Steel giant ArcelorMittal said on Saturday has raised its cash offer to acquire the Canadian iron ore miner to C$1.25 a share from its previous offer of C$1.10 a share and said it has the support of Baffinland Iron Mines Corp's board for the bid.

The amended offer from the world's largest producer of steel came after Nunavut Iron Ore last week raised its hostile bid for Baffinland to $1.35 a share in cash from its September 2010 offer of 80 cents per share. (See: PE firm launches hostile bid for Canada's Baffinland Iron Mines)

Last month, ArcelorMittal launched a C$1.10 a share or C$433 million friendly takeover bid for Baffinland, which was accepted by the miner's board and its largest shareholder, Resource Capital Funds, under a "lock-up agreement."

Resource Capital Funds and the directors of Baffinland had also agreed to sell their 25 per cent stake exclusively to ArcelorMittal.

ArcelorMittal's latest offer values the Toronto-based Baffinland at C$492 million, representing a premium of 14 per cent to its original bid of C$433 million.

Luxembourg-based ArcelorMittal said it has lowered the minimum acceptance condition in its amended offer to 50 per cent plus one common share, and also extended the bid until 29 December 2010.

ArcelorMittal and Baffinland have also amended the break fee by increasing it from the earlier C$11 million to C$15.5 million.

Although ArcelorMittal's latest offer of C$1.25 is lower by 10 cents to Nunavut's last offer of C$1.35, "We believe our offer is clearly superior to Nunavut Iron's partial and incomplete offer because it does not expose the remaining shareholders with financing risk for the project and potential dilution to their investment," Peter Kukielski, ArcelorMittal's head of mining, said in a statement.

Baffinland's stock, which was trading at 55 cents before Nunavut first launched its hostile 80 cents bid in September, shot up to open at C$1.28 today.

The think-tank at ArcelorMittal envisages that Baffinland's share price will fall to around 80 cents if Baffinland's shareholders tender their shares to Nunavut's offer. Shareholders of the company will then get around C$1.13 as net value on their share, compared to ArcelorMittal's C$1.25 for all the shares of Baffinland.

Toronto-based Nunavut, a special purpose vehicle created for the acquisition of Baffinland by the $2-billion private equity firm Energy & Minerals Group, had, in September 2010, launched an 80 cents per share hostile bid for Baffinland, valuing the miner at C$274 million. (See: PE firm launches hostile bid for Canada's Baffinland Iron Mines)

After ArcelorMittal made a superior offer of C$1.10 a share for the whole company on 8 November 2010, Nunavut raised its offer to C$1.35 a share, for 50.1 per cent of Baffinland, on 16 December 2010.
 
Baffinland has been looking for a strategic partner to fund its C$4.1 billion Mary River iron ore project at Baffin Island, Nunavut, in the Canadian Arctic.

The company fully owns three mining leases covering approximately 1,600 hectares in the Mary River that is estimated to hold around 500 million tonnes of high-grade iron ore reserves.

According to Baffinland's estimates, Mary River iron ore can produce around 18 million tonnes of 65.5 per cent grade iron ore per year.