ArcelorMittal said Tuesday it would not raise its $550-million bid for Canadian miner Baffinland , which owns vast iron ore deposits in the Canadian Arctic.
"We don't intend to raise the offer for Baffinland," spokesman Giles Read said. "We are confident we have the superior bid."
ArcelorMittal, the world's largest steel maker, and private-equity backed Nunavut Iron have been battling for control of Baffinland, which has recommended ArcelorMittal's bid, since September. Both suitors upped their bids in recent days.
ArcelorMittal boosted its bid to $1.40 per share, which was almost immediately followed by Nunavut offering $1.45 per share for Baffinland. Nunavut's bid values Baffinland, whose shares closed at $1.43 on Friday, at $570-million.
But Nunavut's bid is only for 60 per cent of the company, meaning the other 40 per cent would be priced according to the market. Shares of Baffinland have risen more than 154 per cent since Nunavut's first offer in September, 2010, hitting $1.45 Monday, up from 56 cents on Sept. 21.
Uncertainty about the development of the global iron ore market and questions over the costs involved in developing the mine will help determine the strategies of the two bidders until the deadline on Jan. 10, analysts say.
ArcelorMittal is bidding as part of its strategy to become 80 per cent self-sufficient in iron ore supplies, but analyst Herman Reith at BHF-Bank said this should not distract the company from making a prudent investment decision.
Mr. Reith said the current iron ore price has very high margins and global iron ore production is rising, while Chinese steel production will remain largely flat this year.
"If China doesn't grow, we will reach an equilibrium of iron ore production and demand by 2013. This could lead to falling iron ore prices," he said.
Commerzbank analyst Ingo Schachel said the bidding contest between Nunavut and Arcelor showed Baffinland owned one of the few promising iron ore assets in Canada.
"In terms of net debt, Arcelor has reached a point where they don't have infinite room to manoeuvre, but 600 to 700 million (Canadian dollars) should not be a problem," he said.
The takeover battle revolves around Baffinland's huge iron ore deposit on Baffin Island in the northern Canadian territory of Nunavut. The deposit is thought to be large enough to meet all of Europe's needs for many years, although developing the mine will be a major logistical and environmental challenge.
For ArcelorMittal, iron ore access is a significant issue given tight global supplies and healthy demand from Chinese steel mills. That demand has given major producers such as BHP Billiton , Rio Tinto and Vale more clout in supply negotiations with steel makers.