Noront Hits a Stumbling Block in Ontario’s Ring of Fire1

Monday April 27, 2015, 1:15pm PDT

By Charlotte McLeod2+3 - Exclusive to Chromium Investing News4

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Image courtesy of Wikimedia Commons.

When Resource Investing News checked in with Noront Resources (TSXV:NOT6) back in March, the company seemed to be in a good position.

It had just entered into an agreement7 to acquire, among other things, Cliffs Natural Resources (NYSE:CLF8) subsidiaries Cliffs Chromite Ontario and Cliffs Chromite Far North, which are comprised of a slew of assets located in Ontario’s Ring of Fire. Though the region, once lauded as having the potential to “rival Alberta’s oil9 sands,” has since fallen on hard times, Noront holds the largest land position there and had been gunning to make the acquisition for months. The company remains confident in the area, and when the deal went through CEO Alan Coutts said he saw it as “consolidat[ing] the world-class discoveries made in the Ring of Fire.”

In the last month, however, the situation has changed significantly, and now it’s uncertain whether Noront’s ambitious consolidation plans will indeed come to pass. Here’s a look at what happened and where Noront is now standing.

Noront faces competition

Noront’s trouble began almost immediately after the purchase was announced. That same week, the Matawa Chiefs Council, which represents eight First Nations, came forward to oppose the deal, stating that its members should have been involved in the sale process.

“Our rights to the chromite deposit are recognized by the fact that the province and mining companies have already made promises to share revenues and benefits from development,” Neskantaga Chief Peter Moonias told CBC10, adding, “[w]e should have had a voice in the sale.”

Taking a harder line, Constance Lake Chief Fred Sackaney suggested that First Nations were not consulted because the government, which has in the past been criticized for its inaction in the Ring of Fire, is trying to show that it’s moving forward there. “The government is trying to please Noront so that they can satisfy investors and the public that they’re making progress in the north. They show a lot of disrespect to First Nations. But just because they look down on us doesn’t mean we’re going to look up to them,” he said.

The chiefs of the Marten Falls First Nation and Aroland First Nation, which are part of the Matawa Chiefs Council, later put out their own separate press release11 to emphasize their opposition to the transaction.

That’s a lot of strikes against Noront, but according12 to the Financial Post, the company’s trouble only intensified from there. Just before the deal was supposed to close, Cliffs received a $23-million bid from a rival party for the assets Noront was set to buy. That’s higher than the $20 million Noront agreed to pay, but still significantly lower than the $240 million Cliffs reportedly paid for the assets back in 2009.

The bid came from Mohammad Al Zaibak, who “has no discernible mining experience” and is best known for co-founding Teranet, Ontario’s land registry system. However, the Financial Post notes that some believe he has links to Bill Boor, who used to be in charge of Cliffs’ Ring of Fire development plans. He’s also being backed by two First Nations communities near the Ring of Fire.

Bidding for Cliffs’ assets was reopened after Al Zabaik’s offer came in, with both parties given until 5:00 p.m. on April 15 to submit new bids. Ultimately, Noront’s bid was deemed superior, though the amount hasn’t been disclosed; a bid from KWG Resources (CSE:KWG13), which has also been eyeing the assets for months, was also reportedly shot down. Unsurprisingly, Al Zabaik is miffed — he wants to know how much Noront offered, and beyond that, he thinks he was used by the government to get a good deal out of Noront in a hurry.

“The chromite assets should have been the object of a duly endorsed court-approved sale process in order to ensure a fair and transparent process and to maximize the return for creditors,” Al Zabaik said.

Investor takeaway

Al Zabaik’s hope was that Quebec’s superior court would demand a new sales process for Cliffs’ assets this past Friday. However, as yet it’s unclear whether the court did indeed make a decision — though Resource Investing News reached out to both Noront and Cliffs, calls and emails had not been returned by time of publication.

That said, despite the uncertainty, Noront’s share price is up an impressive 78.18 percent year-to-date. Investors, it seems, remain confident that the company will come out on top in the Ring of Fire one way or another. For now it looks like the next catalyst will be that court decision.

Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.

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