Daily News Monday, October 20, 2008

Noront hunkers down ahead of proxy battle

In the midst of a proxy fight with a dissident shareholder, the management of Noront Resources (NOT-V) took another hit today with the release of a second report recommending that shareholders vote to replace its board.

A report by RiskMetrics Group, which provides risk management services, and financial research and analysis for institutional investors, backs the proposed new board put forward by Rosseau Asset Management, as does Michael Gray, an analyst at Genuity Capital Markets.

Rosseau, a hedge fund company that controls 9.2% of Noront's shares, issued the dissident circular on Oct. 9, charging that the company lacks focus and has wasted its first-mover position in the McFauld's Lake camp it discovered in northern Ontario last year.

Rosseau proposed a new slate of directors, including Rosseau president and chief investment officer Warren Irwin, and four former directors or officers of Aurelian Resources (now part of Kinross Gold [K-T, KGC-N]).

Noront shareholders have until 10:30 a.m. on Oct. 24 to submit their proxies.

In a press release, Noront management called the RiskMetrics report "flawed" and "illogical" and recommended that shareholders ignore it.

"Unfortunately, the RiskMetrics recommendation demonstrates a fundamental lack of understanding of Noront, its properties and its management," said Paul Parisotto, chair of Noront's special committee of independent directors, in a statement. The special committee was formed to address the Rosseau action.

"RiskMetrics takes the same contradictory position as the dissident that Noront must simultaneously focus on its core assets while not entering into option agreements that allow it to do that," said the company in a statement.

Parisotto has countered Rosseau's allegations that it lacks focus and has entered into too many joint venture agreements in the McFauld's Lake area, saying that Noront is focusing on its high-priority targets, the Eagle One and Two copper-nickel-platinum group elements projects and its Black Bird One and Two chrome deposits.

The company holds 486 sq. km of land in the "Ring of Fire" outright, and has joint ventures on another 680 sq. km.

The release did not address Gray's Oct. 10 note to clients, which endorsed the proposed board, saying, "In our view, this group of directors would be a significant upgrade to the current Noront board in terms of focus, vision and capital markets leadership."

On Monday afternoon, the telephone at Noront's offices was not being answered, and the answering machine was full.

In a letter to shareholders on Oct. 15, Noront sought to differentiate Rosseau's interests from those of its other shareholders.

"Rosseau, a hedge fund with a small minority position, is seeking to take one hundred per cent control of Noront's board of directors and effectively Noront itself, without making any offer to the other shareholders," said the company.

"Hedge funds typically have no operational experience; they trade stocks both long and short and seek to maximize cash flow to their unitholders. This poses a potential major risk to shareholders," it continued.

Noront management said a balanced board, proposed by Noront in response to Rosseau's concerns, was rejected. The board would have included two Rosseau nominees, two Noront nominees, and three mutually agreed on independent directors.

"This would have achieved a balance between the need for continued evolution in the governance of Noront, as the company itself acknowledged and pursued for some time, and preserving the continuity of institutional knowledge and expertise, which is responsible for the many successes that Noront has enjoyed over the past year. Rosseau summarily rejected this fair solution."

The company acknowledged the company had to "grow and evolve," but added: "It is too easy in these difficult market to presume that wholesale change is an answer."

Noront also questioned the Rosseau nominees' record of value enhancement at other companies.

But Rosseau's Irwin isn't worried about the outcome.

"I am confident that at the end of the day, we will get the support we need," he says.

Other major shareholders in Noront include Sprott Asset Management, at 9.9%, and Pinetree Capital, at 7.9%. Noront shares traded at $1.24 this afternoon in a 12-month window of 90¢-7.42.