The Canadian regulator has stepped in to scrutinise Nunuvut Iron Ore Acquisition's partial offer for iron ore explorer Baffinland Iron Mines Corporation in the fierce four month bidding war against steel giant ArcelorMittal.
The move comes after the Ontario Securities Commission (OSC) filed an application ''to cease trade any shares tendered to the take-over bid by Nunavat Iron Ore Acquisition Inc for the common shares of Baffinland Iron Mines Corporation, which take-over bid currently expires at 11:59 pm (Toronto time) on January 10, 2011.''
The purpose of the scrutiny is to find out whether Nunuvut is right in making a partial offer for Baffinland under the Ontario's securities laws.
Nunavut's offer is C$1.45 a share or C$570 million for 60 per cent of Baffinland, while Luxemburg-based ArcelorMittal has offered C$1.40 a share or C$550 million for the whole of the Toronto-based miner.
Both bids are due to expire on 10 January 2011.
Nunavut, a special purpose vehicle, has been created for the Baffinland acquisition by the US-based $2 billion private equity firm Energy & Minerals Group.
Nunavut, which already holds about 10.5 per cent of Baffinland's shares, has in its partial offer, also offering a warrant component for those shareholders who cannot immediately tender their shares but hold on to it for future value once Baffinland's iron ore deposit is developed.
However this component of the offer is subject to approvals from the regulator. The OSC may be concerned that Nunavut's offer is not a firm offer, but based on a promise that shareholders could earn more in the future.
Both suitors have been locked in a fierce bidding war for Baffinland and have raised their bids three times since Nunavut spoilt a proposed joint venture between Baffinland and the steel giant to develop the Mary River deposit and launched in September 2010 an 80 Canadian cents a share or C$274 million hostile bid for Baffinland. (See: PE firm launches hostile bid for Canada's Baffinland Iron Mines)
The stock price of the company has risen by nearly 150 per cent from the 55 Canadian cents since Nunavut launched its bid in September to C$1.44 yesterday.
But the board of Baffinland has opted for ArcelorMittal's offer and along with its largest shareholder Resource Capital Funds, have agreed to sell their combined 25 per cent stake exclusively to ArcelorMittal under a lock-up agreement.
At stake is Baffiinland's 500 million tonnes of undeveloped iron ore reserves at its Mary River project in the high Artic of Canada that will require an investment of C$4 billion to develop.
The company fully owns three mining leases covering approximately 1,600 hectares in the Mary River that can initially produce 18 million tones of iron ore annually and can be ramped up to 36 million tones a few years later.
The life of the mines is expected to be for around 21 years.