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Cliffs to Acquire Chromite Deposits from Freewest
11/27/2009 - Cliffs Natural Resources Inc. has entered into a definitive agreement to acquire the “Ring of Fire” chromite properties of Freewest Resources Canada Inc. The transaction is expected to close in the first quarter of 2010.
Cliffs Natural Resources Inc. has entered into a definitive agreement to acquire the “Ring of Fire” chromite properties of Montreal-based Freewest Resources Canada Inc. Cliffs will acquire Freewest’s interests in the properties, comprising three chromite deposits: 100% of “Black Thor” and “Black Label,” and 50% of “Big Daddy,” an adjacent deposit held by a joint venture of Freewest, KWG Resources, and Spider Resources.
Freewest’s other assets will be spun off into a “new” Freewest, which will exist independently following this spin-off transaction. Its common stock will continue to trade on the TSX Venture Exchange.
The transaction is expected to close in the first quarter of 2010.
On closing, each Freewest shareholder will receive C$0.55 per share, or C$118 million in aggregate (C$110 million excluding shares Cliffs already owns in Freewest), of consideration in the form of Cliffs Natural Resources common stock. The fraction of a Cliffs share to be issued per Freewest share will be determined based on the volume weighted average price of Cliffs’ shares for the five trading days ending on the third trading day before the effective date of the transaction. Based on Cliffs’ closing price on November 20, this consideration would result in an exchange ratio of 0.0119 and the issuance of a total of 2.4 million Cliffs shares.
Each Freewest shareholder also will receive one share of “new” Freewest for each share of Freewest held on the record date. Shares of “new” Freewest have an estimated value of C$0.15 per share. Freewest’s Board unanimously supports the transaction and recommends all shareholders accept Cliffs’ offer.
Cliffs currently owns 6.9% of Freewest’s basic shares outstanding, and owns warrants to purchase additional shares of Freewest, which, if exercised, would further increase Cliffs ownership to 9.75%. Subject to approval of the TSX Venture Exchange, Cliffs intends to infuse C$4.1 million of cash into Freewest via a private placement for working capital purposes which, when combined with the potential exercise of its warrants, would increase its ownership to 12.7%. Cliffs will retain its pro rata share of ownership in “new” Freewest.
BMO Capital Markets is acting as financial advisor, and Blake, Cassels & Graydon LLP is acting as legal advisor to Cliffs, in connection with the transaction.
Strategic rationale—Cliffs notes that the acquisition will allow it to apply its expertise in open-pit mining and mineral processing to a chromite ore resource base that would form the foundation of North America’s only ferrochrome production operation. The planned mine is expected to produce 1 to 2 million tonnes of high-grade chromite ore annually, which will be further processed into 400,000 to 800,000 tonnes of ferrochrome.
“This long-term project is consistent with Cliffs’ stated strategy to broaden its mineral diversification and opens the door to a new universe of customers,” said Cliffs’ Chairman, President, and CEO Joseph Carrabba. “In addition to furnishing the raw-material needs of carbon steel producers, we will become a supplier to producers of stainless steel.
“Ferrochrome is imported by the world’s fastest-growing steel markets, and many countries have categorized it as a strategic resource,” he continued. “We believe this discovery represents one of the premier chromite deposits in the world. Given the operation’s unique location, our objective will be to supply ferrochrome to stainless steel producers around the world.”
Commercial plans—A formal study of the chromium deposits will commence in early 2010, and is expected to be completed in the first half of the year. The study will meet industry standards and be comparable to an NI 43-101 Technical Report or a Joint Ore Resource Committee (JORC) assessment of the mineral resource. According to Cliffs, diamond-drill core samples within these deposits have consistently intersected significant chromite zones with “world-class” thickness, grade, and chromium-to-iron ratios to supply a low-cost, open-pit mining operation.
Cliffs expects commercial plans to bring the deposit to market would include construction of the open-pit mine and mine-site processing facility, as well as a remote electric arc furnace (EAF) to further process the ore into high-grade ferrochrome. The EAF facility is anticipated to be located on the north shore of Lake Superior. If the project proceeds as planned, the permitting process is anticipated to require about three years, with production commencing around 2015.
Cliffs Natural Resources, an international mining and natural resources company, is 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. The company is organized through three geographic business units: The North American business unit is comprised of six iron ore mines owned or managed in Michigan, Minnesota, and Eastern Canada, and two coking coal mining complexes located in West Virginia and Alabama. The Asia Pacific business unit is comprised of two iron ore mining complexes in Western Australia and a 45% economic interest in a coking and thermal coal mine in Queensland, Australia. The South American business unit includes a 30% interest in the Amapá Project, an iron ore project in the state of Amapá in Brazil.
Freewest Resources Canada Inc. is a Canadian-based mineral exploration company focused on acquiring, exploring, and developing high-quality chromite, gold, and base-metal properties in Eastern Canada. Exploration is focused on these commodities within classical geological settings characterized by established and/or perceived high-potential mineral endowment. To enhance value to its shareholders, the company’s strategy is to advance exploration projects to the pre-feasibility stage or to commercial production with partners.
