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Tata Steel has reached an agreement with its joint venture partner Toronto-listed New Millennium Iron Corp to hike its stake to 94 per cent from current 80 per cent.
Both the partners have agreed that since New Millennium would not be able to invest in the joint venture Tata Steel Minerals Canada Ltd (TSMC)’s projects now, Tata Steel’s stake would increase because of its future investment worth upto Canadian $1 billion. Consequently, New Milliennium’s stake in the joint venture would be diluted to 6 per cent from present 20 per cent.
TSMC is pursuing a direct shipping ore project (export of iron ore fines) in sub arctic region of Canada. Tata Steel is also the largest investor in New Millennium.
The DSO project, which has begun in 2013 shipments to Tata Steel’s European facilities, is yet to be fully commissioned. Meanwhile, the capital cost for the DSO project has gone beyond the C$560 million announced in October 2012 and required further investment.
New Millennium said that current cash requirement of just over C$1billion for the DSO Project, to fund certain capital and operating expenses for the DSO properties as well as another development project on the Howse deposit, an acquired but undeveloped deposit.
Tata Steel to invest C$524 million
Under the new agreement, Tata Steel will invest C$524.5 million. It has also been agreed that New Millinnium’s loan to the TSMC of C$4.7 million and accrued interest of C$0.6 million would be converted into equity.
New Millennium will be able to maintain its 6.0 per cent ownership interest until the expenditure on the project reaches C1billion. After that it will be required to pay its pro-rata share of any future cash calls over the $1.0 billion figure, according to the agreement.
The initial production for the DSO project, for which Tata Steel has entire off-take agreement with TSML, is aimed at one million tonnes. The DSO project license area contains 64.1 million tonnes of proven and probable mineral reserves at an average grade of 58.8 per cent Fe. This project expected to commission soon its all-weather iron ore processing facility.
Meanwhile, Tata Steel is reviewing its future commitment on developing New Millennium’s two other inferior grade (taconite) projects – Lab Mag and Key Mag – in Canada.
As the current macro-economic situation poses challenges for development of the taconite project, Tata Steel and New Millennium are re-visiting the terms of the original agreement. As part of this review, Tata Steel will consider current, or potentially future, participation in New Millennium’s recently announced alternative development approach to its taconite properties. Both intend to conclude a definitive agreement during the first quarter of 2016.
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