Tata Steel has commenced the feasibility study on two Canadian iron ore mines, with estimated 5.6 billion tonne reserves, for the possibility of buying a stake in them in order to feed its European operations.

“A feasibility study has been commissioned by the Board with regards to the LabMag and Kemag projects with results likely to come in by the end of this year or early 2013. It is on the basis of this study we would decide the course ahead,” said Tata Steel’s Chief, Corporate Affairs and Communications, Charudatta Despande.

The steel major has joined hands with Canadian firm New Millennium Capital Corporation (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 per cent stake.

The two projects, LabMag and Kemag, are located near the Direct Shipping Ore project in Labrador, Canada. It is estimated that 5.6 billion tonnes of proven and probable iron ore reserves are available, Tata Steel said.

NML had announced a pact with Tata Steel Global Minerals Holdings Pte to develop the LabMag and Kemag 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 and Tata Steel electing to develop one or both of the deposits. As per the agreement, Tata Steel and NML would hold 80 per cent and 20 per cent 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 the last fiscal year impacted the bottom-line 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 year.

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 per cent of the key input requirements for its European operation by 2015. The Indian operations of the company get the required raw material from indigenous sources.

Tata Steel has already acquired a stake in a coal mine in Mozambique. It has also stakes in three iron ore mines in Canada and the Ivory Coast.

“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. The raw material security will help insulate the Group from swings in prices and thus the resultant impact on profitability,” said Tata Steel.

(This article was published on August 7, 2012)
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