COMPANY NEWS
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UPDATE 1-KWG bids for Spider in jostling for chromite project
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| 05/26/10 - 11:40 AM ET - Reuters |
*KWG-Spider combined would own 53 pct of Big Daddy deposit
*Could foil Cliffs' bid for control of chromite project
By Euan Rocha
TORONTO, May 26 (Reuters) - Canadian mining exploration company KWG Resources said late on Tuesday it will seek to buy rival Spider Resources as the two companies attempt to thwart an unsolicited bid for both of them by Cliffs Natural Resources .
The prize in the maneuvering is the Big Daddy project in northern Ontario, part of the so-called Ring of Fire, which is said to be one of the world's largest chromite deposits.
Chromite is an essential raw material for the production of chromium, which is used in the production of stainless steel.
Iron ore and coal miner Cliffs said earlier this week it plans to launch tender offers for both KWG and Spider after failing to reach takeover agreements with the board of directors of either company.
Cleveland-based Cliffs owns a 47 percent interest in Big Daddy. KWG and Spider each own 26.5 percent stakes. Cliffs wants majority ownership of the as yet undeveloped deposit.
If KWG and Spider merge, the combined company will control 53 percent of Big Daddy, with an option to earn a further 7 percent stake if it meets certain investment criteria.
Cliffs plans to offer shareholders of both KWG and Spider 13 Canadian cents a share, a 62.5 percent premium over the closing share price of both companies on Friday. The offers value KWG and Spider at C$100 million ($94 million) and C$86 million, respectively.
Cliffs, which has yet to make a formal offer to the shareholders of either company, already owns almost 20 percent of KWG's issued and outstanding shares. It also owns a 3 percent stake in Spider.
The boards of both KWG and Spider have formed independent special committees to consider the respective bids.
KWG-SPIDER MERGER
If KWG's takeover succeeds, Spider will become a part of a new wholly owned subsidiary of KWG. At the time of closing, shareholders of each company would hold 50 percent of the outstanding shares of the combined company.
The combined company would initially retain the name KWG Resources and would continue to be listed on the TSX Venture Exchange, the two companies said in a joint statement.
The company would later change its name to Spider-KWG Resources Inc, following shareholder and regulatory approvals.
Shares of Spider would be exchanged for shares of KWG at a predetermined ratio. The exact exchange ratio will be known at the close of business on the date immediately preceding the effective date of the merger, the companies said.
Each Spider share would be exchanged for KWG shares equal to the number of outstanding KWG shares divided by the number of outstanding Spider shares.
As of Tuesday, based on the fully diluted share count of both companies, KWG will offer 1.27 shares of its own shares for each share of Spider.
Shares of KWG and Spider, which were both halted on Tuesday, jumped in early trade on Wednesday. Shares of KWG and Spider rose 6 Canadian cents to 14 Canadian cents a share on the TSX Venture Exchange.
Based on the existing fully diluted share count and the current trading price of KWG shares, the offer values Spider at 18 Canadian cents a share, or C$116.2 million.
BIG DADDY DEPOSIT
Cliffs acquired its stake in Big Daddy in December, when it sealed a deal to buy Freewest Resources after a hostile bid from Noront Resources failed to gather enough shareholder support. Cliffs, at the time, also acquired 100 percent ownership of the nearby Black Thor and Black Label chromite deposits.
KWG owns a 1 percent net smelter returns royalty on the Big Daddy, Black Thor and Black Label deposits.
The three deposits, and numerous others, are located in the so-called Ring of Fire region -- a promising 5,000-sq-km (1,930-sq-mile) area in northern Ontario that also contains deposits of nickel, copper, platinum, gold and other minerals. A former CEO of Noront named the region the Ring of Fire after a song made popular by country singer Johnny Cash.
The Ontario provincial government has already outlined plans for the development of the Ring of Fire. It hopes that development in the area will create thousands of jobs and help reduce the province's deficit.
Cliffs, North America's largest producer of iron ore pellets, said it plans to develop the Black Thor and Black Label deposits before Big Daddy.
"Obtaining control of Big Daddy would enable Cliffs to develop the most appropriate integrated long-term mine plan for moving this new mining district forward," said William Boor, the head of Cliffs' ferro alloys business.
($1=$1.06 Canadian) (Reporting by Euan Rocha; editing by Peter Galloway)
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