Dec. 12 (Bloomberg) -- Tata Steel Ltd., the world's fifth- largest steelmaker, will spend $1.5 billion developing the Mt. Nimba mine in Ivory Coast in its first overseas iron ore venture.

The mine will supply Tata's European mills in the next two to three years, Managing Director B. Muthuraman said today on a conference call from Ivory Coast. Tata has a 75 percent stake in the project with the balance held by Sodemi, a company owned by the African nation's government, he said.

Supplies from the project will help lower costs at Tata's mills in Europe that were acquired as part of its 6.83 billion pound ($13.9 billion) takeover in April of Corus Group Plc. Contract prices for iron ore have tripled in the past five years on demand from China. Corus imports iron ore and coal, while Tata mines the steelmaking ingredient domestically.

``Profit margins at Corus will improve significantly once the ore is shipped,'' Vishal Chandak, an analyst at Emkay Share & Stock Brokers Ltd., said in Mumbai. ``This is good news.''

Corus spends $230 more to produce each ton of steel at its plants in the U.K. and Netherlands than Tata does in India, said Rakesh Arora, an analyst at Macquarie Group Ltd. in Mumbai. Tata and Corus combine produce about 25 million tons a year. Capacity may reach 56 million tons by 2015 after three mills planned in India start production, Chairman Ratan Tata said in July.

``The competitiveness of Corus will substantially improve once it gets raw materials from the mines,'' Muthuraman said.

Tata Steel shares gained 3.4 percent to 864.45 rupees at close in Mumbai. The stock has doubled this year and is among the biggest gainers on India's benchmark Sensitive index.

`Very Valuable'

An initial study of the Mt. Nimba project shows it has reserves of 700 million to 1 billion tons of ore, Muthuraman said. Tata will complete its exploration of the site within three months. The company aims to secure as much as 60 percent of iron ore and coal required by Corus in five years, he said.

``It's premature to say what the value of the mine will be at this stage'' as prices are determined by the content of iron in the ore, said Rahul Jain, an analyst at ICICI Securities Ltd. ``It is clear that this is a very valuable investment.''

The iron ore price from Rio Tinto Group, the world's third- largest mining company, reached $51.47 a metric ton this year, according to Bloomberg calculation.

Record Prices

Contract prices for iron ore may climb more than 50 percent next year, Goldman Sachs JBWere Pty said last month. Benchmark coal prices rose to a record this year on disruption to supplies from Australia, the biggest exporter of the fuel. Tata said last month it would pay $88 million for a 35 percent stake in two coal projects in Mozambique and would study more coal and iron ore acquisitions to secure supplies globally.

``These initiatives remove uncertainties of raw material supplies,'' said A. Balasubramaniam, chief investment officer at Birla Sun Life Mutual Fund, which has $7.6 billion in assets and Tata Steel shares. ``Tata continues to be a `buy.'''

BHP Billiton Ltd., the world's largest miner, last month made a $138 billion offer for Rio. The combined company would vie with Brazil's Cia. Vale do Rio Doce as the largest iron-ore producer. Steelmakers including South Korea's Posco have said the bid should be blocked by regulators to damp further increases in prices of the raw material.

``The iron ore industry is heavily concentrated and any further consolidation is not good,'' Muthuraman said.

To contact the reporter on this story: Debarati Roy in Mumbai at droy5@bloomberg.net.

Last Updated: December 12, 2007 05:18 EST