Energy & Minerals in hostile bid for Canadian mine

Energy & Minerals Group is attempting to buy the Canadian mining company Baffinland Iron Mines. The deal would value the company at C$274 million ($265 million) and give Energy & Minerals access to a key mine in the Canadian Arctic. Energy & Minerals already holds a 6 percent stake in Baffinland.

(Reuters) – Private investment firm Energy & Minerals Group launched a hostile bid for Canada’s Baffinland Iron Mines, valuing the junior explorer at about C$274 million, to get access to a key mine, sending Baffinland’s shares up to a two-year high.

The 80 Canadian cents a share offer from Energy & Minerals, which holds a 6 percent stake in Baffinland, is at a premium of about 43 percent to the stock’s Tuesday close.

“This is a hostile bid. It was not expected,” acting Chief Executive Richard McCloskey told Reuters, adding that he believed the stock was undervalued.

Baffinland has been looking for partners for its flagship C$4 billion ($3.7 billion) Mary River project in Nunavut — expected to produce 18 million tonnes per year — in the Canadian Arctic, and had received interest from about 20 companies in February. [ID:nN05128635]

The intensive capital cost required for the project forced Baffinland — which had a cash balance of C$37.5 million as on June 30 — to hunt for a partner, but the acting CEO said the company was not looking to sell itself.

With Iron ore prices having more than doubled since the inception of the C$4 billion project, the expected payback period is now half of what it was before, McCloskey said.

“Today we are getting about $150 (per tonne) for (iron-ore), and the capex has not gone up that much. So the payback at today’s price will be less than two years,” McCloskey added.

McCloskey said the company will form a special committee to review the offer.

The private equity group, which has more than $2 billion invested in the energy and minerals sectors, made the offer via certain funds it manages, as well as a unit of Iron Ore Holdings, a limited partnership formed to make the offer.

Shareholders who own about 9.3 percent of Baffinland have agreed to tender to the offer, which expires on Oct. 28, Energy & Minerals said in a statement.

The Mary River project has reserves of about 365 million tonnes of ore, grading an average of 65 percent iron, and about 500 million tonnes of ore resources.

Shares of the Toronto-based company rose as much as 64 percent on Wednesday, touching a 23-month high of 94 Canadian cents, and witnessed their highest ever trading volume on the Toronto Stock Exchange.
(Reporting by Arnika Thakur in Bangalore)