Odisha is expected to tender 16 iron ore, limestone and bauxite deposits for auction by this Friday, 9th July.
It is doing this at a time when iron ore prices have touched record highs and a year since the first tranche of mines were granted under the new law mandating auctions. Bids for these glinting, high grade iron ore mines, already in operation and requiring no fresh clearances averaged to more than 100%. In other words, their new owners will pay the state almost as much as they stand to earn from selling the ore.
It is unlikely that the next set of auctions see the aggressive bidding witnessed last time, some as high as over 150%. For one, many of them are virgin areas and many of them have smaller reserves. The 140.28 mnt Jhumka Parthiriposi and the 314.37 mnt Gandhalpada are the largest iron ore blocks, along with the 278.04 mnt Kasia iron and dolomite mine, earlier operated by Essel Mining.
The list also includes failed auctions — Teherai, the iron ore and manganese block that Tarama Apartments had quoted the highest for and Nadidih where Fomento had outbid everyone.
There are also four limestone, one graphite, and the first bauxite deposit Odisha is putting to auction, the 248.20mnt Karalapat deposit in Kalahandi, the same district that Vedanta has its alumina refinery in. According to sources, this latest list, slightly different from the one circulating earlier, only awaits the development commissioner’s approval.
The centre’s changed auction rules lower the barriers (net worth) and risks (bid security) for participants. However, investors will be conscious of the fact that ore prices currently hover at INR 9,600/t ex-mines for Fe 62% fines. There is also the experience from the last auction. Despite the fact that the competitive bidding plays to the advantage of a captive user, at least two blocks RP Sao and Guali that had been bagged by a steelmaker were eventually surrendered. These are now being mined by Odisha Mining Corporation.
Of the remaining mines barring 3-4 most have failed to meet their production targets and will have to compensate the state for the shortfall. While the unexpected high iron prices this year could cover for such a penalty, it is unclear how miners will sustain the high premiums promised in the long run. Speaking to SteelMint in confidence, some of them expressed frustration with the strict implementation of rules from a pre-auction era and the lack of sympathy for logistical constraints on the ground.
Officials in the state government acknowledge the current situation does not make for an enticing pitch for mining in Odisha. The Centre however is keen on these auctions, postponed once before, being carried out now. The cue to gauge investor interest will be the final bid for the iron ore block (Ajitaburu) in Jharkhand which has seen interest from 35 companies, said an official.
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