Q: What is the nature of the Hostile Bid for Baffinland?
On September 22, 2010 a holding company launched a Hostile Bid to acquire all of the issued and outstanding common shares of Baffinland for $0.80 per common share. This is not a “permitted bid” under Baffinland’s shareholder rights plan. For further details about Baffinland’s shareholder rights plan, please see below.
A Special Committee of the Board has been established and is reviewing the Hostile Bid and will make recommendations to the Board in respect of the Hostile Bid and other alternatives available to the Company. The Board will make a recommendation to Baffinland’s shareholders that will be communicated in a Directors’ Circular to be issued by October 7, 2010.
Q: Should I accept the Hostile Bid and tender my shares now?
No. You should not tender your shares to the Hostile Bid now. The Board has recommended that Baffinland shareholders take no action at this time. The Board will make a recommendation to Baffinland’s shareholders that will be communicated in a Directors’ Circular to be issued by October 7, 2010.
Q: Do I have to decide what to do now?
No, you do not have to make any decisions now. The Board will make a recommendation to Baffinland’s shareholders that will be communicated in a Directors’ Circular to be issued by October 7, 2010.
Q: Was Baffinland notified of the Hostile Bid before it was launched? Did Baffinland reject a friendly offer?
No. The holding company that launched the Hostile Bid did not make the offer to Baffinland or its Board prior to the announcement of the offer. Baffinland received a letter from the holding company immediately prior to the Hostile Bid being announced advising it that the Hostile Bid will be launched.
Q: What is Baffinland’s main asset?
Baffinland is focused on the advancement and development of the Mary River Property located on Baffin Island, Nunavut, Canada. The Mary River Property is a world-class direct shipping iron ore property, which currently consists of five high grade iron ore deposits that are exceptional in terms of grade, size and quality. It is also located in Canada, one of the world’s most stable political jurisdictions.
In the September 24 edition of the National Post, Jennings Capital analyst Peter Campbell said, "Baffinland's Mary River project is quite possibly the best undeveloped iron ore deposit in the world.”
Baffinland completed a Definitive Feasibility Study (DFS) in 2008, which included a mineral resource estimate prepared in accordance with National Instrument 43-101. A copy of the 2008 DFS is filed on Baffinland’s website and under the Company’s profile at www.sedar.com. Highlights include mineral resource estimates for Deposit Nos. 1, 2 and 3 of:
365 million tonnes proven and probable reserves grading 64.7% iron,
52 million tonnes measured and indicated resources grading 64.6% iron, and
448 million tonnes inferred resources grading 65.5% iron.
The 2008 DFS also includes a detailed study of the technical and economic feasibility of Deposit No. 1 based on proven reserves of 160 million tonnes and probable reserves of approximately 205 million tonnes. The 2008 DFS:
indicates that based on the shipment of 18 million tonnes of iron ore per year to the European market, the proven and probable reserves could sustain a mine life of over 20 years;
estimates that the Project would generate a pre-tax internal rate of return of 20.5%, with a payback period of 3.7 years and an after-tax internal rate of return of 15.9%; and
forecasts pre-tax cash flow over the life of the Project to be $18.1 billion, with after-tax cash flow of $11.2 billion.
The 2008 DFS was based on various assumptions that the Company believed to be reasonable at the time including conservative assumptions of average sales prices of US$66 per tonne of lump iron ore and US$54 per tonne for fine iron ore. Industry experts currently forecast long-term average sales prices to be US$134 per tonne of lump iron ore and US$107 per tonne for fine iron ore. It is expected that 75% of the output will be premium priced lump iron ore and 25% will be premium fine iron ore sinter feed.
Q: What is Baffinland’s shareholder rights plan and how does it impact?
The shareholder rights plan (the “Rights Plan”) was established a number of years ago with the approval of Baffinland’s shareholders to provide the Board with a period of time to consider alternatives for the Company if an unsolicited offer is made for the Company.
The Rights Plan enables potential acquirors to make to make a “permitted bid” without the approval of the Baffinland Board. A “permitted bid” provides the Board with additional time for the pursuit of alternatives that could enhance shareholder value and makes it more likely that Baffinland shareholders have sufficient time to consider all appropriate alternatives.
In order for an unsolicited offer to be a “permitted bid”, it must be open for acceptance by Baffinland’s shareholders for 60 days. The Hostile Bid is only open for acceptance for 35 days, and therefore is not a permitted bid.
The Board has the ability to waive the Rights Plan in the event of a Hostile Bid. At this time, the Board has not waived the Rights Plan in respect of the Hostile Bid.
Q: I own Baffinland warrants – how are they impacted?
The holding company that made the Hostile Bid did not make an offer to purchase any of Baffinland’s outstanding warrants. Therefore, the warrants are unaffected by the Hostile Bid and will continue in existence unaffected until their expiry.
Q: Baffinland announced that it was in advanced negotiations with one strategic partner for a potential transaction. Can you provide more information?
Following the announcement of the Hostile Bid, Baffinland announced that it was in advanced stages of negotiations with one strategic party with respect to a potential transaction. Baffinland is unable to make any other disclosure with respect to the party and the possible terms of the potential transaction. There can be no assurance that these negotiations will result in a transaction.
A Special Committee of the Board has been established, and with advice from its financial and legal advisors, is reviewing the Hostile Bid and will make recommendations to the Board in respect of the Hostile Bid and other alternatives available to the Company. The Board will make a recommendation to Baffinland’s shareholders that will be communicated in a Directors’ Circular to be issued by October 7, 2010.
Q: The Hostile Bid is conditional upon Baffinland not entering into any other arrangement. How does Baffinland’s current advanced stages of negotiations with a strategic party impact?
If Baffinland wishes to proceed with another arrangement, the holding company that made the Hostile Bid does not have to proceed with the Hostile Bid and can withdraw it.
Q: The price offered to Baffinland shareholders under the Hostile Bid is below the market price of Baffinland shares after the Hostile Bid was announced. What does this mean?
Since the announcement of the Hostile Bid, Baffinland’s common shares have consistently traded above the offer price of $0.80. Baffinland believes that the performance of the common shares during this period is an indication that the market believes that the Hostile Bid undervalues the common shares.
Q: Who can I contact if I have more questions?
If you have more questions, please contact Daniella Dimitrov, Baffinland’s Vice-Chair at 416-814-3172 or DFH Public Affairs at 416-206-0118.
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