MT Arcelor Mittal New

India's Tata Steel Ltd. (500470.BY) has joined forces with Canadian junior mining company New Millennium Capital Corp. (NML.V) to develop potentially large-scale iron-ore reserves in Labrador and Quebec, the latest bid by a global steel company to tap Canada's resources to secure raw material for its manufacturing operations.

Last month, China's Wuhan Iron & Steel Ltd. (600005.SH) acquired a 25% stake in Canadian iron-ore exploration company Century Iron Mines Corp., and before that Luxembourg-based ArcelorMittal (MT), the world's largest steel producer, led a joint venture that acquired Baffinland Iron Mines Corp. for the C$4 billion Mary River iron-ore project, considered one of the best iron-ore mines in the world.

Steel manufacturers aim to secure iron-ore reserves, a key raw material for steel, to guard against supply shortages and as a hedge against rising demand for steel from the emerging economies of India and China.

Stainless steel production in 2010 increased by almost 25% to a record high of 30.7 million metric tons, led by China, "the driving force in stainless crude steel production," according to the International Stainless Steel Forum.

Junior exploration companies seek manufacturers as partners in order to obtain the huge amounts of financing needed to turn their exploration properties into working mines.

Tata has "the financial strength, operating expertise and motivation to carry this project through to production," said Robert Martin, New Millennium's chief executive, in a new release.

Initially, Tata will spend about C$32 million (US$32.9 million) out of a total of C$50 million to help New Millennium, of which Tata owns 27.2%, determine the feasibility of developing the LabMag and KeMag iron-ore deposits along the Labrador Trough in Canada's north. New Millennium will cover the remaining cost.

Assuming the project proceeds, development costs could total C$4.85 billion.

"A successful completion of the feasibility study would enable Tata to consider a viable option for attaining self-sufficiency in iron ore for Tata's operations in Europe," said H.M. Nerurkar, managing director of Tata Steel, in a release.

Together the deposits hold more than 9 billion metric tons of reserves and resources that will potentially produce 22 million tons annually of concentrate, with a potential mine life of over 100 years, New Millennium said.

Tata and New Millennium would establish a joint venture to develop one or both of the deposits, with Tata initially owning 80% of the joint venture and New Millennium holding 20%. New Millennium's stake could ultimately increase that stake to 40%, which would drop Tata's position to 60%.

Tata will arrange the required equity portion of the financing (excluding New Millennium's optional equity interest) based on a maximum capital expenditure of up to C$4.85 billion if both deposits are developed and up to C$4.68 billion and up to C$3.76 billion, respectively, if only the KeMag or LabMag deposits are developed.

-By Ben Dummett, Dow Jones Newswires; 416-306-2024; ben.dummett@dowjones.com

(Carolyn King in Toronto contributed to this article.)

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