The takeover battle for Canada's junior iron ore explorer Baffinland Iron Mines intensified after Nunavut Iron Ore raised its hostile bid to $1.35 a share in cash, trumping a $1.10 a share offer from the world's largest steelmaker ArcelorMittal.

Nunavut raised its September 2010 offer of 80 cents per share (See: PE firm launches hostile bid for Canada's Baffinland Iron Mines)  to $1.35 per share for 50.1 per cent of Baffinland, representing a premium of 23 per cent, and extended its offer until 30 December 2010.

Energy & Minerals Group, which already holds a 6 per cent stake in Baffinland, said that it purchased an additional 1.6 per cent of the outstanding common shares this week through the Toronto Stock Exchange and other markets taking its total holding in Baffinland to 7.6 per cent.

Baffinland responded to Nunavut latest offer by saying, "The special committee of the board of directors and the board of directors itself are reviewing the amended offer with their financial and legal advisors and will respond in due course."

But Luxembourg-based ArcelorMittal, dismissed the latest offer by Nunavut and said that its bid is superior under the takeover agreement signed with shareholders and directors of Baffinland on 8 November 2010.

Nunavut, a special purpose vehicle created for the acquisition of Baffinland by the $2-billion private equity firm Energy & Minerals Group, had, in September 2010, launched an 80 cents per share hostile bid for Baffinland, valuing the Toronto-based miner at C$274 million.

A month later, ArcelorMittal made a friendly takeover offer for Baffinland of $1.10 in cash per share, which valued Baffinland's equity at C$433 million.

Baffinland's largest shareholder, Resource Capital Funds, and its directors had agreed to sell their 25 per cent stake exclusively to ArcelorMittal unless they receive a "superior proposal" under "the lock-up agreement".

The agreement included a non-solicitation covenant, a right by the steel giant to match any unsolicited superior proposal and a break fee of C$11 million by Baffinland to ArcelorMittal.

ArcelorMittal, which accounts for 8 per cent of the global steel output, has substantial operations in Canada through its steel making facilities and mines in the provinces of New Brunswick, Ontario and Quebec.

ArcelorMittal's head of strategy, Bill Scotting, had said in December 2009 that acquisitions of mining companies "will be part of the mix next year," and expanding mines and developing projects will be undertaken by the company in 2010 as a part of its drive to be more self-sufficient.

ArcelorMittal, run by billionaire Lakshmi Mittal, has already secured about half its iron ore needs from its own iron ore mines and plans to raise that share to 75-85 per cent by 2014.

The steelmaker, which has iron-ore projects in countries including Brazil, Guinea, Liberia, Russia and Senegal, produced nearly 51 metric tons of iron ore last year.

Baffinland has been looking for a strategic partner to fund its C$4.1 billion Mary River iron ore project at Baffin Island, Nunavut, in the Canadian Arctic.

The company fully owns three mining leases covering approximately 1,600 hectares in the Mary River that is estimated to hold around 500 million tonnes of high-grade iron ore reserves.

According to Baffinland's estimates, Mary River iron ore can produce around 18 million tonnes of 65.5 per cent grade iron ore per year.