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Iron ore auction delay may place ₹2.85 L cr of bank credit at risk: Report

Non-integrated steel companies with no access to captive iron ore resources will see production disrupt in 2020 if iron ore mining auctions are delayed. A report by credit rating agency India Ratings expects that companies such as JSW Steel, Rashtriya Ispat Nigam Ltd, and those that are either under stress or referred to National Company Law Tribunal will be hit.

Given that an auction process on an average takes three to six months to complete, a delay in initiating them until the latter half of 2019 due to Lok Sabha elections in the country could affect the timely auction of mining lease. The iron and steel industry has a total fund-based banking credit of ₹2.85 lakh crore, and most players in the industry do not have assured access to iron ore.

The absence of domestic iron ore supply thereby will necessitate an increase in the import of iron ore mix, potentially leading to an increase in the cost of production. However, low-grade options are available for players such as JSW Steel which has a beneficiation facility, the report said. Furthermore, smaller companies which are away from ports and operate in landlocked regions could face disruption in operations as they are primarily dependent on the domestic merchant miners for iron ore.

In its report, India Ratings said steel production would be significantly hit if the auction of the mines which would complete 50 years of operations by March 2020 was materially delayed. Consequently, the credit profile of merchant miners and thus non-integrated steel players could come under stress.

The licenses of about 288 merchant mines will expire by March 2020, of which 59 mines are under operations. Majority of these 59 mines are iron ore mines situated in Odisha and Karnataka with around 85 million tonnes of approved annual capacity. The agency estimated that around 60 million tonnes of the actual production of iron ore from these mines could be disrupted.

India also has a frail track record for auctions. Of the last major auctions of about 88 iron ore deposits, only a handful have started to operate. The auction-to-operation process gets stretched typically due to delays in obtaining environmental, wildlife and forest clearances. The G2 resource prospection is a pre-requisite for auction which some of these mines may not have at the moment. JSW Steel Ltd has been among the few players which have been able to start production from mines acquired under the auction.

An industry expert, who did not wish to be named, told Mint to ensure limited disruption to volumes, the government agencies may plan to extend expiry deadlines for mines along with awarding of licenses. “When the auctions do take place, steel companies will be willing to be pay top dollar for the resources. We saw the same happen with cement companies that wanted access to limestone resources.”

India Ratings also said a clear, timely instruction on the settlement/ removal /transfer of infrastructure of the erstwhile mine owner could speed-up the resumption of mining activity. Additionally, operational mines could take lesser time to resume operations post auctions as against undeveloped mines.

Besides this, India’s biggest miner, NMDC Ltd, may be able to increase volumes to 4-5mtpa with evacuation facilities being placed at its captive mines. Its 7mtpa Donnimalai mine can re-start operations after the settlement of a dispute between the government agencies on premium payment, India Ratings said.

Imported iron ore is at least 150% of the domestic procurement prices; given the import is an expensive option, the agency said, adding that import volumes were unlikely to go up substantially.
Source: LiveMint

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