greater in value than what Noront has already placed on the table and what you are seeing today is a reflection of that – we’re seeing a movement upward in our [share] price and that’s what Freewest is giving away – exposure to that price movement.”

Hanson added that he believed Noront’s shares were as liquid as Cliffs’.

“Undoubtedly they’re an operating producer of greater size but at the same token a lot of Canadian companies started off as junior companies but because of the quality of their assets and management they’ve been able to grow into major companies such as Barrick and Teck. They all started as small companies just like us.”

Noront holds nickel, copper and chromite exploration assets near Freewest’s chromite properties in the Ring of Fire mining district of northern Ontario.

Freewest will mail a management proxy circular to shareholders for a special meeting on Jan. 15 2010.

In late afternoon trading, Freewest was up 3.5% or 3¢ per share at 88¢ per share with 5.4 million shares trading hands.