Freewest CEO fires back at Noront offer

Peter Koven, Financial Post Published: Monday, November 30, 2009

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TORONTO -- The head of Freewest Resources Canada Inc. has fired back at rival Noront Resources Ltd., saying that senior miner Cliffs Natural Resources Inc. is the company ready to develop its flagship property.

It is the latest salvo in a takeover battle for Freewest that pits the junior Noront against the senior Cliffs. Both companies covet Freewest's chromite discoveries in the "Ring of Fire", a hot, but remote exploration region in the James Bay Lowlands in Northern Ontario.

Noront started the fight in October, when it launched a hostile bid for Freewest. That offer was trumped last week by a friendly proposal from Cliffs, and Noront returned yesterday with a raised bid worth about $222-million in stock and warrants. Noront hopes to combine Freewest's chromite with its own Ring of Fire discoveries to create a dominant exploration company, and to build enough critical mass to move the Ring from discovery to mine development.

While not dismissing Noront's bid outright, Freewest chief executive Mac Watson said that the deposits in the Ring of Fire are not economic until a major company like Cliffs comes in and builds infrastructure.

"The only people who are going to develop the infrastructure up there will be Cliffs, or some other major. And the only thing that's going to develop the infrastructure will be [Freewest's] chromite," he said in an interview.

Noront has tried to poke holes in Cliffs' proposal, arguing that the company does not have a credible plan to build the infrastructure needed for the Ring of Fire. Noront has its own team of mine developers which it said are more qualified for the job. But Mr. Watson dismissed those claims.

"[Noront] will have to go and find someone else, a senior partner. We have a major mining company that's very interested in developing it," he said.

Warren Irwin, president of hedge fund Rosseau Asset Management and a major shareholder in both Noront and Freewest, said the Noront bid is the better option of the two.

"As a large Freewest shareholder, I would much rather tender to a Noront bid, because you get a tax-free rollover [not the case with Cliffs] and upside to expansion in the Ring of Fire," he said.

Michael Gray, an analyst at Genuity Capital Markets, said that Cliffs seems to want Freewest badly and will probably pay up for it.

But he also shares Noront's view that there needs to be more consolidation in the Ring of Fire, as greater scale will be needed before major mine infrastructure can be built.

"You'd think that in order to make this a win for everybody, you do need to consolidate the interests some level to achieve the critical mass," he said

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