Tata Steel, through its subsidiary Tata Steel Minerals Canada (TMSC), has acquired majority stake in Canadian company Labrador Iron Mines (LIM) for Canadian $30 million (Rs.163 crore).
This will enable Tata Steel to seamlessly transport raw material from its existing mines in Canada through rail and a port facility to the U.K. where it has major operations. This is possibly the first acquisition by the Tata Group after Cyrus Mistry took over as Chairman.
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As per the agreement signed between Tata Steel and Labrador Iron Mines Holdings Ltd., LIM will transfer 51 per cent interest in the Howse deposit to TMSC. The Howse deposit is estimated to have 28 million tonnes of iron ore resources.
In turn, Tata will transfer its ‘Timmins 4’ deposit having a resource of 1.7 million tonnes to Labrador for Canadian $3 million (Rs.16.3 crore). This payment is recoverable from sales, Tata Steel said in a filing with the stock exchanges.
Under the agreement, Tata Steel has the option to increase its ownership of Howse deposit to 70 per cent for Canadian $25 million (Rs.136 crore).
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Additionally, the strategic relationship will include multi-part co-operation agreements in logistics and various ancillary mutual support and potential offtake 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.
TSMC’s mining asset is adjacent to that of LIM’s, and the latter was not allowing the former to use its space to transport raw material. Now with this acquisition, the rail head problem is solved.
Raw material strategy
“Tata Steel’s raw material strategy focuses on adding value accretive assets to its portfolio to increase its raw material security. We have large investments in the Labrador Trough area, and this transaction with LIM further reinforces our presence in the region. The proposed arrangement with LIM is expected to enhance the raw material security for the group and streamline the logistics of the DSO Project, which is expected to come on stream in 2013,” H. M. Nerurkar, Managing Director of Tata Steel said in a statement.
Tata Steel holds 80 per cent stake in DSO iron ore project, which has 125 million tonnes of resources spread over 25 deposits. The mine commenced production in September last year, and the processing plant is under construction. This Canadian iron ore project came into Tata’s fold, after they acquired stake in New Millennium Iron Corporation, in 2008. As per the framework arrangement, both companies will co-operate with each other in the Labrador Troughin the Labrador Quebec Region in Canada.
Tata Steel stock, on Tuesday, closed with a loss of 0.96 per cent at Rs.355.75 on the BSE.