Behind the scenes of the failed 2009 takeover of Forsys Metals Corp., there was a fear that remained hidden until now: Ottawa intervened because of U.S. suspicions the Belgian buyers planned to sell its uranium to Iran.
The collapse of George Forrest International's $585-million bid to buy Forsys sparked stock selloffs on the stock market and lawsuits that are still running to this day. Although Industry Canada stepped in to put the transaction on hold just before the deal collapsed for good, in public, the reasons were thought to be more mundane concerns about the financing.
But according to U.S. diplomatic cables obtained by WikiLeaks, spies and diplomats in Washington and Ottawa feared for international security: they worried that once GFI bought Forsys, owner of a uranium deposit in Namibia, the Belgian-controlled company might supply Iran with the nuclear fuel it was seeking.
It was more than a mild concern, according to the leaked cables, published Sunday by Norwegian newspaper Aftenposten. The State department ordered the U.S. embassy in Ottawa to press Canada to halt the deal, in a cable titled "Preventing the Forsys Metals pending sale to George Forrest International due to GFI's Iranian ties."
"We have information that links GFI to ongoing discussions with senior Iranian officials. These discussions may be related to Iran's efforts to acquire additional uranium ore," said the August 2009 cable, classified "secret" by the U.S. State Department's senior international-security and nuclear-proliferation official, Deputy Assistant Secretary of State Vann H. Van Diepen.
The U.S. embassy in Ottawa replied that Canadian officials, including the Foreign Affairs department's Director of Foreign Intelligence, John Di Gangi, were also worried - and hoped to use new national-security provisions in the law on foreign takeovers to halt it.
"Di Gangi cautioned that Canada was now trying to determine whether the new legislation would indeed permit the government to veto the sale…" states the cable.
GFI's takeover of Forsys died for old-fashioned business reasons in August, 2009 - because GFI missed several deadlines for transferring the money to pay for the takeover. But it's not clear whether Industry Canada's intervention to put the deal on hold a week earlier scuttled GFI's attempts to finance it.
Ottawa's intervention was a new twist in using Canada's investment laws. Forsys owns the Valencia uranium deposit in Namibia, but has only minor office operations in Canada - certainly little reason to worry about the deal's impact on Canada's economy. In effect, Canada was trying to stop the sale of an African mineral deposit to a Belgian-controlled company, so the nuclear fuel couldn't be shipped to Iran.
Industry Canada did step in, just days before the oft-delayed transaction was slated to close, prohibiting GFI from completing the takeover until further notice. "They intervened at the 11th hour," said David Wargo, a mining analyst with GMP Securities.
At the time, Forsys issued a pithy press release, saying GFI had informed them that the government put a hold on the transaction, but it gave no reason. "We have no comment on the documents released by Wikileaks as the specific concerns raised were unknown to Forsys Metals," Forsys president Marcel Hilmer said in the e-mail.
It's not clear what Industry Canada told GFI about why it put the sale on hold; a spokesman for Industry Minister Tony Clement, Gemma Collins, said the department could not comment. Officials with GFI could not be reached to comment on the deal, or the Wikileaks cables.
GFI's bid to buy Forsys was a bit of a shocker when it was made in the midst of the 2008 financial crisis. "It was during the meltdown, and they came in at approximately twice the price of the market," Mr. Wargo said.
The deal was supposed to close in March, 2009, but GFI revealed it did not have the cash available, and asked for several extensions to arrange financing, according to court documents. Forsys, then run by former CEO Duane Parnham, allowed more time on several occasions, including in mid-August. Industry Canada called for a temporary halt on finalizing the deal on Aug. 19.
On Aug. 25, Forsys called it off, claiming they were owed a $20-million penalty; in return, GFI has sued Forsys for $150-million, arguing Forsys acted suddenly and should have allowed more time for the deal to close.