The remoteness of Noront Resources (NOT-V) “ring of fire” discoveries in the James Bay Lowlands of northern Ontario has long been a concern for investors.
Lacking roads or any other forms of basic infrastructure the economics of its McFaulds Lake project have often come into question.
Noront is trying to allay such concerns by generating the prospect of economies of scale through the consolidation of the area. Towards that end, it is tabling an all-share offer for one of its neighbours in the area, Freewest Resources (FWR-V).
“Noront believes consolidation of the Ring of Fires is the only course to ensure the development of the region,” the company said in a statement. “This transaction will result in the economics of all ring of fire project improving as the heavy development capital cost burden of the infrastructure will be shared by a series of mines.”
After having its attempts at a friendly offer rebuked, Noront went ahead with an unsolicited offer that is worth roughly $90 million.
Noront is offering one of its shares for four Freewest shares which values Freewest at 40¢ based on Friday’s closing prices.
And while Freewest shares were trading for between 22¢ and 29¢ for all of September, the company said the offer was “highly opportunistic and significantly undervalues Freewest’s assets and future value-creation potential.”
Still Freewest said it would consider the offer when it is formally made.
One aspect of the deal that Freewest management may find hard to swallow is that Noront is demanding that the company’s “management change of control payments” be severely crimped.
As it stands now Freewest’s chief executive, Mackenzie Watson, stands to collect a $4 million payout in the event of a management change.
Noront points out that the amount represents 6% of the pre-announcement market capitalization of Freewest.
“Noront believes this change of control payment to Mr. Watson, is excessive and is significantly out-of-line with customary change of control payments made to executives of similar sized Canadian companies and consequently, is detrimental to Freewest shareholders’ best interests,” the company said in a release.
Noront says that a condition of its offer will be that all change of control payments to Freewest management will be capped at an aggregate amount of $1.5 million.
Noront discovered high-grade nickel and copper in the remote area west of James Bay two years ago, sparking a junior exploration company rush to the area.
Since that time, Freewest has managed to attain some of the most consistent drill results as highlighted by its Sept. 17 announcement of intercepts of 41.3% chromium oxide over 44 metres and 42.5% Chromium over 26 metres drilling from the Black Thor chromite zone at its McFaulds property.
At presstime Freewest shares were trading just a shade above the implied value of the deal at 40.5¢.
As for Noront shares, after pausing to digest the news, the market appears to be applauding the company’s strategy. While its share price fell 3% to $1.55 after the deal was announced on Monday Oct. 5, they had rebounded and were up 12% or 18¢ to $1.73 at presstime.
I feel that the strategy of Noront is intelligent and will generate long term benefits. I hope that Mr. Watson does not receive the excessive payout of 4 million dollars.
First the $4 million payout is a poison pill adopted by the entire BoD of FWR to prevent such hostile takeovers.
Second I personally do not like the way Noront went about this bid. They waited until very late friday afternoon to call Mac Watson knowing that he would be gone for the weekend. Then they tried to convince the public that they were rejected by Watson. Watson says he received the message when he reported to work on Monday.
I am a significant shareholder of both companies so I stand to gain either way. However this was underhanded.
Bay Street has not yet woken up to the fact that the so called Ring of Fire in the James Bay Lowlands is Canada’s next major mining area and will eclipse Sudbury in the years to come. This will be a world class nickel and copper mine as well as Canada’s first chromium mine.
Cliffs Natural Resources is currently making plans to develop a Railroad from Nakina through Martin Falls and to built a ferrochrome Smelter in Thunder Bay.
Stay tuned folks this story will rival Voisey’s Bay and the Big Score.
Too bad they have stopped using the Miner as an intermediary. It was fun getting all the dirty laundary reported online here. I guess we have to wait and see how this all shakes out. Maybe a big player will come and take them both out?