Noront Resources (TSXV: NOT) has finally received a formal offer from Wyloo Metals – more than three months after Wyloo first floated a proposal to acquire the Ring of Fire junior in late May.
The 70¢ per share offer trumps BHP's (NYSE: BHP; LSE: BHP; ASX: BHP) friendly 55¢ per share bid for Noront, made in late July.
It's also more than double what Wyloo first proposed in May – 31.5¢ per share.
The success of either bid would put the high-profile Ring of Fire nickel asset in Australian hands.
Wyloo, a private company controlled by Australian billionaire Andrew Forrest, submitted the offer to Noront's board on Friday, Sept. 3, after Noront invited it on Aug. 31 to make its proposal official. Wyloo says it wants to develop a “Future Metals” hub in Ontario, building on Noront's Eagle's Nest project, a high-grade nickel-copper-PGE deposit in the remote Ring of Fire region.
But even though it has now formally submitted its offer, the Perth-based company has continued to lob criticisms at Noront's board. In its most recent statement, it implied that Noront's directors and officers have continued to support BHP's bid because under a lockup agreement signed with the giant Australia-based miner, they gain earlier access to certain options or share awards – a benefit with a gross monetary value of $10 billion at BHP's offer price. In addition, Wyloo doesn't like the terms of a confidentiality agreement it has now entered into in order to conduct due diligence.
According to Noront's July 27 support agreement with BHP, the junior can only provide confidential information to another party only if it signs a confidentiality agreement and agrees to a standstill provision. In the interest of Noront shareholders, the company says that BHP has agreed to waive the standstill requirement.
However, Wyloo says the confidentiality agreement still restricts its ability to communicate directly with shareholders.
For its part, Noront says the agreement and the terms of its support agreement with BHP are standard.
“Wyloo’s assertions that, among other things, the exercise of options and share awards by Noront officers and directors is unusual is simply incorrect,” the company said. “The acceleration provisions provided in the support agreement for the options and share awards are also customary for a transaction of this nature and are fully disclosed in the support agreement and other public filings relating to the proposed transaction with BHP.”
The lock-up agreements between BHP and Noront's officers and directors will automatically terminate if Noront ends its support for the BHP bid in response to a higher offer.
Noront also confirmed it has no undisclosed agreements, understandings or incentives for its directors or officers in connection with the BHP offer.
Notably, while Wyloo is Noront’s biggest shareholder, the junior’s board did not support its proposal and adopted a poison pill provision to block it.
In its release on Aug. 30, Wyloo said it only made the initial offer because of Noront’s intention to strike a deal with BHP that it says undervalued the Ring of Fire assets.
“In April this year, we were deeply concerned when the Noront board proposed to farm out Noront’s exploration projects to BHP for only C$25 million,” said Luca Giacovazzi, head of Wyloo Metals. “Rather than consenting to such a transaction, we decided to make an offer to acquire the company. Our fears were justified when the Noront board completed a deeply discounted 5% placement to BHP, giving away a strategic toehold in the company to an obvious suitor.”
Giacovazzi added: “Since our initial proposal, we have listened to the feedback from shareholders who, like us, believe in the future of the Ring of Fire. We believe Noront shareholders deserve the chance to decide whether to join us in rebuilding the company, and not be pressured into selling all of their shares unless they want to.”
Noront has said that it sought a bid from BHP in its search for a superior offer to Wyloo’s initial proposal in May.
Wyloo, which now owns a 24.4% stake in Noront, asserts that given its holding and the superiority of its new offer to BHP’s bid, its proposal has a better chance of success. (The company can increase its interest to 37.2% by converting a US$15-million convertible loan into common shares before the Sept. 30, 2021 maturity date.) However, the BHP bid only requires 50% of the shares not already owned by BHP to be tendered
Details of the proposal
Wyloo says it will give shareholders the choice between retaining some or all of their shares in a revamped Noront, with a board of directors headed by Andrew Forrest, or taking the cash offer.
Other board members would include: former Sherritt International CEO Ian Delaney; chairman and CEO of Queen’s Road Capital Investment Warren Gilman; and current Noront director Giacovazzi.
In a direct appeal to shareholders, Forrest pledged that Noront would make more progress under his leadership.
“After years of little progress, it’s understandable that shareholders have lost hope in Noront," Forrest said in a statement. "I’ve personally been in the same position before. Seventeen years ago, people told me Fortescue’s deposits would never be mined because there was no infrastructure to access our projects. We proved those critics totally wrong and we want to do the same in the Ring of Fire. If shareholders share my view, that it’s impossible to place a value today on a new mining district with the immense potential of these assets, I invite them to hold on to their shares and come along for the ride.”
The company adds that it is also committed to creating business opportunities for First Nations communities, pointing to the success of its Billion Opportunities program created in 2011.