In the face of an impending shortage, the resumption of Serajuddin’s Balda iron ore mine in the state of Odisha – one of India’s largest with permission to mine up to 15.5 mn t annually – brings some cheer to the steel industry, which is currently going through a severe iron ore crisis.
Serajuddin is reported to have sold around 500,000 t of high grade iron ore fines, for the first time since the company managed to retain its mine in the auction conducted in Mar ’20.
However, SteelMint learnt that the company is unlikely to offer significant quantities in the coming months. Serajuddin, like other new lessees operating auctioned mines, is seriously constrained by “stacking” issues.
What is stacking?
Under the Orissa Minerals (Prevention of Theft, Smuggling and Illegal Mining and Regulation of Possession, Storage, Trading and Transportation) or OMPTS Rules, 2007, miners must create small, less than 3 metre tall, rectangular stacks of 4,000 tonnes (roughly one rake) for officials to come and physically verify the ferrous grade of the ore before it is dispatched. A tardy and space-consuming process that miners were allowed an exemption from if they agreed to have all their dispatches presumed to be of the highest grade found in the mine and paid the highest royalty accordingly.
Exemptions no longer viable
Pre-auction, with higher profit margins available to them, most miners in Odisha preferred an exemption that allowed them to dispatch their unstacked ore more efficiently. For auctioned mines where the bid premium is an added cost – in Serajuddin’s case 118 percent of IBM prices – paying the highest royalty instead of stacking is no longer a bargain.
Like its peers operating auctioned mines, Serajuddin has chosen to stack ore even if that means producing and dispatching a lot less than it did. At the current dispatch rate, we expect additional supplies of around 2 mn t from Serajuddin in this fiscal year, against a target dispatch volume of 11 mn t.
A bone of contention
The “stacking” issue has become a serious bone of contention with the mining department accusing lessees of flouting rules, and lessees, in turn, accusing the department of browbeating them to stick to stacking exemptions which would fetch it more in royalty per tonne of ore. More than one miner has been pulled up for discrepancies in grade of ore and size and shape of stacks.
The state’s steel and mines department has sought stronger enforcement asking field officials to make at least “ten surprise checks a month, preferably at night, to ensure element of surprise” and is seeking from lessees before-and-after drone photos of stacks stamped with date, time longitude and latitude.
New lessees who must meet 80 per cent of their previous production by the year-end find this unhelpful to put it mildly. “The mining directorate itself is under-equipped to implement this without slowing dispatches. Do they even have enough technicians at their lab?” asked a manager speaking on condition of anonymity. A committee in 2015 had advised allowing bigger stacks, in multiples of 4,000 tonnes not exceeding 32,000 tonnes, he pointed out.
Changes proposed in the stacking norms
The state needs to find an easier way to check any under-reporting or grade without weighing down dispatches or production which would eventually also affect the state’s total royalty collections. Naveen Patnaik’s government must be conscious of this catch-22 situation for, last month, Director of Mines, Debidutta Biswal, wrote to his counterparts in other states asking them what procedure they followed. On 13 October, Principal Secretary Surendra Kumar set up a technical committee tasked with recommending new stacking norms.
It has 80 days to suggest size, shape and method of collecting samples and deliberate on “whether it is technically possible to collect truly representative samples from different grades of ore heaped in conical shape instead of a stack”. It will also consider the use of camera and XRF-equipped drones, live webcasting and artificial intelligence (AI) for real-time monitoring of stacks and evacuation.
The wait for IBM’s rates
Meanwhile, miners must also contend with the fact that the Indian Bureau of Mines (IBM) takes almost three months to declare the average prices of iron ore which decides how much royalty they must pay and now how much premium they owe the state. Serajuddin for one has chosen to sell its first half-million tonne of iron ore fines post-auction at Rs 4,000 a tonne allowing buyers to pay the remainder of his premium cost – 118 percent of the average IBM price – as and when IBM’s November prices are declared.
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