Tata Steel in strategic alliance with Canada's Labrador Mines

Tata Steel has entered into a strategic pact worth Canadian dollar 30 million with Labrador Iron Mines Holdings and the agreement includes transfer of 51% stake in one of the deposits owned by the Canadian entity to it.

"Tata Steel through its subsidiary Tata Steel Minerals Canada Limited (TSMC), entered into a framework arrangement with LIM to establish a strategic relationship. The two companies have agreed to co-operate with each other in various aspects of their respective iron ore operations in the Labrador Trough," the steel major said in a statement.

The company said as part of alliance LIM shall transfer 51% interest in the Howse deposit, which is estimated to contain 28 million tonnes (MT) ore reserves, to TSMC.

It added that TSMC also has an option to further increase its ownership of Howse deposit to 70% for a consideration of additional Canadian dollar 25 million.

The strategic relationship will include multi-part co-operation agreements in areas of logistics 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. It also include further exploration of Howse deposit.

"In consideration of all of the above, LIM shall receive up to Canadian dollar 30 million. TSMC will also transfer its Timmins 4 deposit having resource of 1.7 MT to LIM at a consideration of Canadian dollar 3 million recoverable from sales," the statement said.

The Labrador Trough is a 1,100-kilometre long, 160-kilometre wide iron ore bed in the LabradorQuebec region in Canada, which has delivered over 2 billion tonnes of ore in last 50 years and has attracted mining investments of $15 billion from leading global companies.

Commenting on the development, Tata Steel Managing Director H M Nerurkar said 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," he added.

Tata Steel established its presence in this region through acquisition of 19.9% stake in New Millennium Iron Corporation (NML) in 2008, which was increased to 27% and chose to exercise its option to participate in NML�s DSO Project in 2010.

"Tata Steel holds 80% in the DSO project through TSMC, which was formed as a joint venture between NML and the steel giant to develop the DSO Project.

The DSO has 125 MT of resources spread over 25 deposits.

Tata Steel said while the DSO mine has commenced its production in September 2012 and has produced 300,000 tonnes of ore, the construction of the processing plant within a mega-dome is in full-swing.

The TSMC facility, when fully commissioned, will be able to roll out 6 MTPA of sinter fines, it added.

LIM and TSMC operate adjacent DSO iron ore projects spread over the provinces of Newfoundland & Labrador and Quebec.

"Having plans to potentially utilise the same infrastructure, both companies have decided to work together to exploit the significant scope of synergies in operations and logistics," the company added.

It said that as per estimates the annual iron ore production in Labrador Trough would increase from current 35 million tonnes (MT) to about 65 MT by 2015.

Shares of Tata Steel closed at Rs 355.75 a scrip on the BSE, down 0.96% from the previous close.