Post the ban on iron ore mining imposed in Bellary on July 29th 2011, the Supreme Court appointed panel has recommended extending the same to the Chitradurga and Tumkur districts. In effect this brings the entire about 40 million tonne iron ore production in Karnataka to a halt, if Supreme Court implements the panel’s recommendation.
A restart of operations depends on detailed survey of mining leases similar to that going on in Bellary. In addition, as in the case of Bellary, a detailed Environment Impact Assessment may be commissioned by the SC to be submitted in 3 months.
In a measure of relief, the SC panel has recommended that 25 million tonne of iron ore inventory lying across Karnataka mines be sold to steel mills through a canalizing agency subject to 10% royalty on market price and after a period of 4 weeks during which period the process for such sale to be detailed.
Mr Prasad Baji of Edelweiss Securities Limited has outlined the impact on 2 major listed companies
Impact on Sesa Goa
Sesa Goa’s mine in Chitradurga had recently ramped up to 6 million tonne per annum and was accounting for about 25% of its annualised volumes. Management had indicated that this mine was surveyed by the authorities and that they did not expect a ban.
In Bellary, the SC has permitted only NMDC, being a PSU, to restart currently. Private miners such as Sesa could face a much more long drawn process, penalties and unknown conditionality before being allowed to restart.
In a separate development, Bombay High Court has ruled that for a specific mine in Goa where environmental clearance was obtained under the 1994 EIA notification, the same is valid for only 5 years and it needs to be obtained under the more recent 2006 EIA notification.
As per media reports, 54 mines in Goa may also have obtained EC under the 1994 notification and may need to stop operations in future (if this judgment is applied) until fresh EC is obtained from the Central Government. We understand some of Sesa Goa’s mines are part of these 54 mines and could be adversely affected. Further, obtaining EC has now become an uncertain and long-drawn process in India with no visibility of success. Recently 14 mines were issued shut down notices in Goa.
He wrote in a note to clients that “We believe it is possible that Sesa’s Chitradurga operations would commence after due process. However, until clarity emerges on the Karnataka mining mess and on the potential risk to the Goa operations, we expect Sesa Goa to trade at discount to its fair value.”
Impact on JSW Steel
Inventory sale relief clouded by issues of pricing and actual availability
He said that “We see risk of JSW Steel facing high iron ore prices on the iron ore inventory sale of 25 million tonnes. Iron ore miners may not be comfortable about the court suggested process and may want to hold on to inventory which has anyway been lying around.”
(Sourced from Edelweiss Securities Limited)
