Canadian Mining Journal

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CANADIAN PERSPECTIVE: Calling in the (American) cavalry

In mid-October 2009 Noront Resources of Toronto launched an all-share, $90-million takeover bid for Freewest R...


In mid-October 2009 Noront Resources of Toronto launched an all-share, $90-million takeover bid for Freewest Resources of Montreal. The deal could have consolidated both companies’ exploration properties in Ontario’s Ring of Fire. Predictably, Freewest’s board urged shareholders to reject Noront’s offer, calling it “inadequate, opportunistic, and [failing] to recognize the strategic value of Freewest’s assets and our future value-creation potential.”

 

Industry watchers will recognize the rhetoric. It was the opening salvo in a war of words. Freewest let it be known that it had entered into a exclusivity and confidentially agreement with a third party. Noront and Freewest squabbled over Freewest’s shareholder rights plan, saying they agreed and/or did not agree on whether they had settled the matter. By now it was the middle of November.

 

Finally, the cavalry, in the form of Cliffs Natural Resources of Cleveland, OH, rode in with an offer that Freewest directors could recommend. Cliffs also made a share-trade offer, but it valued Freewest shares at $0.55 each for a total consideration of $110 million for outstanding shares not already owned by Cliffs. Measured by shareholder return, the Freewest directors made a better deal than Noront was offering.

 

Cliffs is now poised to become the only primary chromite and ferrochrome producer in North America as well as being a supplier of coal and iron ore. With the takeover it acquired interests in three chromite deposits: Black Thor (100%), Black Label (100%) and Big Daddy (50% Freewest, 25% KWG Resources of Montreal and 25% Spider Resources of Toronto). Freewest’s interests in the Ring of Fire are now in foreign hands.

 

Cliffs is no stranger to the Canadian mining scene. It owns 26.8% of and operates iron ore producer Wabash Mines in Labrador. Its partners are ArcelorMittal (28.5%) and United States Steel (44.6%).

 

Is American control of North America’s potential supply of chromite and ferrochrome an acceptable thing?

 

Canadian’s with a nationalistic bent will probably say it is not. Canada’s mineral sector can be considered a valuable, even strategic, industry. The Americans undoubtedly feel they should be the owners of such a strategic resource.

 

Keeping all the royalties and taxes new mines might generate would be a bigger boon to the Canadian economy than if some of the money go south of the border. But there will still be a local workforce to hire and pay, and many secondary jobs will be created in Canada.

 

Finally, Cliffs has the financial resources and global reach to move a chromite project toward production. If the goal is to create a new mine, a large American company has a better chance of reaching it than two Canadian juniors.

 

I remain of two minds: I do wish control of the Black Thor, Black Label and Big Daddy deposits could remain in Canadian hands; but if Canadian ownership would hamper the opportunity for development, American ownership is not so bad.