Domestic steel major to spend $22.6 million on the acquisition.
Tata Steel Global Minerals Holdings, an indirect wholly-owned subsidiary of Tata Steel, has entered into an agreement with New Millennium Capital Corporation (NML) to acquire nearly 20 per cent stake in the Canadian firm.
As per the agreement, the Tata Steel arm would acquire 19.9 per cent 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 in NML’s Direct Shipping Ore (DSO) project in the province of Quebec.
Tata Steel Managing Director B Muthuraman said, “Subject to the establishment of their economic viability, these projects may prove to be a source of the company's raw material requirements. In view of its geographical proximity, Canada is a favourable location to source raw materials for Tata Steel's European operations.”
The Tata Steel Group, including Corus, has a crude steel capacity of 28 million tonnes with an iron ore security of 22 per cent. The agreement provides exclusivity to Tata Steel in both the DSO project and the LabMag taconite iron ore property in Newfoundland and Labrador, which is 80 per cent owned by NML and 20 per cent by the Naskapi Nation of Kawachikamach.
NML will utilise the proceeds from the private placement to develop the DSO project through a definitive feasibility study to be completed in the second quarter of 2009.
Upon the completion of the placement, Tata Steel would be entitled to two nominees on the board of NML. Tata Steel is also entitled to a right of first refusal in future placement of equity securities conducted by NML and a pre-emptive right in connection with other offerings of equity securities.
Based on historical estimates, the DSP project contains in excess of 100 MT of direct shipping quality ore.
After completion of the feasibility study, Tata Steel will get a 180-day period to acquire 80 per cent equity interest in the joint venture to be set up for developing the DSO project. It will also have a 100 per cent offtake right on the DSO project’s iron ore production for the life of the mining operation. Subject to completion of a positive study, regulatory approvals and project financing, NML expects to produce 4 MT of iron ore products from the DSO project commencing in 2010. Tata Steel would also have exclusivity to negotiate and settle a proposed transaction in respect of the LabMag project until June 2009.
The LabMag deposit has 3.5 billion tonnes of mineral reserves that contained in 4.6 billion tonnes of measured and indicated resources and 1.2 billion tonnes inferred resources. The companies intend to work together to find an economically viable solution to advance the project.
Earlier, India’s NMDC had discussed investment in NML but withdrew 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, a government-owned mineral development company in Africa, for development of Mount Nimba iron ore deposits in Ivory Coast.
Tata Steel also has a greenfield steel project in Vietnam.
