Arcelor says won't raise bid for Baffinland
ArcelorMittal said on Tuesday it would not raise its C$550 million ($550 million) bid for miner Baffinland, which owns vast iron ore deposits in the Canadian Arctic.
January 05, 2011 / 08:22 IST
ArcelorMittal said on Tuesday it would not raise its C$550 million (USD 550 million) bid for miner Baffinland, which owns vast iron ore deposits in the Canadian Arctic.
"We don't intend to raise the offer for Baffinland," spokesman Giles Read said. "We are confident we have the superior bid."ArcelorMittal, the world's largest steelmaker, and private-equity backed Nunavut Iron have been battling for control of Canadian-based Baffinland Iron Mines Corp, which has recommended ArcelorMittal's bid, since September.In late December, a source with direct knowledge of the ArcelorMittal deal told Reuters that the steelmaker would not raise its bid above C$1.25 a share. Both suitors upped their bids in recent days.ArcelorMittal also said it would not extend its earlier offer past December 29, but then extended the offer to January 10.The steelmaker boosted its bid to C$1.40 per share, which was almost immediately followed by Nunavut offering C$1.45 per share.With a secure supply source within its reach, a higher bid from ArcelorMittal may still be possible, said Haywood Securities analyst Geordie Mark."They're the world's largest steel producer," Mark said. "This amount of money for them is small to lock up security of supply for many years."I don't think a couple of cents matters that much," he added.Nunavut's bid, which also expires on January 10, values Baffinland at C$570 million. However, Nunavut's bid is for only 60% of Baffinland shares, meaning the other 40% would be priced according to the market. Shares of Baffinland have risen more than 154% since Nunavut's first offer in September 2010, hitting C$1.45 on Tuesday, up from 56 Canadian cents on September 21.Shares of Baffinland rose 1.4% to close at C$1.45 on Tuesday on the Toronto Stock Exchange.In a note to clients, Raymond James analyst Tom Meyer said the ArcelorMittal bid was still a better value for shareholders."Continued ownership of BIM (Baffinland) shares under NIOAC (Nunavut), in our opinion, will be subject to further share dilution, technical risk, project delays, capital cost inflation, etc," Meyer said.Nunavut has said it is confident it will be able to raise the C$4 billion needed to develop the high grade iron ore deposit, with partial production within two years. The project is in a remote area of Baffin Island in Canada's Arctic territory of Nunavut.ArcelorMittal is eyeing the project as part of its strategy to become 80% self-sufficient in iron ore supplies, but analyst Herman Reith at BHF-Bank cautioned that Arcelor should be aware that iron ore prices could fall.Bidding contestReith said the current iron ore price has very high margins and global iron ore production is rising, while Chinese steel production will remain largely flat this year."If China doesn't grow, we will reach an equilibrium of iron ore production and demand by 2013. This could lead to falling iron ore prices," he said.Commerzbank analyst Ingo Schachel said the bidding contest between Nunavut Iron and Arcelor showed Baffinland owned one of the few promising iron ore assets in Canada."In terms of net debt, Arcelor has reached a point where they don't have infinite room to maneuver, but 600 to 700 million (Canadian dollars) should not be a problem," he said.Baffinland's huge iron ore deposit on Baffin Island is thought to be large enough to meet all of Europe's needs for many years, although developing the mine will be a major logistical and environmental challenge.For ArcelorMittal, iron ore access is a significant issue, given tight global supplies and healthy demand from Chinese steel mills. That demand has given major producers such as BHP Billiton, Rio Tinto and Vale more clout in supply negotiations with steelmakers. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
