In September 2008, NML signed a strategic partnership agreement to develop its DSO Project with global giant Tata Steel, one of the world's largest steel companies. Tata Steel is based in India and is one of the world's most geographically diversified steel companies. Established in 1907, Tata Steel is part of the Tata Group, the largest private sector employer in India. Over 395,000 people worldwide are employed in seven business sectors in which the Tata Group operates.
Tata Steel, with revenue of US$ 22.8 billion in the 2010 fiscal year, has over 80,000 employees across five continents and is a Fortune 500 company. Since 2004 the Company has expanded globally, acquiring Asian steel producers NatSteel and Millennium Steel (now called Tata Steel Thailand) as well as Europe's second largest steel producer Corus (now called Tata Steel Europe Limited). Tata Steel has an annual crude steel production capacity of over 28 million tonnes. Tata Steel Europe's capacity is around 18 mtpy. The Indian operation is self-sufficient as it has captive iron ore mines. Tata Steel Europe has no captive sources and is therefore completely dependent on the market for its iron ore requirements.
The European operation is faced with higher production costs with the escalation of iron ore prices. Tata Steel made a strategic decision to control raw materials costs for its European operation by investing in captive mines. Tata Steel's interest in NML's project is motivated by this need. Canada is a stable jurisdiction and is closer to Europe than Brazil, from which Europe currently gets the majority of its iron ore. Tata Steel Europe has been sourcing ores from Canada for over 50 years and has used DSO products similar to those of NML in its blast furnaces. Another attraction for Tata Steel is the size of NML's resources and the potential for low cost operations.
NML and Tata Steel's partnership was solidified in November of 2009, when New Millennium signed a Joint Venture Agreement with respect to the development of the DSO Project. Based on the feasibility study results, Tata made a decision in September, 2011 to invest in the project. The project is at an advanced stage, with construction underway and production anticipated for the second half of 2012. Another important commitment was made when, in March of 2011, NML signed a binding heads of agreement with Tata Steel to collaborate on a feasibility study to develop the LabMag and KéMag iron ore deposits, known collectively as the Taconite Project, which is potentially the largest mining project in Canada.
Tata Steel has an 80% interest in the Joint Venture Company "Tata Steel Minerals Canada Ltd.". This is in exchange for arranging C$300 million towards the capital cost and a commitment to purchase, at prevailing world prices, 100% of the iron ore produced during the life of the mine. In addition, Tata Steel reimbursed NML for 80% of the historical costs, which amounted to approximately C$21 million.
Under the Binding Heads of Agreement (HOA), NML and Tata Steel will jointly oversee and supervise the preparation of the feasibility study ("Taconite Feasibility Study") for the Taconite Project. Tata Steel and NML will fund 64% and 36% respectively of the cost of the Taconite Feasibility Study, which is estimated at $50 million.
Upon conclusion of the Taconite Feasibility Study, Tata Steel will have a maximum of four months to make an investment decision. A positive investment decision could involve the development of either one or both of the deposits. NML will transfer such deposit(s) along with the property and other related rights to such deposit(s) to a Joint Venture Enterprise (JVE). If Tata Steel elects to develop only one of the two deposits, NML will retain the property and related rights in respect of the remaining deposit.
The Binding HOA further provides that following a positive investment decision:
Tata Steel will reimburse NML 64% of the estimated $30 million in expenses that were incurred by NML on the Taconite Project up to the execution of the Binding HOA.
Tata Steel and NML will form a JVE to hold the Taconite Project, where Tata Steel and NML would hold shares in the ratio of 80% and 20% respectively, the latter being the free carry interest of NML.
Tata Steel will arrange the financing based on a maximum capital expenditure of up to $4.85 billion
NML would also have an option to acquire up to an additional 16% paid equity, thereby bringing its total equity in the JVE from 20% to up to 36%. This additional 16% equity shall obligate NML to contribute proportionate equity funding to the JVE.
Should Tata Steel exercise its right to invite third-party investors into the project, NML will have the right of first refusal to acquire an additional 4% of paid equity, thereby increasing its ownership in the project to a maximum of 40%.
The parties have an offtake right on the production in proportion to their ownership interest in the JVE.
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Naskapi Nation of Kawawachikamach (NNK)
NNK is NML's first strategic partner. NNK holds a stake in the LabMag deposit by investing in the project when the deposit was controlled by the LabMag Mining Cop (LMC). In 2004, when NML acquired the LabMag deposit, NNK retained a 20% ownership interest in the limited partnership that owns the mineral claims that covered the deposit. NNK also retained a 20% ownership interest in the partnership in all claims that were to be staked by NML within in a 5 KM zone of influence from the perimeter of LabMag claims. In addition to a 20% ownership in the partnership, NNK retained a 0.333% gross overriding royalty on the production from any future operation from those properties.
Under the terms of their partnership agreement, NML is committed to carry NNK until production. NML is currently paying 100% of the all development expenditures however NNK is required to pay back to NML its share of costs including interest from any future income. NML has also formed a wholly-owned subsidiary, LabMag Services Inc., to provide services for the development of the partnership's properties.
The Naskapi and their ancestors have occupied the interior of the Quebec-Labrador Peninsula since time immemorial. The Naskapi traditionally led a nomadic existence following the caribou herds from Hudson Bay in the west to the Labrador Coast in the east, and from the southern coast of Ungava Bay in the north to the vicinity of Labrador City in the south. In 1983, the Naskapis moved to Kawawachikamach, located near the 55th parallel of latitude in northern
Quebec, next to the Labrador border. It is approximately 15 km north-east of Schefferville and 525 km by rail north of Sept-Îles. NNK showed interest to participate in the LabMag Project when they were approached in 2003 by LMC. The two parties reached a commercial agreement later that year when NNK agreed to bear the cost of initial environmental base line studies in return for a stake in the project.
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