'No frigging way'

At the recent Cambridge House conference in downtown Toronto, chairman and CEO of Canadian Royalties (CZZ-T) Glenn Mullan told me there is "no frigging way" he's going to let Goldbrook Ventures (GBK-V) cherry pick his company off of the junior mining scrap heap.

China's Jilin Jien Nickel Industry is the big cash behind Goldbrook's hostile bid for CZZ but Mullan says Goldbrook, with its limited expertise, "brings nothing" to the table and that the bid is simply "opportunistic."

Jilin Jien subsidiary, Jien Canada, has offered $148.5 million in cash for all of Canadian Royalties' shares. CZZ is now trading $0.44 per share for a market cap of roughly $45 million, with 102 million shares outstanding.

Both Goldbrook and Canadian Royalties have nickel-copper-platinum group metals projects in the Ungava region of northern Quebec, not far from Xstrata's (XTA-L) Raglan nickel mine.

Jilin Jien produces roughly 10% of China's nickel and last year signed an option to earn 50% of Goldbrook's Raglan project (not the same as Xstrata's) by spending $45 million over three years.

The scrappy Mullan says he remains open to a deal with Jilin Jien Nickel but only if it excludes Goldbrook.

Mullan says he has not received a call directly from Jilin Jien.

Canadian Royalties will hold a shareholder vote on a "poison pill" motion (also known as a shareholder rights plan) on Sept. 30. It's likely to pass and create a sizeable hurdle for Goldbrook & Co.

In a shareholder rights situation the target company issues rights to existing shareholders to acquire a large number of new securities, usually common stock. That way, any shareholder (other than the hostile bidder) can exercise that right once someone exceeds a set percentage of the target company's stock, usually 15-20%.

A poison pill dilutes the percentage of the target company owned by the bidder, and thus makes it more expensive to gain control.

Russia's Norilsk Nickel owns 7% of Canadian Royalties and could table a competing offer. Mullan says a Norilsk subsidiary in Finland owns a proprietary nickel extraction technology well suited to getting the most nickel from Canadian Royalties' flagship Nunavik nickel project in northern Quebec.

But CZZ has one big, pending problem.

In March 2008, Canadian Royalties closed a $137.5-million, 7% convertible debenture with the intention of later securing a $250-million loan, which together would have given it enough money to bring its Nunavik project into production.

But market conditions deteriorated quickly and the loan didn't happen, leaving Canadian Royalties with a project on care and maintenance and a debenture slowly eroding its treasury.

Meanwhile, Mullan says most of its institutional investors left CZZ and those were replaced by retail guys, many of them via brokerages in the Calgary area.

He says one New York brokerage bought a sizeable amount of CZZ shares strictly because Goldbrook made a hostile takeover offer. The firm specializes in buying shares in takeover targets only to tender them once an offer sweetens.