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An agreement by Tata Steel with Canadian iron ore miner New Millennium Capital Corp to jointly develop a taconite iron deposit in Canada is an excellent investment for Tata, analysts said.
Tata Steel has agreed to contribute 64 per cent of the costs of the feasibility study of the New Millennium taconite project, which includes the LabMag and the KeMag ore deposits in Labrador, eastern Canada, New Millennium said in a statement.
Upon successful completion of the feasibility study, the two companies will enter into a binding joint venture to develop one or both of the deposits, in which Tata Steel will own an 80 per cent stake.
"This is an excellent investment for Tata," Alok Kumar Nemani, an analyst at Nomura, said.
"Ultimately it means that about 80 per cent of iron ore requirements of its European operations will come from captive mines."
The Indian company already owns a 27 per cent stake in New Millennium and acquired an 80 per cent stake in a New Millennium direct shipping ore (DSO) project last September.
Production from the DSO project and the taconite project, are forecast to be 4 million tonnes per year and 25-30 million tonnes per year, respectively, while Tata in Europe's iron ore need is estimated at 22 million tonnes per year.
However, iron ore production at the Canadian sites in which Tata has invested will start in three to four years.
"Every steelmaker is now looking for raw materials," said a Credit Suisse analyst.
As prices of iron ore and coking coal, two key ingredients for steelmaking, have increased in the past couple of years, more and more steelmakers have been looking at raw materials integration.
"It is hard to say where iron ore prices will be in three to four years, but the supply is tight and prices are not expected to fall through the floor," the Credit Suisse analyst said.
Tata will invest up to C$4.85 bn ($5 bn) if both deposits are developed and up to C$4.68 bn and C$3.76 bn, respectively if only the Ke Mag or the Lab Mag deposits are developed.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
An agreement by Tata Steel with Canadian iron ore miner New Millennium Capital Corp to jointly develop a taconite iron deposit in Canada is an excellent investment for Tata, analysts said. Tata Steel has agreed to contribute 64 per cent of the costs of the feasibility study of the New Millennium taconite project, which includes the LabMag and the KeMag ore deposits in Labrador, eastern Canada, New Millennium said in a statement.
Upon successful completion of the feasibility study, the two companies will enter into a binding joint venture to develop one or both of the deposits, in which Tata Steel will own an 80 per cent stake.
"This is an excellent investment for Tata," Alok Kumar Nemani, an analyst at Nomura, said.
"Ultimately it means that about 80 per cent of iron ore requirements of its European operations will come from captive mines."
The Indian company already owns a 27 per cent stake in New Millennium and acquired an 80 per cent stake in a New Millennium direct shipping ore (DSO) project last September.
Production from the DSO project and the taconite project, are forecast to be 4 million tonnes per year and 25-30 million tonnes per year, respectively, while Tata in Europe's iron ore need is estimated at 22 million tonnes per year.
However, iron ore production at the Canadian sites in which Tata has invested will start in three to four years.
"Every steelmaker is now looking for raw materials," said a Credit Suisse analyst.
As prices of iron ore and coking coal, two key ingredients for steelmaking, have increased in the past couple of years, more and more steelmakers have been looking at raw materials integration.
"It is hard to say where iron ore prices will be in three to four years, but the supply is tight and prices are not expected to fall through the floor," the Credit Suisse analyst said.
Tata will invest up to C$4.85 bn ($5 bn) if both deposits are developed and up to C$4.68 bn and C$3.76 bn, respectively if only the Ke Mag or the Lab Mag deposits are developed.
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