NMDC freeze on Donimalai mining: Karnataka iron ore prices to rise 10-15%

Representative image
Public sector mining major NMDC's suspension of iron ore mining at Donimalai, Karnataka could result in an increase of 10-15 per cent in iron ore prices, say industry sources. Current prices of the mineral in Karnataka are Rs 1,500-Rs 2,500 per tonne, depending on grade. NMDC's decision came after the Karnataka government imposed 80 per cent premium on iron ore sales from the mine.

Meanwhile, JSW Steel said it has made alternate arrangements to source iron ore from outside Karnakata to ensure an uninterrupted supply for its steel plant.

While NMDC officials were not available for comment, Basant Poddar, former chairman and member, Federation of Indian Mineral Industries (FIMI) South, says “It's a prerogative decision of the State Government. As per the auction regime act 2015, the government cannot levy any premium on the existing mines, though it can do so on new/renewed mine leases.” 

He said imposing 80 per cent premium will adversely affect NMDC revenue, and will result in additional costs. Source estimate that NMDC would be losing Rs 1,348 per tonne, leading to a Rs 9.44 billion loss per annum. Donimalai capacity is about seven million tonnes.

Mining companies are already paying 15 per cent towards royalty, 20 per cent for SPV, 4.5 per cent towards DMF (District Mineral Foundation) and 0.5 per cent to NMET National Mineral Exploration Trust.

This suspension will cause a temporary disruption in the supply of raw material, and will lead to 10-15 per cent hike in price, Poddar said.

The Karnataka cabinet had extended the Donimalai mining lease till November 2038, on payment of 80 per cent of the average sale value as published by Indian Bureau of Mines, said NMDC.

NMDC urged Karnataka Chief Minister to reconsider the move, stating it is not economically viable. The Chief Minister, NMDC says, in turn has directed all concerned to relook at the legal and other issues.

JSW Impact

“The temporary suspension of mining at Donimalai will further increase shortages of iron ore in Karnataka. JSW Steel has made arrangements to source more iron ore from outside the state to ensure an uninterrupted supply for its plant," says Seshagiri Rao, Joint MD, JSW Steel Group CFO.

Industry sources say JSW has been buying around 5 mn tonnes of iron ore a year from NMDC's Donamalai mine.

Recently JSW won six iron ore mines, of which two are operational, yielding 700,000 tonnes of ore. When all six mines start operations from the middle of FY20, the company will get around 5.1 million tonnes.

So, on a net level, JSW may have to import one million tonnes of the mineral or buy from Odisha.

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel