Mackenzie Watson, President and CEO of Freewest Resources (FWR, TSX-V), may not be correct in his view that Cliffs Natural Resources Inc. (CLF, NYSE) is a better choice than Noront Resources (NOT, TSX-V) to take over Freewest and its valuable chromite deposit in the James Bay Lowlands of northern Ontario, but one thing’s for certain: This mining veteran has drawn a major mining company into a battle over resources in the prolific Ring of Fire, and that’s good news for all investors.
Cliffs‘ revised offer today of 90 cents a share in Cliffs stock for Freewest, a slight premium to Noront’s latest “final” offer, by no means settles this battle. In fact, the real battle could just be getting underway. Clearly, Cliffs is the big guy with deep pockets who wants to get his hands on all the chromite Freewest is sitting on (a North American supply doesn’t currently exist). Noront is the “little guy”, described rather rudely as a “pipsqueak” in a recent article, with a lot less money but an incredibly valuable resource – not to mention blue sky potential – in the Ring of Fire that includes a substantial high-grade nickel-copper and PGM deposit, the Blackbird 1 and Blackbird 2 chromite deposits, and even some gold and other metal discoveries.
Where things go from here is anyone’s guess as this is a very fluid and unpredictable situation, occurring at a time when the Venture Exchange is in a new bull market which adds further fuel to the fire. Noront is hitting hard and has been coming out with a flurry of news releases including one this morning that clearly shows they have a firm grasp on all the development issues regarding the Ring of Fire. How Cliffs would fare in terms of dealing with the First Nations is something Freewest shareholders should be giving more consideration to.
So here are our thoughts on how this may all unfold in the coming days and weeks, and we encourage readers to offer their insights as well:
1. The $200+ million offer currently on the table for Freewest by Cliffs unquestionably puts a floor on the Noront stock price and a much greater overall valuation on its Ring of Fire properties. If the takeover price on Freewest is $211 million, what would a potential takeover price on Noront be? One billion? Two billion? Three billion? Currently, Noront’s market capitalization stands at only $400 million. Noront’s market cap is virtually guaranteed to go much higher.
2. Noront is not playing a game here. They are dead serious about taking over Freewest. A very strong argument in favor of Freewest shareholders accepting a takeover offer from Noront is Noront’s blue sky potential, the very real possibility that its share price could go through the roof for any number of reasons – a surge in nickel prices, new discoveries, takeover attempts, etc. The value of Noront’s stock is its ace in the hole, we believe, in its attempt to acquire Freewest. Whatever Noront can do in the coming days and the next few weeks to get its share price more in line with the real value of its Ring of Fire assets, the greater chance it has of capturing Freewest. If Noront is successful in getting investors on its side, look out Cliffs.
3. Another major may enter the picture. Now that there’s one, the odds of someone else stepping up to the plate have increased substantially. Even one to help Noront?
Bottom line: We expect Noront and Freewest to both go higher, not to mention Probe Mines (PRB, TSX-V) and MacDonald Mines (BMK, TSX-V).
Noront’s chart, by the way, looks incredibly explosive. And a picture tells a thousand words. There are times when you just know and can feel that a stock is about to go crazy. That’s what it seems like right now with Noront.
With a major now in the picture, everything has changed with the Ring of Fire. The next week is going to be incredibly interesting. No matter what, though, Noront is definitely a winner through this process, and its share price will reflect that.
