Baffinland jumps on Mitsubishi investment (November 30, 2005)

Mitsubishi (MSBHY-O) has agreed to subscribe to a private placement of shares in Baffinland Iron Mines (BIM-V) in exchange for certain Asian marketing rights for a portion of the junior’s future iron ore production.

Japan’s largest general trading company will acquire some 2.75 million shares in Baffinland at a rate of $2 per share. The $5.5-million investment would see Mitsubishi take a 7.2% stake in Baffinland. The proposed transaction is expected to close by the end of the year, pending regulatory approval.

“We are very pleased to welcome Mitsubishi, one of the largest diversified trading and investment companies in the world, as our first strategic investor in Baffinland,” said the company’s president and CEO Gordon McCreary in a prepared statement.

Over the past 2 years Baffinland has spent more than $25 million developing its long-dormant Mary River iron ore project on Baffin Island, Nunavut. Infill drilling during 2005 focussed on the No. 1 deposit, the largest of 5 known deposit. In all, some 33 holes totalling 8,073 metres tested the deposit between June and September.

The first batch of drill results from the 2005 program are highlighted by a 213.3-metre continuous interval averaging 65.5% iron. The highest grade encountered runs 69.2% over 139.9 metres.

By comparison, the world’s highest-grade direct shipping iron ores (lump and fines) currently shipping from Brazil, Western Australia, and South Africa typically grade between 62% and 66% iron.

The drill result will be used to update the resource calculation for the No. 1 deposit, which will form the basis for a scoping study to be completed by AkerKvaerner in the first quarter of 2006. The company expects the recent drilling to “impact greatly” the No. 1 resource estimate and preliminary open-pit modeling.

The No. 1 deposit is home to historic resources totalling 116.7 million tonnes averaging 68.3% iron. The zone is exposed for 3.5 km of strike length and varies between 100 metres and 200 metres in width; it remains open at depth. The resource estimate is based on drilling along 1.2 km of the exposed strike length in the mid-1960s, and predates National Instrument 43-101.

AkerKvaerner will also complete a market study and a review of transportation corridors and shipping alternatives.

Looking ahead, drilling in 2006 will continue on the No. 1 deposit, and include initial testing of the other known deposits. The company will also look into delivering test shipments of iron ore to market as early as 2008 via winter road with shipping by chartered vessels during the ice-free period.

A banakable feasibility study of a proposed 10-million-tonne-per-year direct-shipping (lump and fines) iron ore operation could conceivably wrap up in the first half of 2007. Baffinland says that all of the project’s known resources are direct-shipping ore running around 67% iron, with few deleterious elements and low moisture (less than 2%).

Mitsubishi’s other iron ore holdings include a 26.2% stake in the Iron Ore Company of Canada (and 49% ownership of IOC’s sales division), and a half-interest in Chile’s Compaa Minera Huasco.

Shares in Baffinland were 20, or 12.5%, higher at $1.80 in mid-afternoon trading in Toronto following the news on Nov. 30.