The Rising Influence of Rising Affluence

[DewDiligence]

Update on the CLF-KWG-Spider ménage à trios. (CLF’s own PR is at
http://finance.yahoo.com/news/Cliffs-Natural-Resources-Inc-bw-1893803644.html?x=0&.v=1 .)

http://www.reuters.com/article/idAFN2615151020100526

›KWG bids for Spider in jostling for chromite project

Wed May 26, 2010 4:57pm EDT
By Euan Rocha

• KWG-Spider combined would own 53 pct of Big Daddy deposit

• Could foil Cliffs' bid for control of chromite project

• Cliffs says its bid is superior, will review options

TORONTO, May 26 (Reuters) - Canada's KWG Resources <KWG.V> said late on Tuesday it aims to buy Spider Resources <SPQ.V> as the two mining exploration companies attempt to thwart an unsolicited bid for both by Cliffs Natural Resources <CLF>.

The prize in the maneuvering is the Big Daddy project in northern Ontario, part of the so-called Ring of Fire, 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.

Cliffs, which said earlier this week it planned to launch offers for both KWG and Spider, said in a statement on Wednesday its offer for Spider was superior to the KWG bid.

The U.S.-based iron ore and coal producer said the two junior miners lacked the technical expertise and financial strength to develop the Big Daddy deposit. [This is amusing insofar as I think CLF itself lacks the resources for this kind of project: #msg-50560331.]

"Cliffs will carefully review its options in context of the KWG-Spider announcement and respond further as appropriate," it said.

Cleveland-based Cliffs owns a 47 percent interest in Big Daddy. KWG and Spider each own 26.5 percent stakes.

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.

Shares of KWG and Spider, which were both halted for the duration of trading Tuesday, leapt on Wednesday to close above the Cliffs bid price, although Spider's shares were well below the implied price of the KWG bid.

KWG jumped 6-1/2 Canadian cents to 14-1/2 Canadian cents, while Spider gained 6 Canadian cents to 14 Canadian cents. Both trade on the junior TSX Venture Exchange.

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 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, which will be known just ahead of the close of the deal, 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. Based on the existing fully diluted share count and the current prices, the offer values Spider at 18-1/2 Canadian cents a share, or just under C$120 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 <NOT.V> 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.

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.‹