By Andrew Willis
Where Chinese players are taking billion dollar bites of Canadian resource companies, India’s Tata Steel (OTC:TATLY) is quietly building its holdings in the small cap end of the market.
Tata, a company with a $40 billion market cap, ramped up its ownership in a TSX Venture-listed iron ore play called New Millennium Capital Corp. this week by buying $20 million of stock in the junior mining company.
It’s the latest show of support from Tata, as the Indian conglomerate has already agreed to provide up to $300 million of project financing for New Millennium properties in Labrador and northern Quebec. New Millennium has a $128 million market capitalization.
Tata bought 14.3 million New Millennium shares at $1.40 each, a healthy 23% premium to where the stock was trading prior to announcement of the financing. With this financing, Tata’s ownership stake creeps up to 27.4%, from 19.9%.
New Millennium bills its properties as “the world’s largest undeveloped iron ore deposits,” and is taking steps to change that status to developed, with plays to build railways and mines, and strike all-important agreements with Innu First Nations.
Tata has an obvious goal in making this investment, as CIBC World Markets analyst Ian Parkinson said in a note on Wednesday: “We believe the two Taconite projects that New Millennium has in its portfolio may play an integral role in Tata's strategy of being self-sufficient in iron ore for its U.K. based, Corus operation.”
For investors, the question is where this all ends out. Is Tata content to be a minority shareholder in a junior Canadian mining play, or will it eventually take out New Millennium. At CIBC World Markets, Mr. Parkinson has a $1.10 target price on this stock - north of current prices, but well under what the company would fetch in any takeover.