My opinion is that there would be absolutely no change of percentage ownership in Big Daddy, and no real attempt to negotiate such a change.

KWG's approach in the past has been "do what's fair and stick to the rules." Cliffs obviously failed to get the memo about that mantra. However, if you think about that approach, the Big Daddy would probably be dealt with as a "we've had contractual agreements for several years now, let's stick to those agreements." Therefore, there would be no fight about ownership percentage, there would just be an expectation that KWG would get their 30% as due under contractual agreements.

Where I DO think there will have to be negotiation will be in what deposits are targeted first, and more specifically, extraction targets from each deposit. More specifically, there would have to be an exchange of some sort whereby Cliffs would agree to mine Big Daddy with 30% going to KWG, and more importantly, it would have to be with certain annual volume targets (and penalties for missing the targets).

I don't believe that KWG intends to make a lot of money off the railroad. The railroad is a carrot to overcome other obstacles. I see FN agreement and participation as being the key issues here. The railroad is an obvious method of participation. But that isn't a two-way negotiation. What can the FN offer KWG? Nothing, directly. So KWG can offer the railroad to the FN's, and Cliffs can offer the mining of Big Daddy to KWG (much as they hate their position). But you see that's not an even trade. This is a triangle, not a two-sided negotiation. What do the FN have to offer up in this situation? Simple, agreement to let development proceed.

In other words, the FN must allow Cliffs to proceed, and there would be some sort of discrete deal whereby their approval is contingent upon Cliffs giving up on their "plan" to let BD remain undeveloped, and then once that is fixed, KWG gives the railroad to the FN.

Obviously, this is a very delicate situation. I'm not sure that it can happen. I believe that's why the market has no faith in KWG (as evidenced by the SP). Sticking points ... Cliffs' hatred of KWG, and FN distrust of Cliffs.

The alternatives are complex:

1. Cliffs doesn't like the whole situation, in which case their only alternatives are to sell their stake in the Ring (which they'd have to do at fire-sale prices, because even though bigger players are probably eyeing the area closely, those bigger fish know that Cliffs is in a bad position and can't dictate terms) OR do a hostile takeover.

2. The FN don't like the idea of Cliffs being in the area, and I can't blame them because I wouldn't either. Cliffs has absolutely NO credibility as a responsible corporate entity if you look at their recent history of the last decade or so. In that case, some sort of consortium must come together to make development happen.

All in all, this is still a very complex situation. The hostile takeover would be the easy way out for investors. I wish I knew the regulations in more detail about how a takeover could be structured.

If Cliffs decides to make a show of strength and just take KWG out unilaterally in an attempt to move the Ring forward, the FN can push back and cause problems in all kinds of ways. I believe that Cliffs understands this, and this is probably a bigger problem than KWG as a standalone entity.

On a positive note, this thing is such a mess, and the SP at Cliffs is in such a delicate position thanks to positioning by funds, that Cliffs may be forced to swallow their pride in order to avoid being torn apart by the financial sharks.

I believe that a takeover attempt which uses a share swap rather than cash, might actually be effective. Face it, Cliffs is on the very of a cash crunch. Taking out KWG could cost upwards of $250m. But if a takeout was structured as a share swap, the good thing is that the market might forgive Cliffs (to some extent) for their idiocy in the recent past. Issuing an extra $200m+ in shares may not matter. It is possible that some sort of resolution to the KWG issue could cause the market cap to go up enough that the SP after a hostile takeover, on a per share basis, works out to a increase in value per share.

Another problem is that Cliffs NEEDS to have KWG as a Canadian owned front company. They can't just fold KWG into their operations and expect the FN to suddenly cooperate. They may have to keep KWG operating as a virtual stand-alone entity, in which case, they need to keep KWG management in place and promoting the Cliffs' agenda. Well, good luck in trying to make that happen. It would take an awful lot to get Frank to acquiesce. Money alone wouldn't do it.