Australian private-equity firm Wyloo Metals Pty Ltd. says it intends to spend $25-million to study the viability of building a battery metals processing plant in Ontario, if it succeeds in acquiring Ring of Fire operator Noront Resources Ltd.
Last week, Wyloo Metals, a subsidiary of Perth-based investment holding company Tattarang, said it was prepared to purchase the 77 per cent of Toronto-based Noront it doesn’t already own at a 31-per-cent cash premium to its market price. That would value the company at $133-million.
While Noront hasn’t yet formally turned down the approach, all indications are that it isn’t keen. After the proposal was made public, Noront moved to put a “poison pill” in place that, if granted, would prevent Wyloo from stealthily acquiring the company through a creeping takeover.
Noront chief executive officer Alan Coutts wrote in an e-mail to The Globe and Mail on Monday that the company will wait until Wyloo tables an official offer, before it responds to the 31.5-cents-a-share proposal. “Should an offer be made, we will review it and respond in due course,” he said.
Meantime, Luca Giacovazzi, head of Wyloo Metals, indicated that the private-equity firm is unlikely to pay a higher price than what is currently on the table, calling its proposal very compelling. “It’s an opportunity for shareholders who’ve been in Noront for a very long time and gone through a very bumpy journey to actually crystallize some value for themselves,” Mr. Giacovazzi said.
Wyloo acquired its initial 23-per-cent stake in Noront in December, after buying the share formerly owned by U.S. private-equity firm Resource Capital Funds.
If Wyloo is successful in buying Noront, its main focus will be developing the Eagle’s Nest nickel project, with the objective of producing concentrate that could eventually be processed in Ontario for the electric car industry. Currently, there is no such infrastructure in place. Existing processing capacity in Canada is geared toward the smelting of nickel for the stainless steel industry. The cost to build a smelter for battery grade nickel would likely run in the hundreds of millions of dollars, necessitate years of environmental studies, and require buy-in from legions of stakeholders, including First Nations communities.
Situated 550 kilometres northeast of Thunder Bay in the James Bay Lowlands in Ontario’s Far North, the Ring of Fire has had an almost mythical hold on the Canadian mining industry for more than a decade, but so far no company has succeeded in building any mines.
Noront, which has been active in the Ring of Fire since the mid 2000s, has long hyped its projects as containing a treasure trove of “strategic” minerals such as chromite and nickel. But it has never proven the economic case around its biggest projects, and has failed to persuade the provincial and federal governments to invest the billions to develop necessary infrastructure, such as an access road into the region.
Over the past few years, its share price has drifted lower, and it has run so low on cash that it has needed to repeatedly warn investors that the company is a going-concern risk.
Wyloo by contrast is extremely well-financed and controlled by Andrew Forrest, one of the richest individuals in Australia. As a private entity, Wyloo isn’t answerable to public shareholders, and can afford to play the long game on the Ring of Fire. “We’re very cognizant that isn’t going to be a short quick turnaround,” Mr. Giacovazzi said. “This is going to be a long, long journey of developing the Ring of Fire.”
It may take some time before Wyloo tables an official offer for Noront. Since Wyloo is an insider of Noront, shareholders are entitled to an independent valuation of the company first, so they are better placed to judge the fairness of the approach from the Australian investor.
Shares in Noront were flat on Monday, closing at 32 cents on the TSX Venture Exchange on Monday.
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