Spider Resources president says Cliffs deal will provide cash and expertise

By Sunny Freeman, The Canadian Press

TORONTO - Spider Resources says a friendly takeover by a large U.S. miner will provide the expertise and cash necessary to help develop a lucrative chromite deposit in Northern Ontario's promising Ring of Fire mineral zone.

"They want to be a fully-integrated company, from the mining right through the production of stainless steel and they have that ability," CEO Neil Novak said Monday. Earlier, the junior miner approved an all-cash friendly bid from Cliffs Natural Resources Inc. (NYSE: CLF), an Ohio-based iron and coal producer.

The 19 cent a share offer sweetens an earlier bid by Cliffs and values Spider (TSXV: SPQ.V) at about $125 million.

"They're a well-known American company," said Novak. "And they have the mining expertise necessary to bring a mine like this into production."

Spider was the first player in the Ring of Fire, a lucrative mining area in the James Bay lowlands that contains metal deposits including kimberlite, chromite and nickel.

"There's a certain personal and a bit of an emotional attachment now to what the company has achieved over 18 or 19 years now," Novak said ahead of an early Tuesday deadline for shareholders to tender their shares to the Cliffs bid.

The friendly takeover of Spider is a key move by Cliffs to consolidate its ownership of an important chromite specialty metals deposit in the Ring of Fire region, which Novak was instrumental in discovering.

Chromite is used to extract chromium, a building block of stainless steel and other metal alloys.

Spider currently has about $10.6 million in working capital. But Novak said it could cost billions of dollars to develop the Big Daddy project, which contains an estimated 40 million tonnes of chromite.

"The size of Big Daddy is pretty phenomenal," he said. "The James Bay lowlands ...is an extremely challenging environment, there's no infrastructure to speak of in the area and its mostly bog land.

"There's a definite challenge there, it's doable but its going to be fairly expensive to develop a mine there."

He added that South African miner DeBeers recently spent about $1.2 billion to develop the Victor diamond mine 150 kilometres to the east and that he expects Big Daddy's development to cost about the same.

Montreal-based KWG Resources Inc. (TSXV: KWG.V) had until midnight Tuesday to match the Ohio-based mining company's offer, but announced Friday that it could not sweeten its own rival bid and walked away from the deal with a $2.3-million penalty fee.

"Some of the shareholders of Spider much preferred the merger route, but there's a fair bit of financial risk involved in getting a paper for paper type of thing and Cliff's was adamant about the all-cash offer right from the get-go," Novak said.

KWG is Spider's partner on the undeveloped Big Daddy chromite deposit. Cliffs had previously acquired a 47 per cent stake in the deposit when it bought Freewest Resources for $240 million after an intense bidding war with rival Noront Resources Ltd. (TSXV: NOT.V).

Spider and KWG each own 26.5 per cent of the deposit, for a total of 57 per cent, and have the option to increase that to 30 per cent each. They had proposed a share-swap that would have resulted in a merger of the two companies.

Cliffs says it's in a better position to shoulder the long-term costs and risks involved with developing the chromite deposits in the Ring of Fire area.

The U.S.-based iron and coal producer had initially said it was interested in buying either or both of Spider and KWG.

Cliffs is a major financier of KWG and already owns a 19.4 per cent stake in the company.

"KWG has been relying upon the financing abilities of Cliff's to move them along to keep up with the spending that Spider was doing," Novak said.

Cliffs has mines in several regions and sees chromite, a mineral used in steel production, as a strategic growth opportunity. Cliffs also owns 100 per cent of the Black Thor and 100 per cent of the Black Label chromite deposits in the area as a result of its takeover of Freewest.

William C. Boor, president of Cliffs' Ferroalloys business unit, applauded Spider's decision and said the newest offer provides immediate value, liquidity and certainty for Spider shareholders.

"We encourage Spider shareholders to tender their shares by the July 6 deadline to take advantage of our all-cash offer."

Cliffs increased its bid after locking up support of Spider's board and its largest shareholder, MineralFields Group, which owns 13.8 per cent of Spider shares. Cliffs already holds 4.2 per cent of Spider on a fully-diluted basis.

Cliffs is expected to announce Tuesday how much more of the company it accumulates through its tender proposal, under which a prospective acquire invites all stockholders to tender their stock for sale at a specific price, usually a premium, at a specified time.

Through the lockup and agreement from Spider's board, the company will already have about a 21 per cent stake, making them already largest shareholder by far, Novak said, adding the company is targeting 50.1 per cent ownership for absolute control.

Spider's board had agreed to recommend that its shareholders approve the merger with Montreal-based KWG after it matched Cliff's previous 16.5-cent a share offer — but that was before Cliffs sweetened its offer.

Before Cliffs sweetened its bid, the Ontario Securities Commission dismissed a move by the American company to block a poison pill shareholder rights plan at Spider.

After a month and a half of negotiation, Spider's financial advisers found Cliffs offer to be superior on Friday, even though KWG had sweetened the offer. The smaller rival had five business days to match the Cliff's offer, but announced it wouldn't be able to on Friday morning.

Shares in KWG fell 17 per cent or two cents to 9.5 cents apiece Monday after the deal was announced.

Cliffs' shares were up slightly, by four cents to $46.89 Monday on the New York Stock Exchange.