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Ferrous Metals
Private equity firm offers to buy Baffinland Iron
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22nd September 2010
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BARRIE, Ontario ( - Private equity vehicle Nunavut Iron Ore on Wednesday announced an offer to buy Canadian junior Baffinland Iron Mines for C$0,80 a share in cash, valuing the company at C$274-million.

Baffinland rose 60% on the TSX on Wednesday morning, to trade at C$0,90 a share, giving the company a market value of C$309-million.

Nunavut Iron Ore, backed by the $2-billion private equity firm Energy & Minerals Group and former Sherritt International president Bruce Walter, said in a statement it already owned 6% of Baffinland, and that shareholders owning 9,3% of the company had agreed to tender to the offer.

The offer represented a 42% premium to Baffinland’s closing price on Tuesday, and a 100% premium over the volume-weighted average price of C$0,40 for the 20 trading days ending August 26, when Nunavut Iron said it started acquiring shares in the company.

“We believe our premium offer for all the shares of Baffinland is attractive, fair and fully valued,” Walter said, adding that it added certainty.

Baffinland is looking to develop the C$4,1-billion Mary River project in Baffin Island, Nunavut, with first production expected in 2013.

The company had been looking for a strategic partner to provide financing for the project’s development, and had expected to find one by the end of November, Baffinland chairman Richard McCloskey told Mining Weekly Online in August.

Walter said on Wednesday that bringing in a strategic partner would likely dilute the ownership of existing shareholders.

“That development will require substantial additional funds that Baffinland does not have. This could mean it would have to seek further equity financing, a joint venture or other transaction which could result in material dilution to you,” he said in a letter to Baffinland shareholders, posted on a website dedicated to the offer.

The Mary River iron ore project would produce 18-million tons/year, according to a 2008 feasibility study. That included rail and port development.

Baffinland wanted to produce three-million tons yearly from 2014 using trucks to transport the iron ore to a port 100 km away.

This would generate early cash flow, while the larger mine and rail operations were being built, McCloskey said.

Japan’s Mitsubishi Corp already has a shareholding of less than 5% in Baffinland.

Baffinland’s output is expected to be 75% quality lump ore and 25% premium quality fine ore grading over 66% iron. This ranked it among the highest quality iron-ore deposits in the world.

The offer would close on October 28, Nunavut Iron said.

Edited by: Liezel Hill


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