Ring of Fire operator Noront Resources Ltd. is recommending its shareholders accept BHP Group Ltd.’s takeover offer, effectively spurning a higher per-share proposal from another Australian mining industry heavyweight, Wyloo Metals Pty Ltd.
In July, Melbourne-based BHP made a tender offer to Noront’s shareholders of 55 cents a share in cash, which its board subsequently backed.
Perth-based Wyloo on Monday proposed a plan of arrangement that would see the private equity company acquire Noront for 70 cents a share in cash.
The play for Noront by two large international mining entities has sparked renewed interest in Northern Ontario’s mineral-rich Ring of Fire area.
Noront said in a news release on Tuesday that shareholders should stick with BHP’s offer because it’s a sure thing. “The only binding offer available to shareholders is BHP’s,” Noront said.
Toronto-based Noront characterized Wyloo’s approach as a “non-binding indication of interest,” conditional on Wyloo completing due diligence, and the “execution of a definitive arrangement agreement.”
But even with the Noront board backing BHP, the success of its offer is far from certain. Wyloo controls 37.5 per cent of Noront’s shares, and said it has no intention of tendering to BHP.
BHP currently owns a 3.7-per-cent stake in Noront. To succeed in its takeover bid, BHP must obtain at least 50 per cent of the shares it doesn’t already own in Noront, or 48.15 per cent.
If Wyloo proceeds with its arrangement, under Ontario securities law, typically it would need to obtain two thirds of votes cast following a special meeting of shareholders.
Noront shares closed at 75 cents a share on Tuesday on the TSX Venture Exchange, 5 cents higher than Wyloo’s proposal, indicating that investors are expecting that not only will Wyloo follow through on a formal offer, but that a higher bid will materialize.
Unlike BHP, which signed a “standstill” agreement when it entered into confidential talks with Noront, Wyloo will not have to do likewise. (A standstill agreement prevents the potential acquirer from acquiring more shares in the target company for a period of time.) Noront said on Tuesday it will provide Wyloo with a confidentiality agreement but it will waive the standstill provision.
“This will allow Wyloo to complete the due diligence that Wyloo claims is required, and to decide whether or not to make a binding offer,” Alan Coutts, chief executive officer of Noront, said in the Tuesday statement.
Previously, Wyloo declined to enter into talks with Noront because it didn’t want to sign a standstill. Wyloo said in a statement on Monday that a standstill agreement would have prevented it from making an offer directly to Noront shareholders, and prevented Wyloo from proposing a new board of directors.
The fight for Noront pits two of the world’s mining behemoths against each other and has resulted in a resurgence in the fortunes of a struggling junior exploration company. BHP is the biggest mining company in the world with a market valuation of US$164-billion. Wyloo is backed by Andrew Forrest, founder and chair of Fortescue Metals Group, and one of the richest individuals in Australia. Since the public tussle for Noront began in May, its shares have run up by more than 200 per cent.
Noront’s Eagle’s Nest nickel project is what is inciting current interest from the Australian heavyweights. Worldwide miners are scrambling to secure supplies of nickel. The industrial commodity is trading at multiyear highs thanks in part to brisk demand for electric cars. Nickel is a key component in lithium ion batteries.
Situated 550 kilometres northeast of Thunder Bay in the remote James Bay Lowlands, Ontario’s Ring of Fire contains rich deposits of nickel and chromite. In 2008, at the height of the excitement over Noront’s minerals discoveries, the company’s valuation exceeded $800-million. But over the past decade its fortunes have dwindled as it ran low on cash and failed to make significant progress in developing its much-vaunted minerals projects.
Noront has never proven the economic case for its biggest projects, and the provincial and federal governments haven’t committed to invest the billions of dollars required to develop necessary infrastructure to allow a miner to operate. One of the biggest impediments is the lack of an access road into the region. Noront’s mining camp is located on swampy land and is about 300 kilometres north of the provincial highway network.
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