Boyd Erman

Globe and Mail Update

15:08 EST Wednesday, November 10, 2010

Baffinland Iron Mines shares are pushing well past the most recent offer price for the company on bets that a company such as Vale SA or Xstrata PLC will make a blockbuster bid to keep the big iron ore deposit out of the hands of steel maker ArcelorMittal.

The thesis is that if Vale and Xstrata want to keep steel makers from vertically integrating and damaging the miners' hold on the iron ore market, they will have to step up to try to win Baffinland.

Given that ArcelorMittal holds a right to match, they would have to come with a big increase to make it uneconomic for Arcelor to exercise that right. That's especially true, given that Arcelor has stated that controlling iron ore supply to its mills is a big strategic priority.

Add it up, and the view is that Baffinland can go much higher.

Baffinland stock is now 6 per cent and climbing above the $1.10 a share that Arcelor has agreed to pay. Volumes are heavy, with market sources reporting buying interest from multiple regions.

European funds are big buyers, and New York-based MatlinPatterson Capital Management LP Tuesday said it bought 14 million common shares at an average price of just over $1.12.

The optimism about bidding for iron ore assets is also helping Consolidated Thompson Iron Mines Ltd. , which took advantage to sell $200-million of convertible debentures in a transaction that market sources report was well supported. GMP Securities and BMO Nesbitt Burns led the bought deal.