How will Goa Iron Ore Mining Lease Cancellation Impact Indian Market ?

The Supreme Court of India yesterday said that the 88 iron ore mine leases who were granted second renewal in violation in decisions and directions of this court may continue operations till 15 Mar’18 are directed to stop all mining operations with effect from 16 Mar’18 until fresh mining leases are granted and fresh environmental clearances are granted. Thus the 2nd renewal granted to the mines by state of Goa is liable to be set aside and stands quashed.

Also, the state of Goa will take all necessary steps to expedite recovery of the amounts said to be due from the mining lease holders pursuant to the show cause notices issued to them and pursuant to other reports available with the State of Goa including the report of Special Investigation Team and the team of Chartered Accountants.

Thus as per sources, all the operational mining leases including that of mining companies like – Vedanta, VM Salgaocar, Fomento Resources, Chowgule & Company and few others are subjected to purview of this verdict.

Earlier, NGO ‘Goa Foundation’ had challenged the Goa govt. in the Supreme Court for renewal of 88 lapsed mining leases in the state in violation of the auction rule introduced by way of MMDR Amendment Act, 2015.

SteelMint has tried to analyze the impacts that may be caused owing to recent Apex Court verdict on lease cancellation in Goa. Below are expected impacts arising out of it –

1.  Dent in iron ore export volumes – Goa which primarily exports low grade ore to China may suffer a setback in its export volumes unless there is clarity over the matter and necessary clearances obtained by the miners. According to customs data maintained with SteelMint, iron ore exports from Goa (Mormugao port) was recorded at 10.95 MnT in CY17 as against 11.13 MnT in CY16. Iron ore exports from Goa has increased significantly in last two years amid high prices in China and abolition of export duty on low grade.

However with recent Supreme Court verdict, export volumes may suffer. Share of Goa iron ore exports in India export volumes was nearly 55% in CY17 as total iron ore export volumes from India was around 19.91 MnT last year.

2. No impact expected in domestic ore prices – Being of low grade, majority of ore mined in Goa is exported and very minimal amount is used domestically. Hence we do not foresee any impact of lease cancellation on domestic iron ore prices.

3. Hampered production until fresh clearances are granted – As per the Apex Court verdict the state govt of Goa was obliged to grant fresh mining leases in accordance with law and not second renewals to the mining lease holders. The 88 mining lease holders are directed to stop all mining operations w.e.f 16 Mar’18 until fresh mining leases are granted and fresh EC’s are generated. Granting of fresh leases and generation of fresh EC’s may take some time and few months time lag may hamper the production volumes. However mining companies are yet to come up with their views on the SC order and are presently going through the SC judgment.

Mine-wise iron ore mining cap in Goa granted previously

4. Vedanta’s iron ore sourcing from Karnataka e-auctions may move up – Vedanta is one of the largest merchant pig iron supplier in Indian market. During Apr-Dec’17, Vedanta produced 465,000 MT pig iron. Vedanta also sources iron ore from Karnataka e-auction for its Goa based pig iron plant apart from its ore mined from Goa.

The pig iron manufacturer majorly sources iron ore from its Goa mines apart from Karnataka e-auctions. According to Karnataka e-auction data maintained with SteelMint, Vedanta procured 160,000 MT high grade iron ore (including both fines and lump) from Karnataka e-auctions in CY17. With iron ore mining operations at its Goa mines being hampered, it may increase its procurement from Karnataka e-auctions or may shift towards imports to make up for the shortage.

Thus, it would be interesting to see how the verdict impacts the mining scenario in the state.