ArcelorMittal sweetens offer for Baffinland

The Business of Mining - thebusinessofmining.com | January 4, 2011 | 11:33 am

“ArcelorMittal has again sweetened its friendly offer for Baffinland Iron Mines in an escalating battle for control of one of the world’s biggest undeveloped iron ore deposits in Canada’s high Arctic. The Luxembourg-based steelmaker said on Friday that it was offering C$1.40 for each Baffinland share, valuing the company at C$551m. Gaining control of the deposit would enhance ArcelorMittal’s access to a key raw material at a time of growing competition for such resources.

Its bid equals the latest offer by a group backed by Energy and Minerals Group (EMG), a US private-equity firm. However, ArcelorMittal is bidding for all Baffinland’s shares while EMG would buy only 60 per cent.”

Source: Financial Times, December 31 2010

Observations:

  • ArcelorMittal aims to be 75% self-sufficient in iron ore supplies, up from 46% in 2007.
  • ArcelorMittal Mines Canada already operates two large open-pit mines: Mont-Wright and Fire Lake. The experience with arctic mining gained here will help to operate the Baffinland mines.

Implications:

  • ArcelorMittal reckons that the shareholders will prefer to sell the shares at the current premium instead of holding on to the shares with EMG holding 60% of the shares, which would reduce liquidity of the trade.
  • If the company wants to obtain full ownership of Baffinland, it will have to convince EMG to sell its 10% stake. As EMG is looking for full control over the company too, it is likely to give up its stake if ArcelorMittal wins the bidding war.

©2011 | Wilfred Visser | thebusinessofmining.com