Labrador Iron to get $30M from Tata Steel

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

As part of the arrangement, LIM and Tata Steel Minerals Canada (TSMC) — an entity jointly held by Tata Steel and New Millennium Iron (NML-T) — have agreed to cooperate on upgrading the existing rail line and developing port infrastructure along with advancing LIM’s Howse and TSMC’s Timmins 4 deposits.

Dean Journeaux, CEO of New Millennium Iron, which owns 20% of TSMC, with Tata Steel holding the rest, said the “framework agreement provides operating efficiencies for both companies, resulting in a ‘win-win’ outcome.”

TSMC is set to take a 51% stake in the Howse deposit, located 25 km northeast of Schefferville, Que., to add mill feed for its nearby Timmins Area plant, currently under construction. The deposit has a historic non-compliant resource of 28 million tonnes grading 58% iron and is part of LIM’s Phase 3 assets anticipated to be developed 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 the “transformational” agreement could lower transportation and infrastructure costs as well as expedite the development of 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 use the $30-million cash injection along with the $29 million equity financing it concluded in February to fund its 2013 working capital, exploration program and capital expenditures. It is working to formalize the multi-part cooperation agreements with TSMC. 

The junior producer also an option to acquire 100% of TSMC’s Timmins 4 deposit, some 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 coordinate its 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 finalizing arrangements to develop a rebuilt rail line that would start near the Timmins Area plant and pass through the Silver Yards facilities to the TSH main rail line.

The two have agreed to share resources such as ore cars, repair facilities and camp accommodations.

LIM’s Silver Yards plant is located next to its producing James mine, some 3 km from the town of Schefferville. The mine kicked off its first full production season in April 2012 and sold a total of 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 and is helping fund the junior’s iron ore projects in Quebec and Newfoundland and Labrador through TSMC.

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