GFI Threatens Legal Action Against Forsys

George Forrest International (GFI) is threatening legal action after Forsys Metals (FSY-T) said it was cancelling the deal that would have seen GFI acquire Forsys for $579 million.

Forsys said it was terminating the deal because GFI didn’t transfer the funds needed to complete it, and is demanding that GFI cough up a $20- million reverse break fee.

Forsys had already given GFI extensions for making its payments as far back as March. The most recent deadline passed on Aug. 24.

But GFI spokesman Henry de Hareene told Reuters that because Forsys broke the deal, not GFI, it is not liable for the $20 million.

Forsys spokesperson Bruce Hall says there was nothing in the agreement that stipulated that the break fee would not apply if Forsys broke the deal under the circumstances that GFI didn’t deliver the funds by the specified date.

In an interview with The Northern Miner, De Hareene was more circumspect, saying that the funds were ready to be transferred on the specified date, but that Industry Canada’s intervention halted the process.

When questioned with regards to what Industry Canada’s concerns were with the deal, De Hareene said he was not privy to any talks between the company and Industry Canada but that he believed the government agency had general questions about GFI’s plans in the long run for the Valencia uranium project that it would be acquiring with a takeover of Forsys.

After rallying to near the offer price of $7 per share, Forsys shares began to tumble on Aug. 14, signalling possible trouble for the deal. At presstime in Toronto, the company’s shares were trading in the high $3-range.

The volatile movement of Forsys’s share price since the takeover offer was first announced last November clearly reflected concerns investors had with the deal.

In early 2009, there was doubt as to whether GFI was going to be able to raise the necessary funds. That seemed to be addressed in early August when the privately-held company said it had secured the financing necessary to close the deal. However, in an unprecedented move, Industry Canada halted the transaction just before it was set to be completed, and gave no public reasons for its actions.

Industry Canada appeared to be following changes to the Investment Canada Act made in the spring with the aim of getting a clearer picture of where the financing for takeovers of Canadian companies and assets comes from.

GFI’s interest in Forsys has entirely to do with the company’s Valencia uranium deposit in Namibia.

The deposit sits on strike from Rio Tinto’s (RPT-N, RIO-L) massive Rossing uranium mine — a project in which the Iranian government holds a 15% stake. There were rumours that the Iranians were supplying a part of GFI’s financing. GFI has not yet disclosed where its funds were coming from.

George Forrest — the head of GFI — has a long history with mining projects in the nearby Democratic Republic of the Congo and is also involved in the manufacturing of military equipment.