Cliffs tops KWG offer for Spider

KWG Resources (KWG-V) has until July 6 to match Cliffs Natural Resources‘ (CLF-N) latest offer for Spider Resources (SPQ-V) as the junior and the major duke it out for control of the Big Daddy chromite deposit near McFaulds Lake in northwestern Ontario.

Cleveland, OH-based coal and steel giant Cliffs has upped its offer for Spider to 19¢ per share from 16.5¢, or $125 million, a 138% premium over the closing price on May 21, the last trading day before Cliff’s first announcement of its intentions to buy Spider.

Spider has deemed Cliffs’ latest offer as “superior” to an earlier KWG-Spider merger proposal, which values Spider at 16.5¢. Spider president Neil Novak told shareholders that the board and special committed had negotiated “long and hard” with KWG about the potential merger as well as with Cliffs to get the 19-¢ offer.

Cliffs has entered into a lock-up agreement with Spider’s largest shareholder, Toronto-based Mineral Fields Group, which holds 13.8% of Spider shares.

“In Cliffs’ view, even our original 13¢ all-cash offer for Spider is superior to the consideration offered to Spider shareholders as a part of the merger,” said William Boor, president of Cliffs’ ferroalloys business unit in a statement. “Cliffs has decided to increase our offer to 19¢ in return for the support of both Spider’s board and its largest shareholder.”

KWG says it’s consulting with its financial adviser, Canaccord Genuity, on whether Cliffs offer is indeed superior. The company has not said whether it will make another offer. Spider will have to pay KWG a break fee of $2.3 million in cash if it agrees to the Cliffs offer.

Cliffs, meanwhile, already owns 4.2% of Spider shares on a fully-diluted basis. When Cliffs’ and Spider’s management and directors’ holdings are considered, including warrants and options, plus the Mineral Fields lock-up, the combined ownership is 21.5% fully-diluted. Cliffs also owns 19% of KWG shares.

All three companies hold minority stakes in Big Daddy but Cliffs, with 47%, made its intentions for control of the deposit known in late May. Cliffs announced plans to send takeover offers to both KWG and Spider, which each hold 26.5% with the option to hold 30% apiece. Cliffs said it didn’t care which company it acquired.

KWG and Spider then made plans to merge instead of selling out to Cliffs. Cliffs then decided to scrap its plan to buy KWG and focus only on Spider, which created the current bidding war situation.

Cliffs bought its stake in Big Daddy and two nearby projects, Black Thor and Black Label, last January when it acquired Freewest Resources for $240 million.

Spider and KWG have been exploring together in the Ring of Fire since the early 1990s. The Big Daddy claims were staked in 2003 and explored by Freewest. KWG and Spider signed an option agreement with Freewest in late 2005 to acquire an interest in the project and have shared a rotating operatorship since then, switching each year (Spider is the operator this year). The Big Daddy discovery was made in 2006.

In May, an initial resource estimate for Big Daddy put indicated resources at 23.2 million tonnes grading 40.66% chromite and inferred resources at 16.3 million tonnes averaging 39.09% chromite.

Black Thor has inferred resources of 69.55 million tonnes grading 31.9% chromite at a cutoff grade of 25% chromite.

Chromite is processed into chromium, the key ingredient for making stainless steel.
Big Daddy has been said to be especially desirable because of its ratios of chrome to iron ore to waste, as the ore could be bought by steelmakers without processing.

Spider shares were up 2.5¢ today to 18.5¢ apiece on a trading volume of 20.6 million shares.

KWG shares remained unchanged at 12¢ each on a trading volume of 4.7 million shares.