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North American Palladium’s fortunes have improved significantly, because of a more successful mine expansion, and a dramatic turnaround in the price of palladium.

Adam Lach/Handout

Canadian palladium miner North American Palladium Ltd. agreed to a $1-billion takeover in an unusual deal that sees its biggest shareholder, Brookfield Business Partners LP, accept a discount in order to get the transaction done.

Toronto-based North American Palladium said Monday that it had reached a friendly agreement with South Africa’s Impala Platinum Holdings Ltd. Public shareholders of North American Palladium will get $19.74 a share, exactly the level the shares closed at on Friday. Brookfield Business Partners and the institutions that invested alongside it, however, will receive only $16 a share for the 81-per-cent stake they hold – a 19-per-cent discount.

Brookfield appears eager to lock in its gains from a turnaround at the mining company and strong prices for the metal, which is used in vehicles to minimize toxic emissions. Takeover talks with Impala intensified in July and shares in North American Palladium ran up by 35 per cent over the next few months.

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Brookfield first got involved as a debt holder in 2013, advancing US$130-million to North American Palladium at a 15-per-cent interest rate. The company needed the funds to expand its Lac des Iles palladium mine, northwest of Thunder Bay. But over the next few years, the company ran into operational problems and soon was facing a cash crunch amid crumbling palladium prices. In 2015, the company went through a recapitalization that saw Brookfield convert its debt to equity and in the process become the biggest shareholder with 92 per cent of the stock.

In the past few years, North American Palladium’s fortunes have improved significantly, because of a more successful mine expansion, and a dramatic turnaround in the price of palladium.

On Monday, palladium changed hands for around US$1,660 an ounce, not far from a record high. Over the past year, the precious metal has risen about 55 per cent, based on rising demand from the automotive industry and squeezes on the supply side. New stricter air-quality regulations in Europe and Asia have resulted in increased worldwide demand for the metal, which is used in catalytic converters. While North American Palladium is a “pure play,” most of the palladium supply in the world comes as a byproduct of mining nickel or platinum. Russian miner MMC Norilsk Nickel PJSC is the world’s biggest producer.

While Brookfield is walking away with a gain of more than three times its investment, one analyst said minority shareholders could have gotten more.

"They’re leaving a lot of money on the table. A couple of hundred million based on what they could get,“ said David Stewart, analyst with GMP Securities Inc.

“It’s not just the value of the offer. Everyone can agree that’s really low. It’s also the timing. It’s just way too soon, “ Mr. Stewart said.

North American Palladium is in the midst of what has been a successful expansion of its Lac des Iles palladium mine. Recent encouraging exploration results there also point to added upside for shareholders, he said.

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North American Palladium has a 30-day provision in place that allows it to receive superior offers. Mr. Stewart says a number of other South African-based platinum miners, including Anglo American Platinum Ltd., Sibanye-Stillwater and Northam Platinum Ltd. may emerge as possible bidders.

However, any competing offer will likely have to be all-cash to stand a chance of success said Mr. Stewart. He believes Brookfield isn’t keen on holding shares in another mining company.

“Brookfield wants cash. That’s why they’re taking a discount. They just want cash and they want to get out,” he said.

The deal needs approval from two-thirds of North American Palladium shareholders; Brookfield and its partners have already pledged to vote their 81-per-cent stake for the deal.

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