BHP brawl tips why nickel will cost pretty penny BHP brawl tips why nickel will cost pretty penny
By Jeffrey Goldfarb
MELBOURNE, Sept 1 (Reuters Breakingviews) - The last thing BHP (BHP.AX), (BHPB.L) boss Mike Henry needs is a fight. He has just unveiled sweeping and complicated plans to reshape the $164 billion miner as the price for the company’s prized iron ore tumbles. Now his agreed deal to buy Canada’s Noront Resources (NOT.V) is running into stiff competition from scrappy minerals magnate Andrew Forrest. It’s a fresh sign of just how difficult it will be to push into hot commodities.
Hours after his Fortescue Metals (FMG.AX) said on Monday it would pay a record $8 billion annual dividend, Forrest’s privately held Wyloo Metals more than doubled its May takeover proposal for Noront to 70 Canadian cents ($0.56) a share. That trumps BHP’s C$325 million offer, at 55 cents, that was recommended by Noront’s board in July. The billionaire known as Twiggy is also dangling the option of either accepting his cash at the decade-high price or going along for the risky ride by leaving Noront publicly traded under a new board he will chair.
The battle for Noront epitomises the growing frenzy over battery-powered cars, which is similarly evident in a wave of initial public offerings and shell-company deals. Noront’s promise rests mainly in high-grade nickel projects in northern Ontario’s remote and frigid Ring of Fire. Noront says there’s enough in its Eagle’s Nest mine for 400,000 electric vehicles a year. The metal’s price has jumped 18% over the past five months.
Extracting and delivering it has been hard for Noront, though, which explains why production isn’t expected for five years and its shares had been slumping below 25 Canadian cents a share. While some Indigenous groups have consented to the provincial government preparing to build roads to the site, controversy persists. Wyloo is sweetening the pot by pledging job opportunities and C$100 million in contracts to First Nations businesses.
Noront shares now trade 7% higher than Wyloo’s non-binding entreaty, indicating an expectation that Henry will squeeze a bidding war into his long to-do list. He has made clear he wants to grow in “future-facing commodities” such as nickel and copper, but Forrest is sitting on a 38% stake in Noront, including convertible debt, making BHP’s 50% threshold a challenge. In exuberant markets, even the small and speculative deals become tough.
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CONTEXT NEWS
- Wyloo Metals, a private company controlled by Australian mining magnate Andrew Forrest, on Aug. 30 more than doubled its previous takeover proposal for Canada’s Noront Resources, trumping a rival C$325 million ($258 million) offer from BHP.
- Wyloo’s revised bid is worth 70 Canadian cents a share, or a 192% premium to Noront’s undisturbed price on May 21, compared to the 55 cents a share Noront’s board said on July 27 it had agreed with BHP. Wyloo, which already owns about 37.5% of Noront including through convertible debt, originally offered 31.5 cents a share in May.
- Under the terms of Wyloo’s new offer, Noront would remain publicly listed, giving shareholders the option of either selling out to Wyloo or backing Noront under a new board chaired by Forrest.
- Noront said on Aug. 31 that Wyloo had not made a formal offer and that it had previously refused to sign a standard confidentiality agreement. It added that BHP has now agreed to waive a requirement that a confidentiality agreement with Wyloo include standstill restrictions.
- BHP noted on Aug. 31 that it needs to receive acceptance from more than 50% of Noront shares for its offer to be successful, and therefore does not require Wyloo’s support.
- Noront shares closed on Aug. 31 at 75 cents.