Odisha expects 18 new leaseholders to execute iron ore mining leases with the state government soon and start operations, which could lift supplies in the current quarter of FY’21 and pressure prices.
“JSW has already executed its mining lease. We expect other leaseholders to execute their leases within the time limit allotted to them,” Umesh Chandra Jena, joint director of mines in Odisha government, said at SteelMint’s webinar on status of Odisha mines after auction, held on 2 July.
Odisha has auctioned off 24 functional mines this year as leases of previous leaseholders expired. Of these 24 mines, two of the winning bidders have neither deposited the requisite deposit amount to the state government nor completed any formalities so there is a chance these bidders may not execute leases. Two mines, Jiling and Guali, are in litigation while two of the mines were auctioned later than the others and may take more time to complete formalities.
There is no shortage of iron ore in Odisha with around 32mn t iron ore stocks left with previous leaseholders for disposal while 8mn t stocks have been sold so far.
Odisha expects new mines to produce at rates similar to the pace seen in FY’20 unless there are further Covid 19-related lockdowns and disruptions, said Jena. New leaseholders are required to operate at least 80pc of the rated capacity of the mine. The state is expecting 140 mn t iron ore output in FY’21, while dispatches are likely to be over 150mn t, said Jena.
Odisha plans new auctions –
The state government plans to put up 13 iron ore blocks for auction in August, which will include five blocks which did not get any response from bidders in earlier auctions, along with 8 virgin blocks.
The five developed mines may have embedded clearances for forest, environment and other regulatory agencies just as it was in the previous auction where clearances granted for the former leaseholder was deemed valid for the new leaseholder. However, it is unclear if the state government can arrange embedded clearances for virgin blocks since this would require getting central government environmental and forest use approvals.
The state government has medium-term plans for an additional auction of 22 mine blocks, though these will include non-iron ore minerals as well.
The auction of virgin mines may not see the kind of high premium which the previous auction got since those were developed, functional mines. Virgin blocks will require considerable investment to develop, Kapil Mantri, head of corporate strategy and business development for JSPL India, said at the webinar. Also, since the big steel players, such as AMNS India, JSW, Vedanta and JSPL, have bagged blocks in the current auction, their appetite for new acquisition will be less, he added.
Integrated players fine with ex-mine loss The just-concluded Odisha auctions saw winning bids at 100-155pc of the monthly sales price of iron ore. This basically means a mine owner will pay the state government 100-155pc (depending on the bid value) of the average monthly sales price of the mined ore grades, as published by the Indian Bureau of Mines, and an additional 15% royalty on the monthly sales value beside payments to the District Mineral Fund (DMF) and the National Mineral Exploration Trust (NMET).
Large integrated players are willing to tolerate some loss on an ex-mine basis for 1-2 years.Their calculation includes the landed cost of raw materials, raw material security and supply of a consistent quality of ore, said Mantri. Integrated players like JSPL, JSW and AMNS will be looking at the slurry pipeline route to evacuate the ore, which will bring a sharp reduction in logistics cost, he added. But the high premium could be a “challenge” for merchant mining firms, said Mantri.
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