UPDATE 2-KWG bids for Spider in jostling for chromite project

*KWG-Spider combined would own 53 pct of Big Daddy deposit

*Could foil Cliffs’ bid for control of chromite project

*Cliffs says its bid is superior, will review options

(Adds Cliffs’ response, updates shares to close)

By Euan Rocha

TORONTO, May 26 (BestGrowthStock) – Canada’s KWG Resources (KWG.V: )
said late on Tuesday it aims to buy Spider Resources (SPQ.V: ) as
the two mining exploration companies attempt to thwart an
unsolicited bid for both by Cliffs Natural Resources (CLF.N: ).

The prize in the maneuvering is the Big Daddy project in
northern Ontario, part of the so-called Ring of Fire, said to
be one of the world’s largest chromite deposits.

Chromite is an essential raw material for the production of
chromium, which is used in the production of stainless steel.

Cliffs, which said earlier this week it planned to launch
offers for both KWG and Spider, said in a statement on
Wednesday its offer for Spider was superior to the KWG bid.

The U.S.-based iron ore and coal producer said the two
junior miners lacked the technical expertise and financial
strength to develop the Big Daddy deposit.

“Cliffs will carefully review its options in context of the
KWG-Spider announcement and respond further as appropriate,” it
said.

Cleveland-based Cliffs owns a 47 percent interest in Big
Daddy. KWG and Spider each own 26.5 percent stakes.

If KWG and Spider merge, the combined company will control
53 percent of Big Daddy, with an option to earn a further 7
percent stake if it meets certain investment criteria.

Cliffs plans to offer shareholders of both KWG and Spider
13 Canadian cents a share, a 62.5 percent premium over the
closing share price of both companies on Friday. The offers
value KWG and Spider at C$100 million ($94 million) and C$86
million, respectively.

Shares of KWG and Spider, which were both halted for the
duration of trading Tuesday, leapt on Wednesday to close above
the Cliffs bid price, although Spider’s shares were well below
the implied price of the KWG bid.

KWG jumped 6-1/2 Canadian cents to 14-1/2 Canadian cents,
while Spider gained 6 Canadian cents to 14 Canadian cents. Both
trade on the junior TSX Venture Exchange.

KWG-SPIDER MERGER

If KWG’s takeover succeeds, Spider will become a part of a
new wholly owned subsidiary of KWG. At the time of closing,
shareholders of each company would hold 50 percent of the
outstanding shares of the combined company.

The combined company would initially retain the name KWG
Resources and would later change its name to Spider-KWG
Resources Inc, following shareholder and regulatory approvals.

Shares of Spider would be exchanged for shares of KWG at a
predetermined ratio, which will be known just ahead of the
close of the deal, the companies said.

Each Spider share would be exchanged for KWG shares equal
to the number of outstanding KWG shares divided by the number
of outstanding Spider shares.

As of Tuesday, based on the fully diluted share count of
both companies, KWG will offer 1.27 shares of its own shares
for each share of Spider. Based on the existing fully diluted
share count and the current prices, the offer values Spider at
18-1/2 Canadian cents a share, or just under C$120 million.

BIG DADDY DEPOSIT

Cliffs acquired its stake in Big Daddy in December, when it
sealed a deal to buy Freewest Resources after a hostile bid
from Noront Resources (NOT.V: ) failed to gather enough
shareholder support. Cliffs, at the time, also acquired 100
percent ownership of the nearby Black Thor and Black Label
chromite deposits.

The three deposits, and numerous others, are located in the
so-called Ring of Fire region — a promising 5,000-sq-km
(1,930-sq-mile) area in northern Ontario that also contains
deposits of nickel, copper, platinum, gold and other minerals.
A former CEO of Noront named the region the Ring of Fire after
a song made popular by country singer Johnny Cash.

The Ontario provincial government has already outlined
plans for the development of the Ring of Fire. It hopes that
development in the area will create thousands of jobs and help
reduce the province’s deficit.

Cliffs, North America’s largest producer of iron ore
pellets, said it plans to develop the Black Thor and Black
Label deposits before Big Daddy.

“Obtaining control of Big Daddy would enable Cliffs to
develop the most appropriate integrated long-term mine plan for
moving this new mining district forward,” said William Boor,
the head of Cliffs’ ferro alloys business.

Investing Advice

($1=$1.06 Canadian)
(Reporting by Euan Rocha; additional reporting by Cameron
French)

UPDATE 2-KWG bids for Spider in jostling for chromite project