Labrador Iron Mines to get $30M from Tata subsidiary

Labrador Iron Mines (LIM-T) is expecting to receive $30 million from a subsidiary of India’s Tata Steel, as part of an alliance it recently entered to create cost synergies in the Labrador Trough region, where the two companies operate direct-shipping iron ore projects near the Quebec-Labrador border.

LIM and Tata Steel Minerals Canada (TSMC) — an entity held 80 to 20 by Tata Steel and New Millennium Iron (NML-T) — have agreed to co-operate on upgrading a rail line and developing port infrastructure, along with advancing LIM’s Howse deposit and TSMC’s Timmins 4 deposit.

Dean Journeaux, CEO of New Millennium Iron said that the “framework agreement provides operating efficiencies for both companies, resulting in a win-win outcome.”

TSMC would collect a 51% stake in the Howse deposit, located 25 km northeast of Schefferville, Que., and add mill feed for its nearby Timmins-area plant, which is under construction. The deposit has a historic, non-National Instrument 43-101 compliant resource of 28 million tonnes grading 58% iron, and is part of Labrador’s phase-three assets for development in 2020.

In connection to the transaction, TSMC will pay LIM $30 million in cash, and has the option to bring its stake to 70% by investing up to $25 million on the project.  

LIM’s Toronto-based chairman and CEO John Kearney commented that the “transformational” agreement could lower transportation and infrastructure costs, as well as expedite development at Howse, where ore from the deposit could be processed at TSMC’s new Timmins-area plant some 4 km away, instead of being sent 25 km away to its Silver Yards facility.

LIM, Canada’s newest iron ore producer, intends to pair the $30-million cash injection with a $29-million equity financing it concluded in February to fund its 2013 working capital, exploration program and capital expenditures. It’s looking to formalize the multi-part co-operation agreements with TSMC. 

The junior producer also has an option to acquire 100% of TSMC’s Timmins 4 deposit — 2 km from Howse — for $3 million, payable from sales of Timmins 4 ore at $2 per tonne. The deposit has a historic resource of 1.7 million tonnes.

The arrangement calls for both companies to co-ordinate their efforts to develop infrastructure at the Port of Sept-Îles, Que., with a shared access and terminal facilities to the port’s new deep-sea, multi-user dock.

The miners are also wrapping up arrangements to rebuild a rail line that would start near the Timmins-area plant and pass through the Silver Yards facilities to the Tshiuetin main rail line.

The two will share resources, such as ore cars, repair facilities and camp accommodations.

LIM’s Silver Yards plant is located next to its producing James mine, 3 km from the town of Schefferville. The mine kicked off its first full production season in April 2012, and sold 1.6 million dry tonnes of iron ore last year.

Tata Steel, one of the world’s top steel producers, also owns a 26% stake in New Millennium Iron. The company is using TSMC to help fund the junior’s iron ore projects in Quebec and Labrador.

On March 13, LIM shares fell nearly 5% to 80¢, after jumping 30% to 84¢ the day earlier on news of the alliance.