For a company that claims to have the best exploration projects in the Ontario mining camp known as the Ring of Fire, junior miner Noront Resources Ltd. is certainly asking its shareholders to accept a lot of dilution with a last-ditch offer for smaller rival Freewest Resources Canada Inc.
If successful, the all-stock bid would trump an offer from U.S. iron and coal major Cliffs Natural Resources Inc., but would also dilute Noront shareholders by about 37 per cent.
Noront's chief executive officer Wes Hanson said that despite the heavy dilution, he won't be giving his shareholders a vote on the proposed transaction.
"No. We are not required to, because we are listed on the TSX Venture Exchange," Mr. Hanson said in an interview.
Under recently enacted rules, companies that trade on the Toronto Stock Exchange are required to give their shareholders a vote on any transaction that increases the amount of shares by more than 25 per cent. However, the smaller firms that trade on the TSX Venture Exchange are exempt from the new regulations.
"Based on the feedback we've received from our institutional and retail shareholders, I don't think it is necessary. It's all been very positive. There have been very few who have had negative comments," Mr. Hanson said.
Noront's offer, which consists of shares and warrants, is a bold attempt to win the battle for Freewest and its promising chromite deposits in the Ring of Fire, the mining exploration area located in the James Bay Lowlands of Northern Ontario.
Cleveland-based Cliffs swooped in with an all-stock bid for Freewest last week that valued the company at 70 cents per share and topped an initial buyout offer by Noront. Cliffs called Freewest's properties "one of the premier chromite deposits in the world." Cliffs expects to spend more than $800-million (U.S.) developing what would be the first mine in North America to produce chromite, which is a key ingredient used to make stainless steel.
Toronto-based Noront claims its "full, fair and final" offer values Freewest at 86 cents (Canadian) per share, based on Noront's share price before the bid was announced.
However, Noront's valuation of its offer includes a five-year warrant with a strike price of $4. That means its shares would have to almost double for investors to make money.
Freewest's shares yesterday jumped 12 cents or 18 per cent to 76 cents on the TSX, a level still well below the value Noront ascribes to its bid.
Among the companies that have invaded the Ring of Fire region, Noront has been the most heavily promoted and has developed a strong following among retail investors. Its shares surged above $6 in early 2008 but plunged below $1 last year during the global financial crisis. Noront is also developing two of its own chromite projects, but has yet to produce an official resource for them. But while Freewest's chromite deposits are larger, Noront's chromite projects are of "higher quality," Mr. Hanson said.
"That's not true at all ... our quality is just as good as their's so that is false. They are just coming after us is because our deposit is so much larger than their's," Freewest CEO Mac Watson said in an interview.
"It's huge dilution. I don't quite understand it really," Mr. Watson said of the Noront bid.
Freewest's board of directors will now decide if Noront's offer is superior to the Cliffs bid and make a recommendation to shareholders.
Spokeswoman Christine Dresch said the Cliffs is reviewing the Noront offer and its own options.
NORONT RESOURCES (NOT-X)
Close: $2.29, up 4 cents
FREEWEST RESOURCES (FWR-X)
Close: 76 cents, up 12 cents