Baffinland shares jump, investors see higher bid

Wed Jan 12, 2011 5:14pm EST
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By Pav Jordan

TORONTO (Reuters) - Shares of Baffinland Iron Mines spiked on Wednesday, a sign that investors are expecting a higher takeover bid to materialize for the owner of a giant, undeveloped iron ore deposit in Canada's Arctic.

Baffinland stock rose as much as 7.5 percent to C$1.58 a share before paring gains to close at C$1.51. The share price had previously oscillated between the values of the two bids on the table.

The first is a friendly bid from global steel giant ArcelorMittal at C$1.40 a share for the entire company, or some $550 million. The second is a hostile, C$1.45-a-share bid from Nunavut Iron Ore for 60 percent of the shares. Nunavut's offer values Baffinland at C$570 million.

"This deal looks to me like it's not going to get done at this price," said Peter Campbell, senior mining analyst at Jennings Capital in Toronto.

Baffinland shares jumped a day after Cliffs Natural Resources announced plans to acquire Canada's Consolidated Thompson Iron Mines for C$4.07 billion. Consolidated owns a mine already in production.

"This puts the spotlight squarely on the value of these big, rich, high-quality iron ore assets, and I think now the market is realizing that this (Baffinland) deal is not going to get done at $1.40 or $1.45 a share," said Campbell, who raised his target price on the company to C$1.65 a share.

A banker who is not working on the deal said the stock price might also reflected greater clarity about the Nunavut bid. The company formalized a sweetener to its offer on Monday, promising a piece of the action in the company for existing shareholders that tendered to its bid.

Baffinland's Mary River project in the Canadian territory of Nunavut carries a hefty development price tag at about $4 billion. But once built the mine, which is relatively close to European steel mills, could meet all of the continent's supply needs for years.   Continued...