The worst case outcome for KWG would be that (1) SPQ and KWG do not merge, (2) no other bidders come forward and (3) Cliffs buys SPQ.In other words, KWG is frozen out.

But, even in this scenario, I am not worried about KWG being left out in the cold, for the simple reason that I believe that if Cliffs buys SPQ without making a similar offer to KWG (offer would also have to include additional value for railway and NSR) then Cliff’s would be sued by KWG using similar arguments that Corona used to successfully sue Lac Minerals.

Because of Corona, Lac had additional information beyond what the public had and used this information to scoop a business opportunity.Because of Cliff’s ownership in KWG and their Board seat, they too would have been privy to information regarding the Big Daddy deposit and privy to information about our partners SPQ and Freewest.They also had a fiduciary duty to KWG to use that information in the best interest of KWG shareholders.By scooping Freewest and then SPQ they would have effectively taken control of the property, going behind KWG’s back and depriving KWG of merging with either of these parties or acquiring additional interest in Big Daddy.In my view the Courts would side with KWG.Since Cliffs would most likely not want to get involved in a losing lawsuit, and potentially have the property put on hold during this period, they would instead do a deal with KWG.

Here is the Supreme Court of Canada ruling:

http://csc.lexum.umontreal.ca/en/1989/1989scr2-574/1989scr2-574.html

So my question then is:why is KWG trading at a 30% discount to SPQ?

My advice:

(1) SPQ shareholders should reject the Cliffs offer and instead KWG and SPQ shareholders should vote to merge.

(2) Once the companies have merged a control premium (control of the property) will be placed on the merged company.

(3) After the merger reconnect with Cliffs and all other interested parties in seeing if a properly negotiated deal could be put together.