Baffinland receives $274m takeover offer

Vancouver – Iron Ore Holdings subsidiary Nunavut Iron Ore has made an all-cash bid to acquire Baffinland Iron Mines (BIM-T) in a deal worth $274.3 million.

Financial backing largely came from $2-billion private equity firm Energy and Minerals, which, along with Iron Ore executives Bruce Walter and Jowdat Waheed, owns Iron Ore.

The 80¢-per-share offer represents a 42.9% premium on Baffinland’s closing price of 56¢ the day before the offer.

On the day of the announcement, Baffinland’s share price was up 38¢ or 67.9% to close at 94¢ with 39.3 million shares traded.

The deal represents a roughly 100% premium on the volume-weighted 20-day average share price ending August 26, the day before Nunavut Iron Ore started buying up Baffinland stock. The company currently owns about 6% of Baffinland, while other shareholders owning 9.3% of the stock have already agreed to tender their shares in the deal.

Bruce Walter, chairman of Nunavut Iron Ore, stated that “shareholders have an opportunity to receive an immediate and substantial all-cash premium for their investment and eliminate the inherent risks in a company at Baffinland’s stage of development.”

Baffinland owns the sizable Mary River iron ore project, located on Baffin Island roughly 1000 km northwest of Nunavut’s capital Iqaluit. The company is at various stages of development on five deposits on the island.

A 2008 feasibility study put reserves for deposit No.1at 365 million proven and probable tonnes grading 64.7% Fe. The study envisioned a 20 year mine life from reserves, producing 18 million tonnes a year.

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

The company has been looking for strategic partners to help cover development costs.

Baffinland is also working through a feasibility study on a road-haul-based operation for early-stage production before embarking on the larger rail-based plan. Upgrades to an existing 99 km road could to allow a 2- to 4-million-tonne-per-year operation, shipping ore during the three-months of open water at Milne Inlet.

The company has accelerated work on its draft environmental impact statement and now expects it completed by the end of the year. Both the rail and road options are being considered in the draft. The company is targeting late 2012 to early 2013 for completion of the full environmental assessment and permitting.

Baffinland continues to explore the other deposits on its 50,225-hecatre property, recently completing a 6,800-metre drill program on deposits 4 and 5. Preliminary results included hole 10-182 that had a combined weighted average of 114.8 metres grading 62.6% Fe in five zones, and hole 10-188 with a combined weighted average of 74 metres grading 65.4% Fe in seven zones.