KWG Resources Inc. (TSX: V.KWG, Stock Forum) and Spider Resources Inc. (TSX: V.SPQ, Stock Forum) are joining forces in a bid to facilitate the development of a northern Ontario chromite find, which is being targeted by U.S. iron ore giant Cliffs Natural Resources (NYSE: CLF, Stock Forum).
The agreement to merge comes after KWG said it had adopted a shareholders rights plan after rejecting a takeover offer from Cliffs, which is also offering to takeover Spider on identical terms.
KWG said the objective of the rights plan is to ensure that shareholders of the company are treated fairly in the event that another company moves to take control of the KWG.
KWG and Spider each own a 26.5% stake in the Big Daddy chromite deposit and have an option to increase their respective interest to 30%. Chromite is a key ingredient in the production of stainless steel.
An initial estimate indicates that Big Daddy contains an indicated resource of 23.2 million tonnes, grading 40.66% chromite, plus 16.3 million tonnes of inferred resources, averaging 39% chromite, making it one of the richest of its type in the word.
On May 24, Cliffs formally announced its intention to acquire all of the outstanding shares of KWG and Spider (not already owned by Cliffs), by offering 13 cents a share for each company, or a 62% premium on the closing price of the shares on May 21. The offer values KWG and Spider at $186 million.
Spider shares were up 70% to 13.5 cents on Wednesday. KWG rose 75% to 14 cents.
Cliffs already holds 19.4% of KWG and 3% of Spider. It also holds a 47% stake in Big Daddy and 100% of two adjacent projects after acquiring Freewest Resources Inc. for $240 million in January.
At the time, Cliffs said the takeover was consistent with its long term plan to become the sole North American primary chromite and ferrochrome producer/exporter.
It also said the Freewest transaction was consistent with the company’s strategy to broaden its product offerings and customer base through a mineral regarded as a strategic resource by many countries.
Meanwhile, KWG spokesman Chris Meraw said Cliffs formally launched its offer for KWG and Spider after contacting senior company officials on the long weekend. “Cliff thought that they could smell weakness and could push and shove a little bit,’’ he said.
Meraw said 13 cents a share is viewed as “not an insult, but certainly a low-ball offer.’’
KWG and Spider said their merger deal will give each company a 50% stake in a merged entity that will own 53% of the Big Daddy deposit. Following the merger, the combined company will be known as Spider-KWG Resources.
“We are delighted to have finally achieved an agreement to combine the majority operating interest in what has the potential to be one of the world’s pre-eminent chromite deposits,’’ said KWG President Frank Smeenk.
KWG is studying the possibility of building a 350-kilometre railway corridor to allow for the transportation of future production to markets in North America.
KWG became the operator of the Big Daddy project in April and controls a 1% net smelter return royality interest in the deposit.