Nunavut Iron Increases Its Offer Price for Baffinland to $1.40 per Share and Increases Maximum Ownership to 60%

NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES

• Increased Offer is for 60% of Baffinland shares, including those already held by Nunavut Iron
  
  
• Offer extended to 11:59 p.m., January 10, 2011
  
  
• Nunavut Iron proposes to add additional consideration in the form of exchange rights to receive Baffinland Warrants

TORONTO, Dec. 29 /CNW/ - Nunavut Iron Ore Acquisition Inc. ("Nunavut Iron") announced today that it has increased its offer to purchase Common Shares of Baffinland Iron Mines Corporation ("Baffinland") so that, for each Baffinland Common Share taken up, the holder would receive $1.40. 

Nunavut Iron has also increased the maximum number of Common Shares to be taken up and paid for under the increased Offer to that number of Common Shares which, together with any Common Shares owned by Nunavut Iron and its affiliates, constitutes 60% of the Common Shares outstanding on an in-the-money fully diluted basis.  To the knowledge of Nunavut Iron, as of December 27, 2010, this number would be 195,312,171 Common Shares, based on 393,389,284 in-the-money fully diluted Common Shares outstanding and the 40,721,400 Common Shares currently owned by Nunavut Iron and its affiliates.  The increased Offer would remain subject to the same conditions as Nunavut Iron's offer as varied on December 15, 2010. 

As a result of the increased Offer, Nunavut Iron is withdrawing its proposal in respect of a gross revenue royalty interest, which no longer forms part of Nunavut Iron's proposals for Baffinland.

"Nunavut Iron has spent considerable time meeting with and soliciting the views of Baffinland shareholders," said Bruce Walter, Chairman of Nunavut Iron.  "This increased Offer, and our new proposals for Baffinland, address shareholder suggestions and make our Offer even more attractive while preserving appropriate flexibility.  Our increased Offer will provide Baffinland shareholders superior value to the ArcelorMittal offer of $1.25 per share."

Nunavut Iron presently intends to further amend its Offer (the "Further Amendment") to provide further consideration for Common Shares taken up in the form of an exchange right (the "Exchange Right") in respect of common share purchase warrants ("Warrants") that Nunavut Iron proposes be issued by Baffinland as described in more detail below (the "Warrant Proposal").  The Further Amendment is subject to the completion of all applicable documentation and compliance with all applicable legal requirements.

Under the Warrant Proposal, Exchange Rights would be provided if the number of Common Shares tendered into the Offer exceeds the number of Common Shares in respect of which the Offer has been made.  In circumstances where Exchange Rights are to be provided, Nunavut Iron would exercise commercially reasonable efforts to cause Baffinland to distribute to each then-existing shareholder of Baffinland, in respect of each then-outstanding Common Share held thereby, 0.4 of a Warrant.  It is proposed that each whole Warrant would be exercisable for a period of up to three years to acquire one Common Share of Baffinland at an exercise price of $1.40.  All Warrants received by Nunavut Iron would be provided to Baffinland shareholders who tender their Common Shares to such amended Offer so that each tendering shareholder would receive, for each Common Share taken up, an Exchange Right which would represent the right to receive a portion of such Warrants received by Nunavut Iron determined on a pro rata basis in respect of all Common Shares taken up.

Shareholders are cautioned that elements of the implementation of the Warrant Proposal are beyond the control of Nunavut Iron, may require approvals from applicable securities regulators, and may require a significant period of time to become effective.  Nunavut Iron reserves the right to substitute alternative consideration (which may or may not have a value equivalent to the Warrant Proposal) in lieu of the Warrant Proposal if, at any time, Nunavut Iron determines that it is not practical or otherwise no longer desirable to implement the Warrant Proposal.

In connection with ArcelorMittal's offer for the Common Shares of Baffinland and the support agreement between those two companies, shareholders holding approximately 25% of the Common Shares (on an in-the-money, fully diluted basis) have entered into lock-up agreements with ArcelorMittal.  Pursuant to these lock-up agreements, those shareholders have agreed to tender their shares to ArcelorMittal's offer and are not free to tender to another take-over bid except in certain circumstances relating to (i) the other take-over bid constituting a "Superior Proposal" within the meaning of the support agreement, (ii) Baffinland having complied with the terms of the support agreement, and (iii) the support agreement thereafter having been terminated.  If the support agreement and the lock-up agreements remain in effect at the time that Nunavut Iron takes up the Common Shares tendered to its Offer, the locked-up shareholders would not be permitted to tender into the Nunavut Iron Offer. 

In connection with the Warrant Proposal, assuming all shareholders of Baffinland, including the locked-up shareholders, tender all of their Common Shares to Nunavut Iron's increased Offer, the effective take-up rate on the deposited Common Shares would be approximately 55.4%.  An example of the implications of tendering in this scenario is shown below as Example A. 

In connection with the Warrant Proposal, assuming all shareholders of Baffinland, other than locked-up shareholders, tender all of their Common Shares to Nunavut Iron's increased Offer, the effective take-up rate on the deposited Common Shares would be approximately 76.6%.  An example of the implications of tendering in this scenario is shown below as Example B.

Nunavut Iron has extended its increased Offer until 11:59 p.m. (Toronto time) on January 10, 2011.

The notice of variation in respect of the increased cash consideration being offered in, and the extension of, the Offer will be mailed to registered holders of Baffinland Common Shares and Convertible Securities promptly and will be available on SEDAR at www.sedar.com.

Warrant Proposal

Illustrative Examples of Take-up by Nunavut Iron 

Example A: All Shareholders Tender Their Shares

This example presents a hypothetical scenario where approximately 352,667,884 common shares, representing all common shares not presently owned by Nunavut Iron or its affiliates (including the common shares presently locked-up to the ArcelorMittal offer), are tendered into Nunavut Iron's Offer, as amended to include the Warrant Proposal.

Under this example the take-up rate on the common shares tendered to the Offer would be approximately 55.4%.  While this example is presented in fractions to provide a per share basis of viewing the Offer, as amended to include the Warrant Proposal, only whole common shares will be taken up.

NOTE: Readers are urged to perform their own calculations using their own assumptions as results will vary depending on the assumptions used.  Nunavut Iron makes no representations as to the actual value of the Offer or any other element described herein as at the date of take-up of any Common Shares pursuant to the Offer.

For purposes of this example, the following material assumptions have been used:

(a) the value of a Baffinland common share is $1.34, being the closing price on the TSX on December 24, 2010; and

(b) the number of whole Baffinland common share purchase warrants proposed to be issued is 157,355,714 and the number thereof subject to Exchange Rights is 94,413,428; and

(c)  an illustrative calculation based on a Black-Scholes option pricing model assuming 35% volatility, a $1.30 reference price, a 3.0 year term to maturity, risk free rate equals 2.07% and a $1.40 exercise price suggests, as at the date hereof, a value of $0.30 per whole Baffinland common share purchase warrant.

For each common share tendered, the value derived under the above scenario for the components to be received under the Offer would be as follows:

• The cash Offer price ($1.40) multiplied by the take-up rate (approximately 55.4%) or approximately $0.776 in cash.
  
  
• Plus one Exchange Right multiplied by the take-up rate (approximately 55.4%) or approximately 0.554 of an Exchange Right, representing 0.2677 of a common share purchase warrant.  Based on the assumptions set out above, the illustrative value of the 0.554 fraction of an Exchange Right would be approximately $0.0803. This illustrative value is calculated by multiplying the aggregate warrant value ($0.30 x 157,355,714) by Nunavut Iron's pro forma ownership of Baffinland (60%) and dividing the result by the number of shares tendered into the Offer (352,667,884).

For each common share tendered, the value derived under the above scenario for a tendering shareholder's continuing ownership would be as follows:

• A fractional common share equal to 1 minus the fraction taken-up, or approximately 0.446 of a common share.  Based on the assumptions set out above, the illustrative value of the 0.446 fractional common share would be approximately $0.598.
  
  
• Plus, upon the distribution by Baffinland of 0.4 of a Baffinland common share purchase warrant per whole common share then outstanding, approximately 0.178 of a common share purchase warrant, being the product of the fractional common share (0.446) and the fractional warrant (0.4).  Based on the assumptions set out above, the illustrative value of the 0.178 fraction of a warrant would be approximately $0.053.

In this example the illustrative total value of the components received and retained is approximately $1.51.

Example B: Only Non Locked-Up  Shareholders Tender Their Shares

This example presents a hypothetical scenario where approximately 254,970,352 common shares, representing all common shares not presently owned by Nunavut Iron or its affiliates (excluding the common shares presently locked-up to the ArcelorMittal offer), are tendered into Nunavut Iron's Offer, as amended to include the Warrant Proposal.

Under this example the take-up rate on the common shares tendered to the Offer would be approximately 76.6%.  While this example is presented in fractions to provide a per share basis of viewing the Offer, as amended to include the Warrant Proposal, only whole common shares will be taken up.

NOTE: Readers are urged to perform their own calculations using their own assumptions as results will vary depending on the assumptions used.  Nunavut Iron makes no representations as to the actual value of the Offer or any other element described herein as at the date of take-up of any Common Shares pursuant to the Offer.

For purposes of this example, the following material assumptions have been used:

(a) the value of a Baffinland common share is $1.34, being the closing price on the TSX on December 24, 2010; and

(b) the number of whole Baffinland common share purchase warrants proposed to be issued is 157,355,714 and the number thereof subject to Exchange Rights is 94,413,428; and

(c) an illustrative calculation based on a Black-Scholes option pricing model assuming 35% volatility, a $1.30 reference price, a 3.0 year term to maturity, risk free rate equals 2.07% and a $1.40 exercise price suggests, as at the date hereof, a value of $0.30 per whole Baffinland common share purchase warrant.

For each common share tendered, the value derived under the above scenario for the components to be received under the Offer would be as follows:

• The cash Offer price ($1.40) multiplied by the take-up rate (approximately 76.6%) or approximately $1.072 in cash.
  
  
• Plus one Exchange Right multiplied by the take-up rate (approximately 76.6%) or approximately 0.766 of an Exchange Right, representing 0.3703 of a common share purchase warrant.  Based on the assumptions set out above, the illustrative value of the 0.766 fraction of an Exchange Right would be approximately $0.111. This illustrative value is calculated by multiplying the aggregate warrant value ($0.30 x 157,355,714) by Nunavut Iron's pro forma ownership of Baffinland (60%) and dividing the result by the number of shares tendered into the Offer (254,970,352).

For each common share tendered, the value derived under the above scenario for a tendering shareholder's continuing ownership would be as follows:

•  A fractional common share equal to 1 minus the fraction taken-up, or approximately 0.234 of a common share.  Based on the assumptions set out above, the illustrative value of the 0.234 fractional common share would be approximately $0.314.
  
  
• Plus, upon the distribution by Baffinland of 0.4 of a Baffinland common share purchase warrant per whole common share then outstanding, approximately 0.094 of a common share purchase warrant, being the product of the fractional common share (0.234) and the fractional warrant (0.4).  Based on the assumptions set out above, the illustrative value of the 0.094 fraction of a warrant would be approximately $0.028.

In this example, the illustrative total value of the components received and retained is approximately $1.52.

ABOUT NUNAVUT IRON AND IRON ORE HOLDINGS, LP

Nunavut Iron was incorporated under the laws of Canada on August 27, 2010 and has not carried on any material business other than in connection with matters directly related to the Offer. Nunavut Iron is wholly owned by Iron Ore Holdings.

Iron Ore Holdings is a limited partnership formed under the laws of Delaware for the purpose of making the Offer.  Iron Ore Holdings is owned by Bruce Walter, the Chairman of Nunavut Iron, Jowdat Waheed, the President and Chief Executive Officer of Nunavut Iron, and funds managed by The Energy & Minerals Group, which is providing the majority of the equity financing for the Offer.  The Energy & Minerals Group is a private investment firm with a family of funds with over US$2 billion under management that invest in the energy and minerals sectors. 

Caution to Readers

This press release does not constitute an offer to sell or the solicitation of an offer to buy securities in Canada, the United States or any other jurisdiction.  Any such offer to sell or the solicitation of an offer to buy any securities will be made only pursuant to appropriate documentation in compliance with all applicable securities laws.  No such offer or any sale of any securities will be made in any jurisdiction in which such an offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.

Certain statements contained in this press release including statements with respect to the Warrant Proposal, Nunavut Iron's intentions following an acquisition of control of Baffinland and other statements that are not historical facts are "forward-looking statements". Forward-looking statements are subject to inherent risks and uncertainties, and are necessarily based upon a number of assumptions that, while considered reasonable by Nunavut Iron and its controlling shareholders, which give rise to the possibility that actual results or events could differ materially from expectations expressed or implied by such statements.  The reader of this document is cautioned that such forward-looking statements are not guarantees of future performance or achievement. In particular, the Warrant Proposal requires compliance with applicable legal requirements, elements of its implementation are beyond the control of Nunavut Iron, and implementation may not be completed on a timely basis, if at all. The forward-looking statements contained in this news release describe Nunavut Iron's and its controlling shareholders' expectations at December 28, 2010 and, accordingly, are subject to change after such date. Nunavut Iron and its controlling shareholders disclaim any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required by applicable laws.

This press release contains hypothetical examples of the result of tendering Common Shares into the Offer as it is proposed to be amended to include the Warrant Proposal.  These examples are hypothetical only, assume that the Warrant Proposal is implemented and are otherwise based on the assumptions set out in this press release and are not guarantees or representations as to present or future value or the present or future trading price of any security or that there will be a liquid public market for any such security.  The actual value of the Warrants and Exchange Right, and the actual results of tendering, will differ and could differ materially.

SHAREHOLDERS OF BAFFINLAND IRON MINES CORPORATION

Kingsdale Shareholder Services Inc.
Toll Free 1-888-518-1562 (English or French)
Outside North America, Bankers and Brokers Call Collect 416-867-2272
Facsimile: 416-867-2271, Toll Free Facsimile 1-866-545-5580
Email: [email protected]

or visit www.baffinlandoffer.com

MEDIA

John Lute
Lute & Company
416-929-5883
Email: [email protected]