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The acquisition cost Tata $30 million Canadian dollars.
With the deal, Labrador Iron Mines Holdings will transfer 51 per cent interest in the Howse deposit to TMSC.
The Howse deposit is estimated to have 28 million tonnes of iron ore resources.
The agreement says Tata will transfer its ‘Timmins 4’ deposit with a resource of 1.7 million tonnes to Labrador for $3 million Canadian dollars.
This payment is recoverable from sales, Tata Steel said in a filing with the stock exchanges.
The deal will enable the two companies to benefit from shared infrastructure of rail and port.
Tata Steel’s existing mines in Canada will be using LIM’s transport facilities.
The deal stipulates that Tata Steel has the option to increase its ownership of Howse deposit to 70 per cent for $25 million Canadian dollars.
“Tata Steel’s raw material strategy focuses on adding value accretive assets to its portfolio to increase its raw material security” H M Nerurkar, managing director of Tata Steel said in a statement.
“We have large investments in the Labrador Trough area, and this transaction with LIM further reinforces our presence in the region. The proposed arrangement with LIM is expected to enhance the raw material security for the group and streamline the logistics of the DSO Project, which is expected to come on stream in 2013,” said Nerurkar.
On Tuesday, Tata Steel stock closed with a loss of 0.96 per cent at Rs.355.75 on the BSE.
Reuters quoted Deutsche Bank as describing the deal as a positive development for Tata Steel.
“Apart from gaining access to 14.3 million tonnes of new attributable iron ore resources located adjacent to its existing deposits, the strategic agreement will also help drive synergies in operations and logistics,” Deutsche Bank says.
The Canadian company’s shares soared 20 per cent on the news of the deal.
Tata Steel Ltd. is an international steel producer which manufactures a variety of steel products.
The TATA Group is one of India’s largest business conglomerates.