Baffinland Iron Mines Corp BIM-T.’s stock soared about 15 per cent above a hostile takeover offer Wednesday, but the private equity firm making the bid said it was not prepared to sweeten the deal.
Shares in the Toronto-based miner shot up 68 per cent Wednesday, pushing the value of the junior miner to $322-million, suggesting investors think a higher or rival bid will emerge.
It was well above the amount offered by Nunavut Iron Ore Acquisition Inc., a subsidiary of Iron Ore Holdings LP, which was set up to facilitate the bid.
Nunavut Iron Ore is offering 80 cents cash a share, a 100 per cent premium to Baffinland's share price at the end of August, when the bidder started buying up shares in the company at around 40 cents apiece.
But Baffinland's shares have been rising steadily since then and spiked 38 cents Wednesday to close at 94 cents each in heavy trading on the Toronto Stock Exchange.
Baffinland chairman and acting CEO Richard D. McCloskey said the hostile offer came as no surprise after Nunavut started staking a claim in the company last month.
“They did not contact us prior to the offer, which is why it’s a hostile offer,” he said, adding that the board of directors is reviewing the bid and has 15 days to come up with a response.
Despite the spike in the share price, Bruce Walter, chairman of Nunavut Iron Ore and co-owner of Iron Ore Holdings, said his company will not budge on the amount offered.
“We're the only offer that has been made and at the moment we don't see anything to indicate that we've given anything other than an extremely fair offer,” Walter said in an interview Wednesday.
Nunavut's offer values the company at $274.3-million, or roughly a 42.9 per cent premium over the company's closing stock value on Tuesday. Nunavut Iron Ore, and its affiliates already hold 15.3 per cent of Baffinland's shares, meaning it would pay out about $233-million in the bid.
Baffinland is developing the Mary River property on Baffin Island, 1,000 kilometres northwest of Nunavut's capital of Iqaluit. Baffinland has proposed an 18-million tonne per year iron ore mine at the location.
McCloskey said his company has been undervalued because its worth was calculated years ago, when the price of iron sat around $60 a tonne. Iron now hovers around $150 per tonne, as commodity prices continue to rise on increased demand from Asia.
The project contains an estimated one billion tonnes of iron ore.
“Do the math, (the company's value) works out to more than 80 cents a share,” he said.
The company had been trying to secure $4.1-billion in financing through taking on a partner rather than an acquisition. And McCloskey believes if it were to secure the financing today, the mine could be in production in five years.
Walter said while it has secured funding through investment firm The Energy & Minerals Group, a partner in Iron Ore Holdings, the company will take on the risk of securing the “substantial additional funds” necessary to develop the project.
However, he said taking the company private would allow current shareholders to avoid the dilution of their stock by any big equity financings or joint ventures in the future.
“There are hundreds of millions of dollars, and possibly more than that, in further financing that will be required in order to bring this project into production, and that will inevitably result in dilution to existing shareholders as that money is being raised,” he said.
Walter is a past president of Sherritt International Corp. S-T and was CEO of the former Dynatec Corp. Iron Ore Holdings co-owner Jowdat Waheed has held the CFO and CEO positions at Sherritt.
Baffinland shareholders have until Oct. 28 to decide whether to accept the offer.