U.S. mining giant sweetens its bid Noront has chance to make counterproposal; lucrative chromite deposits in Ontario at stake

The fight for Northern Ontario's valuable chromite deposits sharpened yesterday as Montreal-based Freewest Resources Canada Inc. approved a sweetened offer by Cleveland Cliffs Natural Resources Inc. while saying rival Noront Resources Ltd. could still counterbid.

Noront would not reveal its next move, but chief executive officer Wes Hanson said that while Freewest's management may recommend the Cleveland Cliffs offer, Freewest shareholders will decide which is the best.

The latest all-stock bid from Cleveland Cliffs, a United States iron ore and coal mining giant, is worth 90 cents a Freewest share, or a total of $211 million. Freewest CEO Mac Watson told analysts the offer is better than Noront's all-stock bid of 86 cents a share and is unanimously recommended by his board.

"Freewest shareholders can have a stake in a large international resource company with the financial clout and technical expertise to develop our Ring of Fire chromite deposits in a reasonable time," he said.

The tax consequences are not vital.

"I don't know what Noront will do next, but Freewest shareholders have a fair offer on the table ... and they can sell the Cleveland Cliffs shares they'd receive if they want to. ... They're highly liquid." Toronto's Noront, which holds nickel-copper-platinum and chromite deposits in the remote Ring of Fire region of Ontario's James Bay Lowlands, kicked off the battle for Freewest in October with an offer of 39.75 cents a share in stock.

Cleveland Cliffs promises an open-pit chromite mine and a processing plant to produce ferrochrome, together worth $800 million U.S., by 2015. It already owns almost 10 per cent of Freewest.

Noront offers a nickel-copper mine by 2016, though its chromite production would take longer to achieve because of high infrastructure costs.

Two Toronto equity funds are big Noront shareholders, while management owns about two per cent.

The Ring of Fire area was the scene of a massive staking rush two years ago. It is a labyrinth of peat bogs, streams and shallow lakes far from rail and road infrastructure, but some analysts speculate it may provide 100 years' production of the black ore known as chromite.

The ore is processed into ferrochrome, a key ingredient of stainless steel manufacture. The world ferrochrome market is now dominated by South African and other overseas producers.

Freewest's deposits are world class, better than Noront's, and could become North America's major source of chromite for ferrochrome, Cleveland Cliffs said. But the company is vague about the timing of its mine and the processing plant's location to avoid any suggestion of creating oversupply.

Watson promised analysts Freewest will deliver a regulatory resource estimate by the time the Cleveland Cliffs offer expires in January.

Hanson, who took over as CEO after a Noront boardroom fracas in June, said via a spokesperson: "Our deal is still superior to Cleveland Cliffs' because it offers Freewest shareholders real upside as the Ring resources are developed.

"We urge Freewest holders to tender. ... Shares are coming in fast." Watson faced criticism over a $6-million payment due to senior management under the Cleveland Cliffs offer. The company says this recognizes many years of low salaries, but critics say the exercise of options has ensured adequate compensation.

Others complained that Cleveland Cliffs, under its sweetened offer, gets Freewest's non-chromite assets, including a New Brunswick gold property.

"At first these valuable assets were to be spun off into a new company held by existing Freewest shareholders. ... Now they go to Cleveland Cliffs," said one observer, who spoke on condition of anonymity.