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The Supreme Court on Friday banned all mining activities in Bellary, Karnataka and will impact
production at NMDC. Also, the Lokayukta report on illegal mining in Karnataka mentions: i)
under-invoicing by NMDC, ii) export of iron ore by Sesa Goa during ban period, and iii) JSW
Steel's mining application.
Supreme court bans mining in Bellary, Karnataka.
The Supreme court has suspended all mining activities in an area of 108sqkm in Bellary,
Karnataka on account of over-exploitation which has caused considerable damage to the
environment. It appears that the ban is intended to be for one week during which the Ministry
of Environment and Forest (MoEF) has been asked to submit an interim report indicating the
requirement of iron ore of the domestic steel industry and how much of this is met by mines in
Bellary, Karnataka. Also, to find out how much of the iron ore is domestically consumed and
how much is exported. Further the CEC has been asked to submit an 'Environment Impact
Assessment' report on account of mining in Tumkur and Chitradurga districts of Karnataka.
NMDC's volumes could get impacted: The suspension of mining in Bellary, Karnataka, would
have an immediate impact on volumes for NMDC. About 15-17% of NMDC's volumes are
from its mines in Bellary, Karnataka and we estimate that they contribute to about 12-13% to
NMDC's overall profitability. Sesa Goa's Karnataka mines are in Chitradurga district and
hence are not impacted by the mining suspension. However, the MoEF would now conduct a
survey in Chitradurga also, which could slow down Sesa Goa's mining activities.
JSW Steel could bear the brunt: JSW Steel mines iron ore in Bellary through its 40% JV
company Vijayanagar Minerals Pvt. Ltd (VMPL). VMPL supplied JSW Steel about 2.2mt of
iron ore in FY10-11 and 1.76mt in FY9-10 and has plans to supply 3mt of iron ore in FY11-12.
Besides, JSW Steel procures most of its iron ore requirements from NMDC and local miners
all of which would be impacted by the mining suspension. JSW Steel would have to look at
states like Goa to procure iron ore in the interim if the impasse lasts longer. This would not
only impact costs but could also impact production as the requirement for ore has increased
sharply post the recent commissioning of the new 3.2mt blast furnace. The annual
requirement of iron ore is now close to 20mt.
Lokayukta report
The Lokayukta report has looked into various aspects of illegal mining in the State of
Karnataka during the last 10 years. It has made several observations which covering the
entire gamut of mining starting from the process of lease allocations to the method of
transportation of iron ore through the ports etc. In particular, it has stated that NMDC has
under-invoiced iron ore for which NMDC has stated that it pertains to iron ore supplied under
long-term contracts and hence comparison of selling prices with spot price is not appropriate.
Sesa Goa has not been directly named in the report; however, it has mentioned two instances
where 75.5kt of iron ore was exported from Krishnapatnam port after the imposition of ban on
iron ore exports in Karnataka. Sesa Goa has mentioned that the iron ore was moved to the
ports much before the ban was imposed and hence there is no violation of law.
The matter pertaining to JSW Steel appears to be more serious. The report mentions that i)
JSW Steel exported 0.36mt iron ore during FY03-05 from its JV mines when as per the JV
agreement there is no provision of sales to third parties, ii) JSW Steel has made proposals for
grant of mining lease in the Donimali range in Karnataka and have also been recommended
by the State Government and is now pending with the Government of India. The report has
linked a favourable recommendation for the mining lease by the State Government to certain
donations to and property purchases byJSW Steel from the incumbent Chief Minister of the
State of Karnataka at higher than market prices.
We believe that the Supreme Court ban along with the Lokayukta report would put a halt the
already sluggish mining activities in the State of Karnataka and has the potential of adversely
impacting steel production by JSW Steel and also other smaller steel mills located in the
region. Karnataka accounts for about 30% of India's iron ore production. We have a Buy
rating on NMDC and Sesa Goa. We have a Sell rating on JSW Steel.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
The Supreme Court on Friday banned all mining activities in Bellary, Karnataka and will impact
production at NMDC. Also, the Lokayukta report on illegal mining in Karnataka mentions: i)
under-invoicing by NMDC, ii) export of iron ore by Sesa Goa during ban period, and iii) JSW
Steel's mining application.
Supreme court bans mining in Bellary, Karnataka.
The Supreme court has suspended all mining activities in an area of 108sqkm in Bellary,
Karnataka on account of over-exploitation which has caused considerable damage to the
environment. It appears that the ban is intended to be for one week during which the Ministry
of Environment and Forest (MoEF) has been asked to submit an interim report indicating the
requirement of iron ore of the domestic steel industry and how much of this is met by mines in
Bellary, Karnataka. Also, to find out how much of the iron ore is domestically consumed and
how much is exported. Further the CEC has been asked to submit an 'Environment Impact
Assessment' report on account of mining in Tumkur and Chitradurga districts of Karnataka.
NMDC's volumes could get impacted: The suspension of mining in Bellary, Karnataka, would
have an immediate impact on volumes for NMDC. About 15-17% of NMDC's volumes are
from its mines in Bellary, Karnataka and we estimate that they contribute to about 12-13% to
NMDC's overall profitability. Sesa Goa's Karnataka mines are in Chitradurga district and
hence are not impacted by the mining suspension. However, the MoEF would now conduct a
survey in Chitradurga also, which could slow down Sesa Goa's mining activities.
JSW Steel could bear the brunt: JSW Steel mines iron ore in Bellary through its 40% JV
company Vijayanagar Minerals Pvt. Ltd (VMPL). VMPL supplied JSW Steel about 2.2mt of
iron ore in FY10-11 and 1.76mt in FY9-10 and has plans to supply 3mt of iron ore in FY11-12.
Besides, JSW Steel procures most of its iron ore requirements from NMDC and local miners
all of which would be impacted by the mining suspension. JSW Steel would have to look at
states like Goa to procure iron ore in the interim if the impasse lasts longer. This would not
only impact costs but could also impact production as the requirement for ore has increased
sharply post the recent commissioning of the new 3.2mt blast furnace. The annual
requirement of iron ore is now close to 20mt.
Lokayukta report
The Lokayukta report has looked into various aspects of illegal mining in the State of
Karnataka during the last 10 years. It has made several observations which covering the
entire gamut of mining starting from the process of lease allocations to the method of
transportation of iron ore through the ports etc. In particular, it has stated that NMDC has
under-invoiced iron ore for which NMDC has stated that it pertains to iron ore supplied under
long-term contracts and hence comparison of selling prices with spot price is not appropriate.
Sesa Goa has not been directly named in the report; however, it has mentioned two instances
where 75.5kt of iron ore was exported from Krishnapatnam port after the imposition of ban on
iron ore exports in Karnataka. Sesa Goa has mentioned that the iron ore was moved to the
ports much before the ban was imposed and hence there is no violation of law.
The matter pertaining to JSW Steel appears to be more serious. The report mentions that i)
JSW Steel exported 0.36mt iron ore during FY03-05 from its JV mines when as per the JV
agreement there is no provision of sales to third parties, ii) JSW Steel has made proposals for
grant of mining lease in the Donimali range in Karnataka and have also been recommended
by the State Government and is now pending with the Government of India. The report has
linked a favourable recommendation for the mining lease by the State Government to certain
donations to and property purchases byJSW Steel from the incumbent Chief Minister of the
State of Karnataka at higher than market prices.
We believe that the Supreme Court ban along with the Lokayukta report would put a halt the
already sluggish mining activities in the State of Karnataka and has the potential of adversely
impacting steel production by JSW Steel and also other smaller steel mills located in the
region. Karnataka accounts for about 30% of India's iron ore production. We have a Buy
rating on NMDC and Sesa Goa. We have a Sell rating on JSW Steel.
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