Steel major Tata Steel plans to become a partner in Canada-based New Millennium Capital Corp's $4-billion KeMag property, having iron ore reserves in excess of two billion tonnes.
A Tata Steel spokesperson said, the company would engage in the KeMag property in due course as the pre-feasibility study has just been completed. However, for Tata Steel Global Mineral Holdings, an indirect wholly owned subsidiary of Tata Steel, which picked up a 19.9 per cent stake in New Millennium, a bankable feasibility study on the direct shipping ore project is a priority.
The Tata Steel-New Millennium deal forged last year has three components.
First, Tata Steel would become New Millennium's largest shareholder with a 19.9 per cent stake.
Second, on completion of a feasibility study by New Millennium for its DSO project, the Indian steel major would have 180 days to acquire an 80 per cent interest in the project. It would furthermore invest up to a total of $300 million in the project to start production. Tata Steel has committed to purchase 100 per cent of DSO's ore production at the prevailing world prices during the life of the mine.
Third, the Indian major has an exclusive right to negotiate a proposed transaction in respect of the LabMag project until June this year. The LabMag project has indicated reserves of 3.6 billion tonnes.
The KeMag project was not part of the deal with New Millennium. "Our immediate priority is to ensure that the DSO feasibility study is completed as soon as possible and the production starts at the earliest," said a Tata spokesperson.
According to the pre-feasibility study, the KeMag project will have an initial capital cost of $3.8 billion and a working capital need of $26.4 million. The net present value of the project, before corporate and mining taxes, is $7.3 billion.
The next stage for the KeMag project is to initiate a feasibility study, which if successful would lead to project financing in 2011 and a production start by 2014.
New Millennium is Tata Steel's third overseas iron ore venture. The company has a joint venture with Sodemi, a government-owned mineral development company in Africa, and a greenfield steel project in Vietnam, linked to iron ore deposits. Also, Tata Steel is in the running for a $1.6-billion iron ore project in Liberia.
Tata Steel, with a 28 million tonnes capacity, has set a target of 40 per cent raw material security over the next 3-5 years. The group meets all its iron ore requirements for its domestic operations from its own mines. Currently, the group, which includes Corus (20 million tonnes capacity) and other foreign acquisitions, has a raw material security of 22 per cent only.