ArcelorMittal offers $433M for Baffinland

VANCOUVER — ArcelorMittal (MT-N) has bested an unsolicited private equity bid for Baffinland Iron Mines (BIM-T) by 38% and has secured the support of Baffinland’s board of directors.

The steel giant has offered $1.10 per share plus 10¢ for outstanding 2007 warrants for Baffinland in a deal worth roughly $433 million. The deal represents an 86% premium to Baffinland’s 20-day volume- weighted average price of 59¢, and is significantly higher than the 80¢-per-share offer Iron Ore Holdings’ (IOH-A) subsidiary Nunavut Iron Ore Acquisition made in late September.

Baffinland’s board of directors, who had strongly urged shareholders not to accept the earlier bid, has endorsed the latest offer. Directors and officers of the company have entered into lock-up agreements and agreed to tender all their shares, as has Resource Capital Funds, Baffinland’s largest shareholder representing 23% of outstanding shares.

The agreement gives ArcelorMittal the right to match any higher offers and establishes a break fee of $11 million.

John Lydall, chair of Baffinland’s Special Committee, stated that “the ArcelorMittal offer delivers a significant premium to Baffinland shareholders over the unsolicited offer that was made previously.”

ArcelorMittal chief financial officer Aditya Mittal said the takeover fits with the company’s expansion strategy, that it already has a presence in Canada and the technical and project management expertise to develop Baffinland’s Mary River iron ore project.

For its part, Nunavut Iron Ore issued a press release stating that it has extended its $274.3-million offer until Nov. 22 and is considering its options in light of the new offer.

On news of the bid, Baffinland’s share price rose 16¢ or 16.8% to close at $1.11 on 62 million shares traded. The company was trading at 56¢ before the private equity bid boosted its share price by 38¢ to 94¢, peaking days later at $1.06.

Gordon McCreary, who was serving as Baffinland’s president and chief executive until March, resigned as a director on the day the ArcelorMittal bid was announced.

The sizable Mary River project, located on Baffin Island, is 1,000 km northwest of Nunavut’s capital Iqaluit.

A 2008 feasibility study put reserves for deposit No. 1 at the project at 365 million tonnes grading 64.7% iron. The study envisioned a 20-year mine life from reserves, producing 18 million tonnes a year.

Capital costs were pegged at $4.1 billion, including substantial investments in rail and port facilities, with a payback period on initial capital of less than four years. The after-tax net present value was estimated at $2.9 billion using a 7% discount rate.