Labrador fund rejects Rio bid

The trustees of the Labrador Iron Ore Royalty Income Fund (LIF.N-T) have called Rio Tinto‘s (RTP-N) $13.50-per-share offer for all the units of the fund “significantly below fair value.”

The group says that, under securities rules, a formal valuation of the units is required, and so it has retained CIBC World Markets to provide the valuation, at Rio Tinto’s expense. The group has also retained Scotia Capital to provide advice on alternatives to Rio’s offer.

Rio’s Dec. 15 offer represents a premium of about 17% above the fund’s average closing price of $11.85 over the 10 previous trading days. The total value of the offer is $405 million.

The offer is being made through Rio’s wholly owned subsidiary, Rio Tinto Canada, and is conditional on at least 75% of the units being tendered. The bid is also subject to regulatory approval.

When the offer was announced, on Dec. 15, the fund shot up $2.45 or 21.3% to $13.95 on the Toronto Stock Exchange. Over the past 52-week period, units of the fund ranged from $9 to $14.25.