Stornoway bidding for Contact, Ashton

Stornoway Diamond (SWY-T) is offering to take over two other diamond explorers to create a $200-million company, and has lined up agreements with controlling shareholders that make the deal look likely.

Stornoway is offering $115 million in cash and shares for Ashton Mining of Canada (ACA-T) and about $19 million, all in shares, for Contact Diamond (CO-T). Contact management, and parent company Agnico Eagle Mines (AEM-T, AEM-N) have already agreed to the offer and Agnico Eagle is financing part of the Stornoway bid.

Under the terms of Stornoway’s offer for Ashton, shareholders get either $1.25 in cash, or one share of Stornoway plus 1. Stornoway limited the cash component of the offer to $59.5 million.

The approach included an agreement with Ashton Canada parent Rio Tinto (RTP-N, RIO-L, RIO-A) through Rio subsidiaries Ashton Canada Proprietary Ltd. and QIT Fer et Titane, under which the 51.7% control block of Ashton Canada will be tendered to the offer. Rio has opted for the cash offer, but given the cash limit will presumably have to take some Stornoway shares.

The offer for Contact is for 0.36 of a Stornoway share for one share of Contact. Agnico Eagle owns 31% of the company and has already concluded a lock-up agreement with Stornoway.

Agnico has also arranged a private placement, conditional on the Ashton bid’s success, of 17.6 million Stornoway shares for $22.5 million, and so would own about 14% of Stornoway under the plan. Contact’s president Matthew Manson would become president of Stornoway.