Chanticleer

FROM AFR

BHP and Forrest may be better together on nickel play

Jul 28, 2021 – 3.01pm

The prospect of iron oretitans Andrew Forrest and BHP duking it out over a Canadian nickel junior is obviously delicious. But the rational move is for the old foes to get into bed together on what both clearly see as a great opportunity amid a broader rush for battery minerals.

BHP announced on Tuesdaynight a $C325 million ($351 million) bid for Noront, which has a highly ratednickel project called Eagle’s Nest in Ontario’s Ring of Fire region (how Gameof Thrones is that?) some 1200 kilometres north of Toronto.

The Big Australian’s bid, which has the support of the Norontexecutive team (which owns 9.9 per cent of the company), is pitched at a 75 percent premium to the takeover bid by Forrest’s Wyloo Metals in May.

That offer, tellingly,didn’t get management support and indeed was actively resisted by the Norontteam, who are by all reports a well-respected group of junior mining andexploration veterans.

Team Forrest is consideringits response to BHP but given Forrest has his foot on a 37.5 per cent stake,all roads to ownership go through him. And the Wyloo team can be happy withtheir efforts so far given Noront shares have leapt more than threefold sinceWyloo bought in last December, delivering a paper profit of about $100 million.

There’s a comment here tobe made about how Forrest’s private equity has been able to move much fasterthan BHP’s public capital. While BHP has had Noront on its internal “covetedasset list” for about a year and sees an opportunity for the Ring of Fire tobecome a minerals hub, it was Forrest who got in first and cheapest.

The question is whathappens now. It seems Forrest has two basic choices: he either tries to outbidBHP, or he goes along for the ride in a deal that offers access to Eagle’s Nestand further opportunities in the Ring of Fire.

The latter option looksthe most rational for all involved. A joint venture between Twiggy and BHPmight seem unlikely given their shared history, but partnerships are common inmining, even between great rivals; remember BHP and Rio Tinto have several JVs.

This column understandsthat while BHP is of course aware of Forrest’s stake it has not helddiscussions with the Wyloo team. BHP wants at least 50.1 per cent of Noront andoperational control but beyond that it’s relaxed.

It’s likely to take arational view of partnering with Forrest, who could be a great partner givenhis history in nickel, extraordinary track record and belief in the batteryrevolution driving nickel demand.

BHP would make a goodpartner for Forrest too, bringing capital, operational expertise and a trackrecord in Canada, which could be important for securing the support of FirstNations.

Is a happy marriagepossible? Perhaps, but expect a long courtship first