I believe, and I may be mistaken in this matter since I've only owned shares of KWG since about 2007, that KWG originally went through the motions of staking and follow-up engineering with Cliffs' support. Remember that Cliffs at the time was an insider, owning almost 20% of the outstanding KWG shares, and having a member on the Board. In fact, they are still technically considered an insider, although I believe that their ownership has been diluted down to about 16% or thereabouts, and there is no longer a member on the KWG board.

Cliffs and KWG were working together for some time. Let's move forward a couple years. I don't think it was the cost of the railway engineering work ($15m) that caused the problems. I believe it was that Cliffs didn't want to give 26% of the cut to KWG, and 26% to Spider. So they decided that they'd buy out the two companies. The bidding war is probably old history to a few, and not understood by a significant number of today's investors. Cliffs offered 13 cents per share for each, and after a bit, when it looked like KWG and Spider were going to merge, they said that they were rescinding their offer for KWG and were only going to continue to pursue a takeover of Spider. You see, Spider was the easier of the two to take over (Frank allegedly wasn't willing to give up the company for less than 25 cents per share) and so Cliffs raised its bid price for SPQ to 16 cents and KWG dropped to around 10 cents once it became apparent that the shares were no longer being pursued. Cliffs knew that it only had to take over one of the two companies to get a majority control position in the Big Daddy deposit, which was (and still is) a more appealing ore body than Big Thor or Black Creek (both owned 100% by Cliffs). Divide and conquer.

SPQ wasn't quite taken over for 16 cents, although a pretty large percentage of the shares were tendered for that price on the open market. In the end, Cliffs offered 19 cents. At that point, many of us knew that the bids probably wouldn't go higher, and settled for 18.5 on the open market (a lower price, which gave us the cash almost two months earlier). I would guess that the averaged weighted price that Cliffs paid for Spider was probably around 15 to 15.5 cents. Lots of shares probably around 10-12 cents (maybe up to 9.9% of the float) before the takeover bid was announced, probably another 30% at the 13 cent level, probably another 40% at the 16 cent level, maybe 10% at 18.5 open market and 10% at 19 forced tender.

Anyway, the real problems were originally because Cliffs didn't want to share part of the monopoly with a junior partner. They said that they'd mine BT or BC first, even at lower returns, as a simple FU to KWG. It was only logical for KWG to fight this decision and say, "Then you can't use the railway." If Frank had said, "Ok, you can mine another ore body that we don't have any ownership in, but that's ok, we don't need any revenue for twenty years, and by the way, feel free to use the rail route that we studied together," then the shareholders would have lynched Frank. Even if he wanted to lay down, he had/has a fiduciary duty to the shareholders.

Of course, Cliffs had to pretend that a road was the best option, simply because the railway was no longer an option UNLESS they agreed to mine Big Daddy first, and share a huge amount of revenue. So their plan was to say that the rail was irrelevant and a road would work out, and hope to drain KWG of their cash-on-hand through a number of devious options, and eventually drive KWG into the ground. At that point, they could come in and scoop up the pieces for a song, and my assumption is that at that point they would suddenly support the railway, and also decide that maybe Big Daddy was the smart project to tackle first, after all.

Cliffs was devious, conniving, scheming, and morally reprehensible in all of their actions.

Having said that, if I was running Cliffs in a dog-eat-dog corporate world where money trumps morals, I would have tried exactly the same thing. (PS: That's why, despite having an MBA and several other degrees, and lots of management experience, I'm happy working in a mid-management position in the resource sector, instead of a position within corporate Canada).

So that's where all the bad blood came from, from my understanding of it all.