Industry Canada halts Forsys deal

Just what exactly is behind Industry Canada’s halting of George Forrest International Afrique’s (GFI) takeover of Oakville-based Forsys Metals (FSY-T) is anyone’s guess.

All that is known at this point is that Industry Canada notified GFI that it was halting the transaction just as it was set to be fulfilled.

The move is in line with changes made to the Investment Canada Act that were made in March of this year with the aim of increasing the transparency of deals involving Canadian firms.

What is confusing for some investors is that Forsys’ assets are all in Africa, so there can be no concerns of a Canadian asset falling into foreign hands.

But when a uranium deposit is involved, government sensitivities increase, and indeed the amendments to the Investment Canada Act were made, in large part, so keep track of what strategic assets other sovereign states may be acquiring.

There are rumblings that the source of GFI’s financing for the $579 million deal has red flags up at Industry Canada. There are rumours of possible Iranian dollars funding the deal and while that cannot be confirmed at this point it is worth noting that the government of Iran already has a stake in Rio Tinto’s (RIO-L, RTP-N) Rossing uranium mine which is just 30 km on strike from Forsys’ flagship Valencia deposit.

Untangling the source of GFI’s funds may take some time. Industry Canada officially has 45 days to make its determination on the deal, and given GFI’s private status and its notoriously secretive ways, the government body may well need that full allotment of time to get a clear picture of what’s going on.

For its part, Forsys has gone on the record as saying that the Industry Canada review is nothing more than a formality, and that nothing should be read into the fact that the decision came so late in the day. Forsys says the government’s move to halt the deal in the final hour was the result of GFI only recently securing the financing, not because the source of such funds is in anyway nefarious.

GFI has told Forsys that it is waiting to get more information from Industry Canada on the reasons for the halt.

Industry Canada is not answering any questions related to the situation.

But the market has indicated that it is worried.

In Toronto on Aug. 20, Forsys shares closed at $5.24, down 21% from their Aug. 14 close of $6.62 — the closest the company’s shares had managed to come to GFI’s $7 per share offer.
GFI offer has always sounded alarm bells to some investors.

First there was the hefty premium paid by GFI at a time when other acquisitions were being made at a fraction of the cost. Then there was GFI’s own admittance that it was having trouble securing financing.

Then, on Aug. 4, GFI announced that it had secured the funds, but unusually, gave no indication of where the funds were coming from. The deal was set to close on Aug. 17.

George Forrest himself is no stranger to controversy in sub-Saharan Africa.

The family name has been active in the region since 1922 through mining interests in the Democratic Republic of the Congo.

George Forrest continued with his family’s mining interests, but also delved into arms manufacturing through his ownership of Belgian-based New Lachaussee. He remains chairman of the company.

But it was his position as chairman of the DRC state-controlled Gécamines from 1999 to 2001 that led to the most controversy. His reign at Gecamines coincided with the worst time of war in the country, but that didn’t stop him from acquiring of mineral concessions – a situation that landed him in a United Nations report issued in 2002.

The report stated his role with Gécamines presented a conflict of interest and pointed out that his operations came under the Belgian Senate’s investigation into resource exploitation in the country.