BIM almost done dealDEALTALK-Could Baffinland attract another bidder?
* Deadline for Arcelor-Nunavut C$590 mln bid is Jan. 24
* Experts see little chance of alternative bid
* Shares trading at C$1.51 compared with C$1.50 bid price
* Baffinland ex-CEO in China, says rival bid possible
By Julie Gordon
TORONTO, Jan 17 (Reuters) - Baffinland Iron Mines <BIM.TO> investors have all but given up hope that the Canadian Arctic iron explorer will attract a second suitor, with the deadline on an existing, C$590 million ($593 million) bid only days away.
Shares of Baffinland have receded to within a penny of the C$1.50 offered last week under a joint bid by ArcelorMittal <ISPA.AS> and Nunavut Iron. In the days before the joint bid, the stock had been trading as high as C$1.58.
Those bullish bets, which faded a couple of days after Arcelor and Nunavut called a truce in their bidding war, may have reflected optimism that Canadian iron ore juniors were woefully undervaluded. In recent weeks, a spate of buyouts and joint venture announcements suggested just that.
On top of that, Baffinland's former CEO is in China, where he says he's close to dotting the "i"s on a rival bid from a still-unnamed Chinese entity.
But analysts now say such optimism was misplaced, and the chances of a rival offer emerging from China or elsewhere are slim to none.
"You now have, in the case of Baffinland, an agreed transaction," said Wayne Adlam, a professor at the Richard Ivey School of Business in London, Ontario, questioning why any other party would want to jump into the fray.
"Is it really worthwhile, for a relatively modest-sized acquisition, to really stretch?" he said. "Or do you simply turn your attention to other companies to look for a similar resource?"
The prize for whomever buys Baffinland is the Mary River project, a vast, high-grade iron ore resource that can be shipped to Europe without any costly chemical processing.
The official resource is estimated to be more than 850 million tonnes, based on drilling at just three of the nine deposits. In other words, as drilling continues, the resource estimate could double or triple.
That's why some Baffinland shareholders are still not satisfied with the most recent bid, which represents a 168 percent premium over the company's share price before the bidding war started in September.
"The only people who are going to benefit from the current deal is ArcelorMittal and Nunavut Iron Ore," said Jennings Capital analyst Peter Campbell.
Still without another offer on the table, and with some 25 percent of shares already pledged to the Arcelor-Nunavut deal, Baffinland is likely go to the current bidders, analysts say.
DEMAND FUELS SPECULATION
To be sure, not everyone thinks it's a done deal.
"We can't forget that, as remote as the possibility might be, former CEO Gordon McCreary is presently in China," said Campbell. "He thinks he can bring a Chinese partner to the table."
McCreary, who left Baffinland a day before the board accepted Arcelor's first $1.10-a-share bid, has spent months pushing for a rival bid from what he calls "China Inc."
According to McCreary, the Chinese company was in talks with Baffinland starting in early 2009 and has completed technical due diligence.
The vast resource at Mary River, combined with the potential of shipping direct to Asia through the Northwest Passage as polar ice melts, makes Baffinland particularly appealing to Chinese steelmakers, the former CEO said.
"China is importing enormous volumes, over 600 million tonnes of year, of iron ore," said McCreary. "So the Chinese need to try to erode the power of the oligopoly."
Three top global miners -- Vale <VALE5.SA> , Rio Tinto <RIO.L> and BHP Billiton <BLT.L> -- control more than two-thirds of the world's seaborne iron-ore market.
Prices of iron ore, delivered to China, are over $175 a tonne and nearing 2008 highs of $187.25.
That has led to Chinese companies investing in Canadian iron ore juniors like Adriana Resources <ADI.V> and Consolidated Thompson <CLM.TO> -- which was in turn bought by Cliffs Natural Resources <CLF.N> for C$4.1 billion last week. <ReutersLink ID='ID:nN12234006' />
With all these factors a play, could a Chinese bid for Baffinland really be a possibility?
"I think the Chinese are held up unfairly many times as a stalking horse," said Ivey's Adlam.
Even if a Chinese entity were to bid, he said, it would have to offer more money as well as bid for 100 percent of the company to gain the backing of the board and its top shareholder.
That goes against the way Chinese companies generally operate, Adlam said, pointing out that Chinese companies prefer to take strategic interests rather than full buyouts.