Tata Steel has commenced the feasibility study on two Canadian iron ore mines, with estimated 5.6 billion tonne reserves, for possibly buying a stake in them to feed its European operations.
"A feasibility study has been commissioned by the Board with regards to the LabMag and Kemag projects, results of which are awaited by the end of this year or early 2013. It is on the basis of this study we would decide the course ahead," Tata Steel's chief, corporate affairs and communications, Charudatta Despande told PTI.
The steel major has joined hands with Canadian firm New Millenium Capital Corp (NML) for conducting the study, a very preliminary step to assess the potential of the mines.
Tata Steel is the largest stakeholder in NML with around 27% stake.
The two projects, LabMag and Kémag, are located near the Direct Shipping Ore project in Labrador, Canada, and have an estimated 5.6 billion tonne of proven and probable iron ore reserves, Tata Steel said.
NML had announced a pact with Tata Steel Global Minerals Holdings Pte to develop the LabMag and KéMag iron ore deposits, known collectively as the Taconite Project.
The two also agreed to enter into a binding joint venture agreement upon the successful completion of the feasibility study, Tata Steel electing to develop one or both of the deposits. As per the agreement, Tata Steel and NML would hold 80% and 20% stake, respectively, in the proposed joint venture.
Iron ore from these mines are expected to feed European operation of Tata Steel.
Volatility in raw material prices had in last fiscal impacted the bottomline of Tata Steel Europe, which has around 18 million tonne capacity.
The company is also developing the Direct Shipping Ore project mine in joint venture with NML.
It hopes to begin production from this project in the current fiscal.
Tata Steel Europe has no captive raw material source to feed its plants and thus the entire requirement is met through imports. It takes around 1.6 tonnes of iron ore to make one tonne of steel.
The company had earlier said it would ensure 50% of the key inputs requirement for its European operation by 2015.
Indian operation of the company gets the required raw material from indigenous sources.
Tata Steel has already acquired stake in a coal mine in Mozambique. It also has stakes in three iron ore mines in Ivory Coast and Canada.
"During the financial year 2011-12, volatile raw material prices have only reinforced the validity of the strategic objective to achieve greater raw material security to insulate the Group from swings in prices and the resultant impact on profitability," Tata Steel said.