Tata Steel Secures 63 Million Tons of Iron Ore from Vale

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Researched by Industrial Info Resources (Sugar Land, Texas)--Brazilian mining company Vale (NYSE:RIO) (Rio de Janeiro, Brazil) has signed a five-year iron-ore supply contract with Corus (London), a subsidiary of India's Tata Steel Limited (BSE:500470) (Mumbai), in which Vale will supply Corus with 63 million tons of iron ore for five years beginning in 2009. This is one of the largest contracts ever signed between a steel-making company and an iron ore supplier. Corus and Vale have had business relations since 1942, when Vale was set up. Since iron ore prices have fallen significantly over the last few months, the timing of the contract should benefit Corus.

With this contract, Tata Steel has strengthened its strategy for acquiring raw materials for its European operations. External sources have been combined with future captive supplies. Although the details of the contract are not known, assuming a uniform supply over the five years of the contract, 63 million tons will meet less than one-third of Corus' annual requirements. Producing 1 ton of steel requires 1.8 tons of iron ore, and Corus has a crude steel production capacity of about 20 million tons per year.

Tata Steel is trying to ensure a continuous supply of iron ore for its various steel plants by signing contracts, acquiring companies, and forming joint ventures with various iron ore suppliers worldwide. It is making efforts to secure 50-60% of its iron ore supplies within the next five to six years. Earlier this month, Tata Steel's Singapore subsidiary, Tata Steel Global Holding Private Limited, signed an agreement with Canadian mining company New Millennium Capital Corporation (CVE:NML) (NML) (Westmount, Quebec), in which Tata Steel will acquire a 19.9% stake in NML for $22.6 million. In addition, Tata Steel may invest another $300 million to obtain a controlling stake in NML's direct shipping ore (DSO) project. The DSO is estimated to have 100 million tons of iron ore reserves. If the DSO project works out, this could be the first captive source of iron ore for Corus. Corus could then be able to procure iron ore from NML from 2010. Tata Steel already has exclusive rights to the LabMag taconite iron ore property in Newfoundland and Labrador. NML owns 80% of the property, which is estimated to contain 3.5 billion tons of mineral reserves. Given its favorable location, Canada is a good source of iron ore for Tata Steel's European operations.

Tata Steel's Singapore subsidiary has also signed created a joint venture with the largest steel company in Vietnam, Vietnam Steel Corporation (Hanoi), and Vietnam Cement Industries Corporation (Hanoi), to set up a greenfield steel complex in Vietnam. The joint venture also entitles Tata Steel to acquire a 30% stake in the Thach Khe Iron Ore Joint Stock Company, which will take up mining in the Thach Khe iron ore mine for the steel unit.

Tata Steel Cote d'Ivoire S.A. (Abidjan, Ivory Coast) is a joint venture formed in December 2007 between Tata Steel and Sodemi, a state-owned company of Ivory Coast, to develop an iron ore mine in Mount Nimba located in the western part of the country. Tata Steel at that time had announced plans to invest $1 billion to $1.5 billion in order to develop the mine. One of the largest mines in West Africa, the Mount Nimba mine is spread over the three nations of Ivory Coast, Liberia, and Guinea. About 700 million to 1 billion tons per year of iron ore are expected to be obtained from it. Tata Steel's facilities in Britain and the Netherlands will source iron ore from this mine. Development work is yet to begin on the mine.

More recently, in September 2008, Tata Steel is known to have explored some iron ore deposits in Laos. Tata Steel has, so far, not made any announcement regarding their interest in Laos.

In Liberia, Tata Steel has been disqualified from the re-launched bidding process for the $1.5 billion iron ore deposits in the western cluster. The Liberian government has alleged acts of violation by Tata Steel during the first bidding process.

The iron ore requirements of Tata Steel's steel units in India, with a capacity of 5 million tons per year, are met by its own iron ore mines. In order to meet the requirements of its overseas unit, Corus, and other steelmaking acquisitions, the company has been scouting worldwide for iron ore suppliers.

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