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Even though the deal gives Tata Steel an access to only 28 million tonne of iron ore, the agreement to share infrastructure and exploiting the scope of synergies in operations and logistics will give a significant boost to Tata Steel Europe. Rakesh Arora, managing director and head of research, Macquarie Capital Securities India, said that even though the iron ore reserves with Labrador are small but it resolves the logistics for the 125 million tonne of iron ore that Tata Steel owns just next to it.
He said, “We think it is a positive move for sustainable recovery of Tata Steel’s European business.”
Tata Steel has a 27 per cent stake in New Millenium Iron Corporation (NML). It also has an 80 per cent stake in NML’s DSO Project and the agreement states that the entire iron ore mined out of the DSO Project will be Tata Steel’s. The Project has 125 million tonne of iron ore reserves and has started production since September 2012. Till date, the mine has produced 3 lakh tonne of ore.
Tata Steel owns the stake in NML through its Canadian subsidiary called Tata Steel Minerals Canada Ltd (TSMC). The stake in Labrador Iron is also bought through this very company.
LIM and TSMC operate adjacent DSO iron ore projects spread over the Provinces of Newfoundland & Labrador and Quebec.
Tata Steel said, “LIM shall transfer 51 per cent interest in the Howse deposit to TSMC. The Howse deposit, is estimated to contain 28 million tonnes of iron ore resources. Additionally, the strategic relationship will include multi-part co-operation agreements in areas of logistics and various ancillary mutual support and potential off-take arrangements including development of a rail line that will pass through LIM’s rail yard facilities and connect TSMC’s processing plant with the main rail line and further exploration of Howse deposit.”
The steel demand in Europe continues to be an issue for Tata Steel and the company is focussing on raw material integration.
The company maintains that it wants 25 per cent of the raw material for Tata Steel Europe to be sourced from within the company. For this very reason, Tata Steel bought stakes in iron ore mines of NML. Its investments in Mozambique’s Benga coal project is also aimed to reduce dependence on external coal for Tata Steel Europe.
Coking coal shipments, in small quantities has already commenced from Mozambique and will be used at Tata Steel’s plants in Europe and Asia. The mine has a potential of over 700 million tonne of coking coal and will also produce thermal coal used for power generation.
