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.