ArcelorMittal ups the ante for Baffinland

Arcelor Mittal

Arcelor Mittal

In an attempt to gain control over one of the world’s biggest undeveloped iron ore deposits in Canada’s high Arctic, ArcelorMittal has revised its previous offer price upwards.

ArcelorMittal is competing hard to gain control over resources worldwide and access to Baffinland will ease some pressure to source growing demand for raw materials. Baffinland’s Mary River prospect has an estimated deposit of 365 million tons of iron ore. Located at 1000 Km North-West of Iqaluit region, the mine can supply ores for the next 20 years at an estimated supply rate of 18 million annually. Baffinland plans to develop the mine at a cost of C$ 4 billion. ArcelorMittal will achieve an annual production of 50 million tons this year and acquisition of Baffinland will help it reach its stated target of 100 million tons.

ArcelorMittal has revised its previous price to C$1.40, valuing Baffinland at C$551 million. The latest bid matches the price offered by Energy and Minerals Group (EMG), a US based private equity firm. However, ArcelorMittal is seeking to buy 100 percent ownership, whereas EMG has offered to buy 60 percent stake. EMG already owns 10.5 percent of Baffinland.

The latest round of bid price war is nearly double of what EMG had offered for the first time in September, when it launched its hostile take over bid for the first time.

The latest offer “provides demonstrably superior value and certainty for Baffinland shareholders”, said Paul Kukielski – head, Mining Operations at ArcelorMittal.

Cautioning against EMG’s offer he said shareholders “would face the prospect of being left with thinly traded minority common shares that would be unlikely to reflect the full value of Baffinland’s assets.

Resource Capital Funds, Baffinland’s US based current majority shareholder has agreed to sell its 23 percent stake to ArcelorMittal. Additionally, the directors and managers have offered to sell another 2.4 percent of shares.

Mining in the high arctic poses great environmental and logistical challenges. However, given Canada’s friendly approach towards foreign investments and stable political environment, investors have been attracted towards the project. Further, operating costs will be lower since the deposits are said to be closer to the surface.

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