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Consolidation In Junior Resource Stocks Continues – Freewest Resources Announces $150 Million Acquisition By Cliffs Natural Resources

Posted by AGORACOM at 12:53 PM on Monday, November 23rd, 2009

My Peanut Butter Manifesto for consolidation in the junior resources space, which is shared by Pierre Lassonde, seems to be picking up momentum with the announcement today by AGORACOM client, Freewest Resources, of an acquisition by Cliffs Natural Resources.  This is no small party deal – Cliffs Natural Resources (NYSE:CLF) (PARIS:CLF) is an international mining and natural resources company, the largest producer of iron ore pellets in North America, a major supplier of direct-shipping lump and fines iron ore out of Australia and a significant producer of metallurgical coal.

JUNIOR RESOURCES PEANUT BUTTER MANIFESTO

I’m pleased to see this deal from an industry perspective because we are now clearly seeing the wheat separated from the chaff.  At the time of my original peanut butter manifesto, there were simply too many bogus resource companies that were strong on promotion but light on fundamentals.  The result was a thinning out of investment dollars over too many companies, meaning the truly great companies were not realizing their true market potential.

Thankfully, this has started to change as of late with good companies seeing their share prices appreciate nicely, while empty juniors struggle to survive.  I hope the philosophy behind The AGORACOM 100 played a role in helping this happen. I certainly believe our upcoming Online Gold & Commodities Conference (December 3rd and 4th) will also serve to further this goal.

Let’s hope this trend continues so that investors can maximize their personal returns from investments in great juniors.

HIGHLIGHTS OF FREEWEST / CLIFFS DEAL

Read the entire press release but here are some of the highlights of this friendly deal:

  • Cliffs to acquire 100% of outstanding Freewest shares
  • Each Freewest shareholder to receive C$0.55 in shares of Cliffs and one share of New Freewest with an estimated value of C$0.15, for a total estimated value of C$150.6 million or C$0.70 per Freewest share
  • Transaction represents a 122.2% premium to Freewest’s closing price on October 2, 2009, immediately prior to the announcement of the unsolicited offer by Noront Resources Ltd., and a 27.3% premium to Freewest’s closing price on November 20, 2009
  • Freewest Board of Directors unanimously supports Cliffs transaction

“We are delighted to announce this transaction”, said Mackenzie I. Watson, President and Chief Executive Officer of Freewest. “We believe this transaction is clearly superior to the proposal put forward by Noront. It will provide Freewest shareholders with highly-liquid shares in a company with a market capitalization in excess of US$5 billion, while allowing New Freewest to continue as a well-financed exploration company focused on the high-grade Clarence Stream gold property and an attractive suite of early-stage exploration properties. The New Freewest shares represent significant value and ongoing upside potential.”

The transaction will be effected by way of Plan of Arrangement. Freewest expects to mail a management proxy circular to shareholders in December for a special meeting of shareholders to be held in January 2010. It is expected that the transaction will be completed shortly after the special shareholders’ meeting.

“The transaction with Cliffs will benefit all of Freewest’s shareholders”, added Mr. Watson. “Our shareholders will become shareholders of Cliffs, listed on the New York Stock Exchange, as well as shareholders of New Freewest. The shares of Cliffs are very liquid, which will be advantageous for our shareholders. As Cliffs has provided a floating exchange ratio which guarantees C$0.55 per share on closing, the value of Cliffs’ proposal is far less volatile than Noront’s hostile bid, which offers a fixed ratio of Noront shares as consideration. As well, Cliffs has the resources to develop the McFaulds chromite properties, while New Freewest will focus on exploration.”

The Arrangement Agreement with Cliffs contains, among other things, a non-solicitation covenant by Freewest, subject to customary provisions that entitle Freewest to consider and accept a superior proposal; a right in favour of Cliffs to match any superior proposal; and the payment by Freewest to Cliffs of a termination payment equal to C$6 million if the transaction is not completed as a result of a superior proposal, and in certain other circumstances.

The transaction between Freewest and Cliffs is subject to a number of conditions, including obtaining the approval of at least two-thirds of the Freewest shares voted at a special meeting of shareholders, and a simple majority of the Freewest shares voted at the special meeting, other than shares held by certain officers of Freewest. The transaction is also subject to court approval as a plan of arrangement, listing approval from the TSX Venture Exchange in respect of the shares of New Freewest to be distributed to Freewest shareholders, and a number of other customary conditions.

CIBC World Markets Inc. is acting as financial advisor and Heenan Blaikie LLP as legal advisor to Freewest in connection with the transaction. Cliffs is advised by BMO Capital Markets and Blake, Cassels and Graydon LLP.

Congratualtions to Mac and his entire team.  Well done.

Regards,
George

Goldcorp Acquisition of Canplats Resources Continues Pierre Lassonde’s Peanut Butter Manifesto

Posted by AGORACOM at 1:39 PM on Monday, November 16th, 2009

Back in April 2008, I posted a story titled:  3-Way Junior Mining Consolidation Is Pierre Lassonde’s “Peanut Butter Manifesto”

Let the fly by nights die, consolidate those with decent assets and let the superstars stand up on their own two feet.
Quality over Quantity folks. It is that simple.

If you’re asking what the heck does peanut butter have to do with the junior resources space, have a read of the post.  In the meantime, I’m pleased to see continued follow-through on my call for consolidation in the space.  Today, Goldcorp agreed to acquire Canplats Resources in a deal worth about $238 million.  This is great news for the space as it will surely lead to further money injected into juniors with highly prospective projects.  Ironically enough, the story contained a quote from Pierre Lassonde who seems to have his finger on the very pulse of this consolidation trend:

Bullion producers including Goldcorp and Barrick Gold Corp., the largest producer by market value, may attempt to take
over smaller companies in the next two months to boost output amid dwindling supplies and rising prices, Franco-Nevada
Corp. Chairman Pierre Lassonde said in an interview last week.

On that note, I can’t help but mention the fact this could not be better timing for the AGORACOM Online Gold & Commodities Conference.  Emphasis on the online element of the conference as it will allow investors from anywhere in the world to participate and connect with great companies and keynote speakers from their PC.  Click on the banner for full information … and yes, it is free to investors!

Regards,
George

3-Way Junior Mining Consolidation Is Pierre Lassonde’s “Peanut Butter Manifesto”

Posted by AGORACOM at 6:50 PM on Thursday, April 3rd, 2008

If you’re an investor in the junior gold mining and exploration sector, then you owe a hat tip to Pierre Lassonde. Lassonde is apparently the man responsible for consolidating 3 juniors into one earlier this week.

If you haven’t heard by now, Metallica Resources Inc., New Gold Inc. and Peak Gold Ltd. combined to create a new, mid-sized gold producer with a market cap of approximately $1.6-billion. I’m not going to bother with the details, GlobeInvestor.com carried the full story here. I’m covering this because it points to both a problem and solution in the junior mining and exploration sector.

LASSONDE HATES PEANUT BUTTER..YOU SHOULD TOO

What the hell does that mean? Listen closely. This is important and will only take a minute.

If you had told me 18 months ago that gold, silver, copper, platinum, etc were trading at today’s prices, I would have danced a jig while celebrating sky-rocketing share prices in the junior sector. So would many of my friends at Sprott, Pinetree and Canaccord, as well as, just about every one of our clients in the space.

Unfortunately, that has not transpired.

Why?

Over supply. Much like an overbuilt condo market, there is far too much supply of junior mining and exploration companies, especially exploration companies. Today, just about anybody with a piece of land in a far away location, whose grandfather once spotted a shiny rock, has become an “explorer”.

This creates a peanut butter effect where investors are thinly spread out over a far too large sector. If you think this sounds cute, don’t be fooled. The Peanut Butter Effect can take down some pretty big whales. It almost took down Yahoo, until a Senior Vice-President wrote the now infamous Peanut Butter Manifesto in which he summarized the company as follows:

“I’ve heard our strategy described as spreading peanut butter across the myriad opportunities that continue to evolve in the online world. The result: a thin layer of investment spread across everything we do and thus we focus on nothing in particular.  I hate peanut butter and so should you”

This is exactly what is happening in this industry. A thin layer of investors spread across way too many companies, with no particular focus on the good companies.

CONCLUSION

Lassonde obviously hates peanut butter, so he took action. We should all hate peanut butter and take similar action. Let the fly by nights die, consolidate those with decent assets and let the superstars stand up on their own two feet.

Quality over Quantity folks.  It is that simple.

It worked for AGORACOM in building this community to more than 10,000,000 pages per month. It has started working for Yahoo in re-building its business.  It will work for the junior mining and exploration sector.  The sooner the better.

Regards,
George