Iron ore pellets and metallurgical coal supplier Cliffs Natural Resources Inc. (CLF) announced Monday that it entered into an arrangement agreement with Montreal-based Freewest Resources Canada Inc. (FWR.V) to acquire all shares of Freewest in a Board-supported transaction with a total estimated value of C$150.6 million, or C$0.70 per Freewest share.
As per the deal terms, each Freewest shareholder will receive a fraction of a Cliffs share representing a fixed value of C$0.55, and one share of a new company, Freewest Resources Inc., which is estimated to have a value of C$0.15 per share.
Of the total transaction value of C$150.6 million, C$118.3 million is attributable to the shares of Cliffs while an estimated C$32.3 million is attributable to the shares of New Freewest to be distributed to Freewest shareholders.
The transaction will provide a premium of 122.2% to the closing price of Freewest's shares on the TSX Venture Exchange on October 2, 2009, immediately prior to the unsolicited bid by Noront Resources Ltd. for Freewest's shares, and a premium of 27.3% to Freewest's closing price on November 20, 2009.
The newly formed company, Freewest Resources Inc., or New Freewest, will own Freewest's current portfolio of non-chromite exploration properties and will be managed by the current Freewest Board and management. Following the spin-off transaction, New Freewest would exist independently and its common stock would continue to trade on the TSX Venture Exchange.
New Freewest will have C$2.0 million in cash, Freewest's shares of Quest Uranium Corporation (QUC.V), and a portfolio of exploration assets that include the high-grade Clarence Stream gold property in New Brunswick, Canada, which currently contains Indicated Resources of 235,000 ounces of gold grading 8.99 g/t and Inferred Resources of 156,000 ounces of gold grading 7.35 g/t.
Mackenzie Watson, President and Chief Executive Officer of Freewest, said, "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 whole transaction will be effected by way of Plan of Arrangement, the companies noted.
Freewest's Board unanimously recommends its shareholders to approve the transaction with Cliffs at the forthcoming special meeting, while continuing to recommend its shareholders reject the hostile take-over bid by Noront, which will expire on December 1, 2009.
However, the current transaction is subject to several 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.
Meanwhile, Cliffs, in its related release, said it has entered into a definitive deal with Freewest to acquire interests in three chromite deposits belonging to the "Ring of Fire" properties.
As per the definitive deal, Cliffs will acquire 100% of "Black Thor" and "Black Label," and 50% of "Big Daddy", an adjacent deposit owned by a joint venture of Freewest, KWG Resources and Spider Resources. The company said that the deposits can support 1 to 2 million Tonne-Per-Year Operation for over three decades.
Cliffs presently owns 6.9% of Freewest's basic shares outstanding, and also owns warrants to purchase additional shares of Freewest, which, if exercised, would increase Cliffs ownership to 9.75%. According to Freewest, Cliffs has agreed to subscribe for 6,908,440 common shares of Freewest at a price of C$0.60 per share, for proceeds of C$4.14 million.
The company said that the fraction of a Cliffs' share that would be exchanged for on Freewest share will be determined after considering the volume weighted average price of Cliffs' shares for the 5 trading days ending on the third trading day before the effective date of the transaction.
Cliffs expects the transaction to close in the first quarter of 2010, subject to approvals. Cliffs said that provided the the project proceeds as planned, the permitting process would require about three years, and production would commence around year 2015.
BMO Capital Markets is serving as the financial advisor and Blake, Cassels & Graydon LLP as the legal advisor to Cliffs, for matters concerning the transaction.
CLF is currently trading at $44.59, up $1.57 or 3.65%, on the NYSE.
FWR.V is currently trading at C$0.63, up C$0.08 or 14.55%, on the TSX Venture Exchange.
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