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The Ring of Fire is about to become the Blazing Ring of Fire as the battle for Freewest Resources (FWR, TSX-V) and its world class chromite deposit enters a new, more intense and likely very dramatic phase. Noront Resources’ (NOT, TSX-V) “final” all-share offer for Freewest (valued at 86 cents based on the $2.25 NOT closing share price Nov. 30 when the revised offer was made) expires this Friday, December 11, and we suspect Noront will be pulling out all the stops to pull off this hostile takeover bid and thwart major Cliffs Natural Resources (CLF, NYSE). This captivating battle amounts to a classic “David vs. Goliath” showdown, and at BullMarketRun.com our faith is in “David”. We’ll explain why as we take a “big picture” look at this intriguing situation.

Momentum is clearly in Noront’s favor at the moment. They are hitting hard at Freewest’s management and board, and they’re winning the public relations game. The heart of Noront’s argument is being played out right before our eyes as Noront’s stock price continues to rise: By accepting the Noront offer, Freewest shareholders are going to benefit immensely from the blue-sky potential of the Ring of Fire and Noront in particular. Freewest President and CEO Mackenzie Watson cannot cry fowl if Noront shares ramp up to $3.00 or $3.50 this week, making NOT’s takeover offer even sweeter for Freewest shareholders. Just as the market has come to a better appreciation of the value of FWR’s chromite discovery, so too is the market beginning to realize just how valuable Noront actually is – and how the synergies of a combined NOT/FWR could make for a truly dynamic company and investment that ultimately could develop into a multi-billion dollar takeover target.

This is not your typical takeover battle. Each time Cliffs ups the ante for Freewest, it pushes up the underlying value of Noront which of course has its own chromite deposits at McFauld’s along with a rich nickel-copper-PGM discovery. That, in turn, drives up the Noront share price which makes NOT’s offer for Freewest all the more attractive. It seems to us this is a game that Cliffs just cannot win.

The question a Freewest shareholder has to ask himself (or herself) is very simple: Am I better off getting a fixed value of 90 cents on my stock in shares of Cliffs Natural Resources, and giving them the ball in terms of developing a major chromite discovery, or am I better off getting one share of Noront for every 3.5 shares of my Freewest and one Noront purchase warrant (for every 7 shares) with a $4.00 strike price (a warrant that my board says has little or no value)? In our view, the answer at this point is very simple: Freewest shareholders are better off accepting the Noront offer, and we’ll explain why.

In recommending the Cliffs’ offer over Noront, the Freewest board surprisingly seems to misunderstand the very markets all these shares are trading in.

First, as Noront effectively pointed out in its news release last Friday afternoon, and how Freewest board member Neil Wiener had difficulty explaining in a conference call Friday morning, the Cliffs’ offer will be fully taxable to Canadian Freewest shareholders. But that’s okay, according to Wiener. “The board thinks that clearly, the Cliffs’ offer is a better offer, regardless of immediate or deferred tax consequences. We point out as well, as Mac Watson indicated, that the Cliffs’ shares are highly liquid, so that if certain shares want – if you want to sell some of the shares in order to pay a tax bill in April, 2011, you will clearly be able to do so (our emphasis).” Just what every investor wants to hear! And by the way, if you also happen to take a currency loss on that investment, well, that’s just a little more bad luck. Canadian Freewest shareholders get a tax-free rollover with the Noront shares, and that’s clearly a major advantage.

Now let’s look at something else even more important. Astute investors will realize that Noront shares are trading on a superior market. By that, we mean, when a TSX Venture Exchange bull market is underway, it clobbers just about every other market in sight in terms of percentage gains. Some may wish to argue this, but history, technical indicators and fundamentals are on our side: The Venture Exchange is in the early stages of another major bull market which could persist for several more years. There will certainly be corrections along the way – 20 and 30% hair-cuts now and then – but this is an extremely powerful market right now which could quite easily jump another 50% by the end of the first quarter of 2010. The great commodities super cycle did not end with last year’s financial meltdown – it was only interrupted.

The Venture Exchange so far this year is up a whopping 82% vs. just 18% for the Dow. Even over the last decade the Venture Exchange has beaten the Dow. Noront shares this year have quadrupled while Cliffs’ NYSE shares are up only 65%. If the Venture Exchange jumps another 50% in 2010, which seems likely given what gold and commodities are now doing, Noront – as a market leader – could easily triple or even quadruple in value again. And that brings up another very important point: The $4 Noront purchase warrant that Freewest shareholders would receive on a 7-for-1 basis.

If an investor holds, say, 56,000 shares of Freewest, under the Noront offer they’ll have the opportunity over five years to purchase 8,000 Noront shares at a price of $4.00 per share. Freewest’s board and management scoffs at the warrant offer, saying it has little or no value, but common sense tells you it holds tremendous value given both the direction of the market and the incredible potential of Noront’s assets and the Ring of Fire in general. Unless you’ve been hiding in a cave somewhere the past couple of years, who in their right mind cannot see Noront’s share price substantially greater than $4.00 over the next five years? Noront says it will also try to have these warrants listed on the Venture Exchange – another bonus.

By trading their Freewest shares for Cliffs’ shares, Freewest shareholders are giving up their exposure to a better performing market, not to mention exposure to the blue-sky potential of the Ring of Fire. It’s true that Cliffs’ shares do offer more liquidity than Noront shares, making it theoretically possible for every Freewest shareholder to dump their Cliffs’ shares at the first opportunity. Which is what they might end up doing to help pay an extra tax bill and get back in on the Ring of Fire.

But wait, it gets even worse: Freewest shareholders will get little value out of their non-chromite assets by exchanging their shares for Cliffs’ shares.

Freewest holds considerable non-chromite assets, in particular the Clarence Stream gold property which contains over 200,000 ounces (with one million ounce potential) and several million shares of Quest Uranium (QUC, TSX-V). On the more speculative and resource-focused Venture Exchange, those assets as part of Noront would likely be given much more value than they would as part of Cliffs on the NYSE. This is an important consideration especially with gold expected to climb even higher in 2010.

And what about the price of nickel, and its potential impact on Noront’s stock price? From 2001 through 2008, the average annual nickel price was $7.58 U.S. The current nickel price is approximately $7.20, 5% below the eight-year average. Most analysts agree that nickel is currently at the low end of its expected trading range over the next six to 12 months of $7 to $10 per pound. If nickel jumps even 20% from its present level over the next few months, the impact on Noront’s share price could be quite dramatic.

What a week it’s shaping up to be. We expect Noront to deliver exciting news on McFauld’s and drive home the point to investors that its Ring of Fire assets are substantially undervalued, which we believe they are. Noront’s share price is the best card it can play right now to win the hearts of minds of Freewest shareholders. As far as Cliffs is concerned, they’re going to have to pull a rabbit out of the hat in a hurry. We’ll find out very quickly this week just how determined they are to secure a world class – and North American – chromite deposit.

More later today.