Stornoway, Rio change break fee (September 05, 2006)

Stornoway Diamond (SWY-T, SWYDF-O) and Rio Tinto (RTP-N, RIO-L, RIO-A) have agreed to changes in their lock-up agreement that would see a $2-million break fee paid out to all shareholders of Ashton Mining of Canada (ACA-T, AMCFF-O).

Stornoway and the two Rio subsidiaries that hold the majority interest (51.7%) in Ashton agreed to amend their agreement after Ashton said it would challenge the legality of the lock-up before the British Columbia Securities Commission.

Ashton’s lawyers are charging that the lock-up, which would have provided a break fee of $2 million to the Rio subsidiaries if the Stornoway offer was abandoned, violated provisions of the province’s Securities Act that require all shareholders to be offered equal consideration in a takeover bid.

Despite this, Ashton said in a prepared statement that it would still go to the Securities Commission for a cease-trade order against Stornoway’s offer or against the lock-up agreement. On a reading of Ashton’s application to the Commission, it is asking for the order solely on the ground that locking up a control block violates the principle of unrestricted auctions in takeover bids.

Stornoway has offered $1.25 cash or one share plus 1 for Ashton shares, with a maximum of $59.5 million to be paid out in cash. In a separate deal, Stornoway and Contact Diamond (CO-T, CONPF-O) would merge in a friendly deal, with 0.36 of a Stornoway share traded for one Contact.

Gold miner Agnico Eagle Mines (AEM-T, AEM-N), which holds the controlling block in Contact, is bankrolling part of the offer for Ashton and has agreed to tender its Contact shares to the merger. It would hold about 14% of the merged company.