Baffinland shares trade above offers but no new bid

By Pav Jordan and Julie Gordon

TORONTO (BestGrowthStock) – Shares in Baffinland Iron Mines (BIM.TO: ) are trading higher than the price of the latest takeover offer for the company even though analysts and industry observers say a higher bid is unlikely.

There are two takeover offers on the table for Baffinland, including one from the world’s largest steel company, ArcelorMittal, and there have been unsubstantiated reports that other players are interested in the company and its mine in the Canadian Arctic.

“I really think it’s getting late in the game for anybody to come back with a superior offer,” said Peter Campbell, senior mining analyst at Jennings Capital in Toronto.

Baffinland’s stock price more than tripled this year as it searched for strategic partners to help it develop the mine. The stock traded at C$1.18 on Wednesday, up from lows near 35 Canadian cents in July.

Baffinland is sitting on enough iron ore to supply all of Europe in its Mary River project, but the estimated C$4 billion-plus ($3.9 billion-plus) cost of bringing it to production is more than the company can bear on its own and it has been actively seeking suitors or strategic partners.

Luxembourg-based ArcelorMittal (ISPA.AS: ) offered on November 8 to buy Baffinland for C$433 million, or C$1.10 for each of its common shares, as part of a push to own more of the raw materials it needs to make steel.

The bid trumped a C$274-million, 80-cents-a-share offer on September 22 from Nunavut Iron, a company incorporated in Canada by its private equity backers solely to pursue the takeover.

EXTENDED OFFER

Baffinland has embraced the ArcelorMittal offer, and rejected Nunavut’s bid, even adopting a shareholder rights plan to stave off a hostile takeover from the latter.

The so-called poison pill was struck down by authorities this week and Nunavut said it would extend its offer to buy Baffinland to December 2 as it considered its options.

“All I can say is that Nunavut Iron is considering what its next step will be,” a company spokesman said, declining to go into details. “We are considering our options.”

They would have to sweeten the pot considerably if they expect to sway investors already committed to ArcelorMittal, although the company’s share price suggests some investors think a higher bid could be possible.

“We can’t speculate why they extended the offer at 80 cents,” said Baffinland Vice-Chairwoman Daniella Dimitrov, adding that the company had been in extensive joint-venture talks with ArcelorMittal before the Nunavut bid was announced.

“Obviously, ArcelorMittal’s present offer to shareholders is in the context of a whole new process,” she said.

Local media have mentioned Switzerland’s Xstrata (XTA.L: ) and Brazil’s Vale SA (VALE5.SA: ) as companies that might be interested in Baffinland’s assets, especially Vale as production from the mine could challenge its market share in Europe.

“If Baffinland were ever to come on, they would ship all of their lump ore to Europe, and Vale would lose their lump business,” Campbell said. “The lump market is 20-25 million tons, and that is about what Baffinland would produce.”

Lump iron ore is high-grade, unprocessed ore.

Mary River is expected to produce about 18 million tons of iron ore per year when it is first built and output could almost be doubled relatively quickly according to some reports.

ArcelorMittal wants to add Baffinland’s Mary River project to its portfolio as it targets being about 80 percent self-sufficient in iron ore supply.

($1=$1.01 Canadian)

(Additional reporting by Arnika Thakur in Bangalore; editing by Peter Galloway)

Baffinland shares trade above offers but no new bid