Wyloo Metals Pty Ltd. has bumped up its offer for Noront Resources Ltd., trumping BHP Group Ltd.’s bid, and in a highly unusual move is proposing to keep the struggling Ring of Fire exploration company as a publicly traded entity.
Since May, Toronto-based Noront has been the subject of a takeover tussle between Australian private equity firm Wyloo and BHP, the world’s biggest mining company, which is also based in Australia. Both are extremely well funded. BHP’s market valuation is US$165-billion. Wyloo is backed by Andrew Forrest, founder and chair of Fortescue Metals Group, and one of the richest individuals in Australia.
Wyloo’s latest offer of 70 cents a share in cash is 27 per cent higher than BHP’s proposal in July of 55 cents and 122 per cent higher than Wyloo’s original bid of 31.5 cents in May. Noront’s board of directors have recommended that investors tender their shares to the BHP takeover bid.
Wyloo already owns 37.5 per cent of Noront’s shares, and says it has no intention of tendering to BHP. “Wyloo Metals didn’t make its cornerstone investment in Noront earlier this year to accept an offer that represents a fraction of the potential value of Noront’s Ring of Fire assets,” Luca Giacovazzi, head of Wyloo Metals, said in a statement. “We invested in Noront because it has the potential to be Canada’s next great mineral hub and produce the metals critical to decarbonizing our planet.”
Under the arrangement proposed by Wyloo, Noront would remain as a standalone business but its current board and management team would be revamped. Existing shareholders of Noront have the option of accepting cash for their shares, or holding on to their stock and participating in the new iteration of Noront.
If Wyloo’s offer succeeds, Mr. Forrest would become chairman of Noront. Other proposed new directors include Ian Delaney, former chief executive of Sherritt International Corp., and former CIBC World Markets mining banker Warren Gilman, who is CEO of Queen’s Road Capital Investment Ltd. Wyloo did not reveal a proposed management team, but in an interview Mr. Giacovazzi said that it would likely be a mix of old and new faces. “It’s a company that’s unfortunately made very little progress for the better part of a decade,” he said. “There needs to be a change at the top.”
Situated 550 kilometres northeast of Thunder Bay in the James Bay Lowlands in Ontario’s Far North, the remote Ring of Fire region contains rich deposits of chromite and nickel. Noront, however, has never proven the economic case for its biggest projects, and has not persuaded the provincial and federal governments to invest the billions of dollars required to develop necessary infrastructure, such as an access road into the region. 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. On Monday, investors valued the company at around $275-million.
“After years of little progress, it’s understandable that shareholders have lost hope in Noront,” said Mr. Forrest in a statement. “I’ve personally been in the same position before. Seventeen years ago, people told me Fortescue’s deposits would never be mined because there was no infrastructure to access our projects. We proved those critics totally wrong and we want to do the same in the Ring of Fire.”
Noront’s high grade Eagle’s Nest nickel project is what is driving current interest from industry heavyweights. Nickel is one of a number of industrial metals that is increasingly used in low emissions automobiles and is a key input for electric car batteries. For BHP, nickel also represents one of its “forward facing” commodities, those that are used in greener energy applications.
Shares in Noront shot up by 28 per cent to close at 77 cents on Monday on the TSX Venture Exchange, 7 cents higher than Wyloo’s latest offer, suggesting that shareholders expect BHP to counter with an even higher price. For BHP’s bid to succeed it must acquire at least 50 per cent of the shares it doesn’t already own.
Wyloo has only been invested in Noront for about nine months, acquiring the debt and equity previously held by another private equity firm, Resource Capital Funds.
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