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The Supreme Court has extended the ban on iron ore mining to the districts of Chitradurga and
Tumkur. This would take away about 11mt of iron ore from the market and directly affect Sesa
Goa, the producer, and JSW Steel, the consumer.
Sesa Goa: Back to Goa
The Supreme Court has extended the mining ban already in place Bellary to Chitradurga and
Tumkur with immediate effect. This is based on the recommendations of the Central Empowered
Committee (CEC), which reported large scale illegal mining and degradation of environment in
the area. The mining ban would remove 11mt of iron ore from the market. It would directly impact
Sesa Goa which runs and operates an iron ore mine in the Chitradurga district which has a
capacity of 4mt and comprises 20% of Sesa Goa's annual production. We expect the impact on
Sesa Goa to be limited as the bulk of its operations are in Goa and, being a mining company, the
ban has delayed the reserve monetization process.
JSW Steel: Time is running out
JSW Steel hosted a call on Saturday, Aug 27 to explain that they are hopeful of the release of
iron ore stocks by Supreme Court in a short time-frame. There are idle stocks of 25mt lying in the
State which, the CEC has recommended that they should be release for use by the steel industry.
However, we remain skeptical. With only NMDC operating in the state, JSW Steel would be able
to meet just 30-35% of its requirements from NMDC's Karnataka mines and for the remaining 65-
70% of requirements there appears to be no long-term solution. For JSW Steel the ban could not
have come at a worse time and will intensify its hunt for ore. Also, given the logistical constraints,
there may not be many sources of ore other than imports.
We believe NMDC's ramp-up from 5mt to 8mt is more likely and the ramp-up to 12mt in the shortterm could be a tall order. The release of stocks would have to be immediate else we see a
likelihood of a further cut in JSW Steel's production from current levels of 8mt. The Supreme
Court has taken stock of the situation and will again decide on the matter on 2 September.
Collateral damage
The mining ban has already had a significant impact on the local economy as the implementation
of the ban in Bellary has been near total. Our channel checks and news reports indicate that
brunt is being felt all across several industries in the area and that about 30-40K jobs have
already been lost. Also, Karnataka was being looked at favourably by new entrants in the
domestic steel industry with the likes of POSCO, Arcelor Mittal and Severstal announcing plans to
set up steel plants in Karnataka. These majors would now have to now re-look their plans.
We have a BUY rating on Sesa Goa, JSW Steel and NMDC.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
The Supreme Court has extended the ban on iron ore mining to the districts of Chitradurga and
Tumkur. This would take away about 11mt of iron ore from the market and directly affect Sesa
Goa, the producer, and JSW Steel, the consumer.
Sesa Goa: Back to Goa
The Supreme Court has extended the mining ban already in place Bellary to Chitradurga and
Tumkur with immediate effect. This is based on the recommendations of the Central Empowered
Committee (CEC), which reported large scale illegal mining and degradation of environment in
the area. The mining ban would remove 11mt of iron ore from the market. It would directly impact
Sesa Goa which runs and operates an iron ore mine in the Chitradurga district which has a
capacity of 4mt and comprises 20% of Sesa Goa's annual production. We expect the impact on
Sesa Goa to be limited as the bulk of its operations are in Goa and, being a mining company, the
ban has delayed the reserve monetization process.
JSW Steel: Time is running out
JSW Steel hosted a call on Saturday, Aug 27 to explain that they are hopeful of the release of
iron ore stocks by Supreme Court in a short time-frame. There are idle stocks of 25mt lying in the
State which, the CEC has recommended that they should be release for use by the steel industry.
However, we remain skeptical. With only NMDC operating in the state, JSW Steel would be able
to meet just 30-35% of its requirements from NMDC's Karnataka mines and for the remaining 65-
70% of requirements there appears to be no long-term solution. For JSW Steel the ban could not
have come at a worse time and will intensify its hunt for ore. Also, given the logistical constraints,
there may not be many sources of ore other than imports.
We believe NMDC's ramp-up from 5mt to 8mt is more likely and the ramp-up to 12mt in the shortterm could be a tall order. The release of stocks would have to be immediate else we see a
likelihood of a further cut in JSW Steel's production from current levels of 8mt. The Supreme
Court has taken stock of the situation and will again decide on the matter on 2 September.
Collateral damage
The mining ban has already had a significant impact on the local economy as the implementation
of the ban in Bellary has been near total. Our channel checks and news reports indicate that
brunt is being felt all across several industries in the area and that about 30-40K jobs have
already been lost. Also, Karnataka was being looked at favourably by new entrants in the
domestic steel industry with the likes of POSCO, Arcelor Mittal and Severstal announcing plans to
set up steel plants in Karnataka. These majors would now have to now re-look their plans.
We have a BUY rating on Sesa Goa, JSW Steel and NMDC.
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