The second phase of mineral block auctions in Odisha was concluded recently. The Odisha government had put up 10 iron ore and one bauxite block for auctions this time. The mineral blocks witnessed participation from 38 mining and steel companies with 123 bids being put up for the iron ore mines.
One striking similarity with the mineral block auctions in both FY’21 and FY’22 was the surprisingly high premiums quoted by the bidders. In FY’21, bids premiums climbed over 100% for a majority of the blocks on offer, much like in 2020. SteelMint calculated the average bid premium for the 2021 auctions at 117%.
SteelMint’s latest webinar on “What to expect from Indian mining scenario post auctions,” as part of the ENGAGE-2021 webinar series, saw in-depth analysis by experts on the evolving iron ore scenario in the country.
Both speakers, Umesh Chandra Jena, Joint Director of Mines, Government of Odisha, and Kapil Mantri, Head of Corporate Strategy and Business Development, Jindal Steel and Power Ltd. (JSPL), stressed on the changing dynamics of the Indian iron ore market.
- Barriers galore: Both stressed on the unviability of the huge premiums. For instance Jena said merchandizing iron ore at current high premiums is unfeasible. The government will re-auction leases if called for. Leases of state-owned mines will be extended upon payment of extra 150% of royalty.The Tata Group bid very high at the iron ore auctions this year compared to 2020. “Tata Steel won the Gandhalpada block for over 141% premium – the highest at the auctions this year. This shows that the value-addition incentive is driving premiums,” Jena observed.
Jena added that the recent auctions have shown the era of commercial mining is over, not just in Odisha but other parts of the country too. “Successful bidders are required to be in the value-addition business, whether steel or sponge iron,” he said.
It may be recalled JSW Steel was keen to surrender its Gonua block on the pleas of low grade ore and logistics issues after paying a premium of 132% in the auctions last year. The Odisha government, however, has intervened, asking JSW Steel to do a re-think. The company had earlier written to the state government to accept its surrender of the mine subsequent to MDPA shortfall.
Mantri said that mainly merchant miners have failed to meet MDPA targets compared to captive producers. “Premiums are exceptionally high: 100% is the new base. It is impractical for merchant players to bid above 100%,” Mantri said.
Mantri further said that auctions have created huge barriers for entry into the Indian steel industry. Iron ore mining has become a captive play and OMC will remain as the sole sizeable merchant entity. “Only Indian steel biggies will consolidate capacity but it is very difficult for any new entrant into India’s steel business to gain a foothold,” he opined.
- National Mineral Index
Talking of the National Mineral Index (NMI), Jena said in case it is implemented, iron ore lessees would lose control over prices as against IBM’s ASP regime currently where lessees get to declare prices at frequent intervals.
However Mantri feels NMI will clear the ambiguities and inconsistencies in the current pricing process, especially royalty-on-royalty being paid on the iron ore mine. If this issue is resolved it will benefit the industry, he said.
- The auctions scenario in FY’22
It may be recalled among the successful bidders at the latest round of auctions, the upfront amount has been paid by all except Kashvi International. However, the payment is expected shortly after which the state government will declare the successful bidder.
Among the mines auctioned this year, three mines were operational earlier – Kasia and the two Nadidih blocks. These will carry on with leases granted earlier. Production from the brownfield blocks should take about 40 days to start.
For the six greenfield blocks, production is expected to start in about two to two-and-a-half years after clearances are attained.
The state exchequer has collected INR 20,000 crore this year compared to INR 13,000 crore from the 2020 auctions. The government is expecting INR 40,000 crore as net contribution to the state exchequer this year.
Odisha’s iron ore production till date stands at 75 mn t. Production is expected to cross 140 mn t in FY’22 – closer to the FY’20 figure.
Slurry pipeline
Talking about the slurry pipeline issue, Jena said certain lessees had objected to construction of slurry pipelines by companies such as JSPL and JSW across their leaseholds. However, a meeting held by the Principal Secretary, Odisha government, sought to convince the lessees that slurry transportation is an eco-friendly means of transporting minerals. The state government is keen that the slurry pipeline projects are executed.
Mantri informed that the slurry pipeline project is the main part, i.e. savings on logistics, which would justify JSPL’s high premium of 118% for Kasia. While waiting for approvals, JSPL is contemplating whether to do a Barbil-Angul slurry pipeline or a Kasia-Angul pipeline. The estimated investment is INR 1,200-1,500 crore. Construction time is about three years.
Outlook
In the central government’s list for 104 G4 level explored blocks, none are iron ore. The Odisha government may fast-track state-based explorations with an eye on the lucrative revenue opportunity from further auctions.
Jena said: “The next phase of auctions from Odisha doesn’t include iron ore blocks. Iron ore auctions by the government will again happen after about a year or so.”
OMC will emerge as the sole heavyweight merchant iron ore miner in a post-auctions scenario, barring the presence of a few other small entities in the market, feels Mantri.
OMDC has two mines, so state-owned entities will survive, he adds.
It is important to look into local iron ore consumption. Curbing iron ore exports could help while value-addition should happen locally.
Leave a Reply