Australian private-equity firm Wyloo Metals Pty Ltd. says it intends to acquire Canadian Ring of Fire exploration company Noront Resources Ltd. for $133-million.
The company made its unsolicited approach as Toronto-based Noront runs low on cash, and after years of toiling without success to get its chromite and nickel minerals projects off the ground in the Ring of Fire mining district. While Noront has long promoted the swampy remote region of Northern Ontario as holding a treasure trove of strategic metals, it hasn’t put any mines into production.
The potential acquisition of Noront also comes as the price of steel trades near a record-high. Several of Noront’s projects are tied to the steel industry.
Wyloo Metals, a subsidiary of Perth-based investment holding company Tattarang, is owned by the Forrest family, one of the wealthiest clans in Australia. Mining veteran Andrew Forrest, who alone is worth more than US$20-billion according to Forbes, oversees the holding company. Mr. Forrest is also chair of Australian iron ore giant Fortescue Metals Group.
Wyloo already owns about 23 per cent of Noront’s shares, acquiring its stake in December from another private-equity firm, Resource Capital Funds. Wyloo’s all-cash proposal of $0.315 a share for the remaining 77 per cent of Noront is a 31-per-cent premium compared with last Friday’s close.
Shares in Noront rose by 29 per cent to close at $0.31 a share on the TSX Venture Exchange on Monday, just slightly below the proposal.
If Wyloo follows through in its intentions to buy Noront, the deal would need regulatory approval from the Canadian government.
Ottawa has in the past rejected resource transactions in instances when the metal is deemed strategic, or because of security concerns. In December, it denied the attempted purchase of Canadian gold company TMAC Resources Inc. by a Chinese state-owned firm because of security concerns.
Noront on Monday said in a news release it will consider the offer from Wyloo, and let its shareholders know in due course. Since Wyloo is classified as a company insider, Noront shareholders are also entitled to independent valuation of its assets in order to be able to access if the proposal is fair.
Noront also said it is considering its near-term funding options, including whether to accept Wyloo’s offer of a $5-million loan.
Noront has warned investors on a number of occasions that there is doubt over the company’s ability to continue as a going concern. As of the end of last year, Noront was holding only $1.4-million in cash, compared with $7.3-million the year before. Noront, which generates no revenue, also has an loan of US$36.4-million coming due to Franco-Nevada Corp. next fall.
Noront, which made the initial nickel and chromite discoveries in 2007 and 2008, christened the area about 550 kilometres northeast of Thunder Bay as the Ring of Fire because of the shape of the deposits, and because an employee had an affinity for the famous Johnny Cash song. About 15 years ago, the Ring was the epicentre of a staking frenzy akin to the 1990s diamond rush in the Northwest Territories.
Cleveland-based Cliffs Natural Resources Inc. (now Cleveland Cliffs Inc.) took a big swing in the late 2000s, investing hundreds of millions to try to develop the chromite deposits. But Cliffs eventually pulled out, selling its assets to Noront at a 95-per-cent discount, amid escalating costs and an inability to secure a partnership with government to fund an access road into the Ring of Fire.
Funding the road, which would connect the mining camp to the provincial highway network, some 300 kilometres to the south, has long been one of the key hurdles. While Noront had hoped for the provincial and federal governments to carry the $1.6-billion capital cost, neither has committed.
Over the past few years, Noront has scaled back its ambitions, focusing on trying to prove the viability of a single nickel-copper-palladium project called Eagle’s Nest, and building relations with the First Nations, the critical stakeholders in the region.
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