Former rivals now teammates in chase for Baffinland

In a new twist to the takeover battle for Baffinland Iron Mines (BIM-T), former rivals Nunavut Iron Ore and ArcelorMittal (MT-N) are teaming up in a joint bid.

“It’s been an interesting week,” Nunavut Iron chairman Bruce Walter remarked with characteristic understatement.

“Any time you’re in a situation like this you always have a menu of options you’re thinking about so this is not one that had not been considered in the past.”

Under the new all-cash offer, Nunavut Iron would hold 30% of the company and ArcelorMittal 70%. The bid is worth $1.50 per share for 100% of the company.

Nunavut Iron’s previous offer was $1.45 per share for 60% of the company, while ArcelorMittal had offered $1.40 per share for 100% of the company.

“Obviously it’s (30%) less than what we might have otherwise desired but we also think they (ArcelorMittal) can be an excellent partner to work with as we can be to them, and the combined muscle of the two greatly enhances the prospects of the property getting developed,” Walter explained in a telephone interview.

Walter also rejected the possibility that the corporate cultures of the two companies might make working together difficult.

“I don’t anticipate it being an issue,” he said. “We’re both familiar with developing projects on a joint-venture basis so we don’t anticipate that being a problem at all.”

When asked about whether the two companies see eye-to-eye on whether ore from the project should be trucked from the Arctic to a coastal port or moved by rail, he deferred to ArcelorMittal.

“The arrangement with Arcelor is that they’d be the operator of the project so I’ll leave it to them to comment on that one,” he said.

A feasibility study on the road-haulage option Baffinland released Jan. 13, estimated capital costs of about $740 million. By constrast, the rail option could cost as much as $4 billion, by some estimates.

In a research note on the new offer, Tom Meyer, a mining analyst at Raymond James who covers Baffinland, recommended shareholders tender to the revised bid. Shareholders have until Jan. 24 to tender.

Walter, a distinguished deal maker with a very successful history in the business, is a former director of mergers and acquisitions at BMO Nesbitt Burns.

“The bottom line is to try to approach deals in a straightforward manner and always be maintaining your options wherever possible,” he explained when asked what the secret is to good deal-making.

“As has been demonstrated in the last twenty-four hours, sometimes your main adversary can become your partner so you don’t want to put yourself in a position where you foreclose your options by your behaviour.”