MINE GAME

Calcutta, Oct. 12: Tata Steel may invest another $300 million (Rs 1,500 crore) in New Millennium Capital Corp of Canada to procure iron ore for its European operation from 2010.

The investment would be in addition to the Rs 106 crore the Tatas had paid earlier this month to pick up a 19.9 per cent stake in the company.

New Millennium has informed the bourses that the stake sale had been completed by a placement of shares at $0.90 apiece to Tata Steel.

However, the Tatas would have to shell out around Rs 1,500 crore more to acquire a controlling stake in New Millennium’s direct shipping ore (DSO) project. Direct shipping ore is a type of iron ore.

According to estimates, the shipping ore project has capacity to produce 100 million tonnes.

After the completion of a feasibility study by the second quarter of 2009, New Millennium expects to produce four million tonnes of iron ore per annum from the shipping ore project, starting 2010.

According to the agreement between the two companies, the Tatas will have an exclusive option of 180 days to pick up an 80 per cent stake in the DSO project after the completion of the study. If Tata Steel chooses to exercise this option, it may have to fork out around Rs 1,500 crore more.

The net proceeds from the stake sale will be used by the parent firm to develop the DSO project.

Besides this project, the agreement provides exclusivity to Tata Steel with respect to the LabMag taconite iron ore property, in Newfoundland & Labrador, which is 80 per cent owned by New Millennium. The LabMag deposit contains 3.5 billion tonnes of proven and probable mineral reserves.

If the DSO project sails through, this could be the first captive source of iron ore for Tata Steel’s Corus operations.

After acquiring the Anglo-Dutch steelmaker last year, Tata Steel has been on a hunt for captive iron ore and coal mines. Corus has no iron ore mines of its own.

Though the Tatas have acquired stakes in two mines — one each in Australia and Ivory Coast — these would take some time to develop.

Hence, it was looking for mines that could begin production soon. At the moment, the DSO project seems fit to meet its needs.

The captive mines would help Corus in reducing costs, if a global recession leads to a drop in steel demand and prices. However, the DSO project will be partly able to meet Corus’s requirement.

The project is located in the border regions of two Canadian provinces in the eastern part of that country — Quebec and Newfoundland & Labrador.

On the acquisition of the Canadian firm, Tata Steel managing director B. Muthuraman had said, “Because of its geographical proximity, Canada is a favourable location to source raw materials for Tata Steel’s European operations.”

In September, Tata Steel bought an additional 7.29 per cent stake in Australia-based Riversdale Mining for $120.7 million through its Singapore subsidiary. With this, the Tatas raised their shareholding in the company to 42.3 per cent from 35 per cent, since the joint venture was formed last year.