Tata Steel to buy 20% in Canadian iron ore firm

Tag : iron and steel

Tata Steel Global Minerals Holdings, an indirect wholly-ownedsubsidiary of Tata Steel, has entered into an agreement with NewMillennium Capital Corporation (NML) to acquire nearly 20 per centstake in the Canadian firm.
As per the agreement, the Tata Steel arm would acquire 19.9 percent of the common shares of the expanded capital base of NML,which controls 9.1 billion tonnes of iron ore, for $22.6 million(Rs 106 crore). It will also buy 80 per cent equity interest inNML’s Direct Shipping Ore (DSO) project in the province ofQuebec.
Tata Steel Managing Director B Muthuraman said, “Subject tothe establishment of their economic viability, these projects mayprove to be a source of the company's raw material requirements. Inview of its geographical proximity, Canada is a favourable locationto source raw materials for Tata Steel's Europeanoperations.”
The Tata Steel Group, including Corus, has a crude steel capacityof 28 million tonnes with an iron ore security of 22 per cent. Theagreement provides exclusivity to Tata Steel in both the DSOproject and the LabMag taconite iron ore property in Newfoundlandand Labrador, which is 80 per cent owned by NML and 20 per cent bythe Naskapi Nation of Kawachikamach.
NML will utilise the proceeds from the private placement to developthe DSO project through a definitive feasibility study to becompleted in the second quarter of 2009.
Upon the completion of the placement, Tata Steel would be entitledto two nominees on the board of NML. Tata Steel is also entitled toa right of first refusal in future placement of equity securitiesconducted by NML and a pre-emptive right in connection with otherofferings of equity securities.
Based on historical estimates, the DSP project contains in excessof 100 MT of direct shipping quality ore.
After completion of the feasibility study, Tata Steel will get a180-day period to acquire 80 per cent equity interest in the jointventure to be set up for developing the DSO project. It will alsohave a 100 per cent offtake right on the DSO project’s ironore production for the life of the mining operation. Subject tocompletion of a positive study, regulatory approvals and projectfinancing, NML expects to produce 4 MT of iron ore products fromthe DSO project commencing in 2010. Tata Steel would also haveexclusivity to negotiate and settle a proposed transaction inrespect of the LabMag project until June 2009.
The LabMag deposit has 3.5 billion tonnes of mineral reserves thatcontained in 4.6 billion tonnes of measured and indicated resourcesand 1.2 billion tonnes inferred resources. The companies intend towork together to find an economically viable solution to advancethe project.
Earlier, India’s NMDC had discussed investment in NML butwithdrew due to a long gestation period.
NML would be Tata Steel’s third iron ore venture overseas.Last year, the company entered into a joint venture with Sodemi, agovernment-owned mineral development company in Africa, fordevelopment of Mount Nimba iron ore deposits in Ivory Coast.
Tata Steel also has a greenfield steel project in Vietnam.