Weekly Nugget

BHP Buys into Ontario Nickel Project with $325M Deal

Australian Miner BHP (NYSE: BHP, LSE: BHP, ASX: BHP) has entered into an agreement to acquire junior mining company Noront Resources Ltd. (TSX-V: NOT).

Australian Miner BHP (NYSE: BHP, LSE: BHP, ASX: BHP) through a subsidiary has entered into an agreement to acquire all the outstanding shares in Canadian junior mining company Noront Resources Ltd. (TSX-V: NOT).

The offer proposes to acquire all of the issued and outstanding common shares of Noront for C$0.55 per share in cash for a total deal value of US$325 million. BHP currently owns 3.7% of the Noront shares on a fully diluted basis.

Noront’s largest shareholder with a 24.4% ownership stake, Wyloo, also holds a large portion of the company’s debt. Wyloo holds a convertible loan, which it intends to convert to shares, which would increase its stake to 37.3 per cent

It has been invested in Noront since last December, before the recent rally across the commodity sector. Wyloo had approached Noront with a takeover proposal in May for $0.315 per share, but Noront attempted to discourage the deal with a poison pill making it too expensive for Wyloo to take over Noront in the foreseeable future.

Good thing too, for BHP’s offer of C$0.55 is a 129% premium to the price of its shares on May 21.

Wyloo said last week that it expects to make a new offer for Noront after it completes an official assessment by the end of the month. Wyloo is a subsidiary of Perth-based investment holding company Tattarang, which is owned by the Forrest family, one of the wealthiest families in Australia.

At the heart of the deal is Noronto’s Eagle Nest Mine, a high-grade nickel-copper-platinum-palladium deposit located in the Ring of Fire region of Northern Ontario. A 2012 resource estimate outlines 11,000,000 tonnes of material at 1.78% Ni, 0.98 Cu, 0.99 g/t Pt, 3.41 g/t Pd and 0.20 g/t Au in the measured and indicated category.

According to the Globe and Mail, nickel only accounts for 3% of the miner’s revenues, but the base metal figures large in the company’s future plans. On July 22, the Australian miner agreed to supply nickel to Tesla for its batteries.

Exact details of the arrangement were not disclosed in a company press release but BHP’s chief commercial officer, Vandita Pant said: “Demand for nickel in batteries is estimated to grow by over 500 per cent over the next decade, in large part to support the world’s rising demand for electric vehicles.”

In addition to Eagle’s Nest, Noront’s portfolio of projects include several chrome deposits: Blackbird, Black Thor, Black Label, and the Big Daddy chromite deposits.

In total, Noront holds eight mineral deposits of chromite, nickel, copper, zinc, platinum, palladium, along with 100 documented mineral occurrences with showings of gold, titanium, vanadium, diamonds and cobalt.

Noront had planned to lead off with the development of Eagle's Nest before the first of four chromite deposits, starting with the nearby Blackbird deposit. Both mines could share the same underground infrastructure. The chromite will be shipped to a proposed ferrochrome processing plant in Sault Ste. Marie.

Noront sits on more than 200 million tonnes of high-grade resources in the Ring of Fire. The company proposed to mine just under one million tonnes of chromite annually, producing enough semi-finished ferrochrome to supply half of the U.S. stainless steel industry.

Despite the apparent mineral abundance in this region of Northern Ontario, accessibility is the key to development in this region. Currently, there is no road into the region

Environmental assessments (EAs) are underway on a proposed two-lane gravel road network that will start in the south, beginning with an upgraded forestry road and will end hundreds of kilometers away along a supply route into the remote exploration camps.

Noront is not overseeing or funding the construction of the roads. The planning and construction is overseen by Marten Falls and Webequie First Nations, and the Ontario government.

Progress on getting the roads built has been slower than Noront would like, but the company anticipates all the EAs wrapping up by 2023, followed by permitting and two years of road construction leading toward a 2025 completion.

The Globe & Mail reported that Jason Fairclough, an analyst with Bank of America, wrote that if BHP succeeds in acquiring Noront, there will be years of permitting and study before the company “commits material capital” to the Ring of Fire.

BHP is the largest diversified miner in the world. It is increasing its investments in Canada, having recently moved its global copper and nickel exploration headquarters to Toronto from Santiago, Chile. The company is planning on doubling its exploration budget over the next five years.

Next month BHP will decide whether to proceed with building a multibillion-dollar potash mine in Saskatchewan.

[Sources: BHP, Globe & Mail, Northern Ontario Business, Northern Miner]

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