In the midst of a proxy fight with a dissident shareholder, Noront Resources (NOT-V, NOSOF-O) has fired back with a positive scoping study for development of its Eagle One copper-nickel-platinum group metals deposit, in northern Ontario.
The newly unveiled study looks at direct shipping of mineralized material from the high-grade project. It gives Eagle One a net present value of $464 million at a discount rate of 10%, a pretax internal rate of return of 160%, and an undiscounted net pretax cash flow of $719 million over a seven-year mine life. The payback period is estimated at 2.2 years.
But the study, by P&E Mining Consultants, may not be enough to save Noront’s board, which is facing a proxy battle launched by dissident shareholder Rosseau Asset Management. Rosseau, a Toronto-based hedge fund company that controls about 9.2% of Noront shares, has proposed a new slate of directors and needs just over 50% of Noront shares to be voted in favour of its nominees ahead of the junior’s Oct. 28 annual meeting. In a dissident circular issued on Oct. 9, Rosseau charged that Noront lacks focus and has wasted its first-mover position in the “Ring of Fire” camp it discovered in the McFauld’s Lake area just last year.
Noront president and CEO Richard Nemis doubts the Eagle One scoping study will change anyone’s mind on how to vote, but does say it speaks to the current management’s work.
“It will certainly show the public that we’ve created a tremendous amount of value for this company in twelve months,” Nemis says. “In my opinion, the board created this in twelve months and it’s obviously doing at least a half-assed job,” he adds wryly.
Nemis says the company has been planning to augment the board in any case, as its Double Eagle project gets bigger and the need grows for more qualified people.
Both Michael Gray, an analyst with Genuity Capital Markets, and RiskMetrics Group — a company that provides risk management services, research and analysis for institutional investors — have come out in favour of Rosseau’s proposed new board.
Gray, who has been covering Noront since January, says that although the company has added more nickel expertise over the past year — most notably chief geologist Jim Mungall, an authority on chrome and copper-nickel-PGM deposits – Noront needs more at the board and senior management level.
“I think the change in board will lead to change in management getting an upgrade in terms of the technical group in place,” he says.
But Nemis says the current board has plenty of support among the company’s retail shareholders, who own a majority of the company’s shares.
“The retail side of the business, overwhelmingly, is voting for the current management, and me,” he says.
Still, Nemis won’t predict the outcome of the vote.
Meanwhile, Rosseau president and chief investment officer Warren Irwin isn’t worried about what will happen.
“I am confident that at the end of the day, we will get the support we need,” he says.
Rosseau’s nominees include Irwin and four former directors or officers of Aurelian Resources (now part of Kinross Gold [K-T, KGC-N]), including its former president and CEO, Patrick Anderson.
The preliminary economic assessment, based on indicated and inferred resources at Eagle One, envisages an underground mine shipping 1,000 tonnes per day of massive sulphide mineralization to a Sudbury-area mill for processing over 1.2 years. That would be followed by on-site processing of about 1,500 tonnes per day of disseminated sulphide mineralization over five years.
Initial capital costs, assuming the project would be completely financed through equity, are pegged at $173 million. Four-year trailing average metal prices of US$11 per lb. nickel, US$2.75 per lb. copper, US$625 per oz. gold, US$1,225 per oz. platinum, US$300 per oz. palladium, and US$11.50 per oz. silver were used, as well as a U.S. exchange rate of 90.
An all-weather road from Nakina, Ont., which would take about two years to complete, would have to be built before mining could start.
Indicated resources at Eagle One, part of Noront’s Double Eagle property, stand at 1.8 million tonnes grading 1.96% nickel, 1.18% copper, 1.12 grams platinum per tonne, 3.91 grams palladium, 0.15 gram gold and 3.81 grams silver. The deposit also holds 1.1 million inferred tonnes averaging 2.39% nickel, 1.27% copper, 1.37 grams platinum, 4.5 grams palladium, 0.13 gram gold and 4.21 grams silver. That includes both massive and disseminated material.
In a statement, Nemis said he was pleased that the study showed direct shipping from Eagle One is viable, even at depressed commodity prices.
And if the project goes ahead, he says it would open up the whole area for development.
“Once we go ahead with Eagle One, that would put all the infrastructure that’s required in the area so that all of the other deposits we’ve found — all of our chromite deposits (Blackbird One and Two), our Eagle Two deposit, any other deposits that other people have in the area — would be economic,” he says. “It’s an incredible, incredible area. I look at this as being Sudbury, 150 years ago.”
In a letter to shareholders on Oct. 15, Noront sought to differentiate Rosseau’s interests from those of its other shareholders, saying it wanted control of the company without having to pay for it.
“Rosseau, a hedge fund with a small minority position, is seeking to take one hundred per cent control of Noront’s board of directors and effectively Noront itself, without making any offer to the other shareholders,” said the company.
Noront management said a “balanced board,” proposed by Noront in response to Rosseau’s concerns, was rejected. The board would have included two Rosseau nominees, two Noront nominees, and three mutually agreed on independent directors.
“This would have achieved a balance between the need for continued evolution in the governance of Noront, as the company itself acknowledged and pursued for some time, and preserving the continuity of institutional knowledge and expertise, which is responsible for the many successes that Noront has enjoyed over the past year.”
Nemis says the company was willing to compromise with Rosseau — even though it holds less than 10% of its shares — to avoid the expense of a proxy battle, adding Noront could have drilled five holes at Double Eagle for the same cost.
Aside from Rosseau, major shareholders in Noront include Sprott Asset Management, at 9.9%, and Pinetree Capital, at 7.9%.
Nemis speculates that Sprott, Pinetree, Pierre Lassonde, chairman of
Together, “they have maybe forty per cent of the company, so if they combine their forces, we have a big uphill battle to dislodge them.”
But rather than summoning up a battle cry, Nemis sounds rather philosophical about the possibility of losing control of the company he’s led since 1980.
“If we win, we win; if we don’t win, we don’t win. I can leave knowing that I’ve put a tremendous value into the shareholders’ hands and the legacy will be that I was there at the beginning,” he says. “So I’m content either way, to be honest with you. I just want to make sure that my staff and people are taken care of.”
Nemis has been looking to step down for about a year now and hunting for a suitable replacement, he says. But it’s clear he’s proud of what he’s built.
“The thing that I can say about the whole thing is that it’s very encouraging that there’s people out there that look at our company and are anxious to get their hands on it.”
He adds: “We’re at the early stages of a very, very significant mineral belt. . . If someone else wants to take it on, I guess they think the value’s there, like I do. If they attempt to take it on, well, more power to them.”
Noront shares traded down nearly 13% this
afternoon on news of the scoping study to $1.08. The stock has a 12-month trading window of 90-$7.42.
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