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Supreme Court (SC) permits NMDC to operate in Bellary: The SC has allowed
NMDC to mine 1mn tonnes per month from its mines in Bellary district,
Karnataka. Further, SC has ordered that no produce should be exported by
NMDC from its Bellary mines. The SC has also asked the state government to
charge royalty at the rate of 10% on market price. Currently, all iron ore miners
including NMDC pay royalty at the rate of 10% on prices determined by Indian
Bureau of Mines. The SC has also sought for a macro-level Environment Impact
Assessment of the mining region from the Indian Council of Forestry
Research within three months.
Iron ore prices should rise in Karnataka: The Bellary region produces
approximately 28mn tonnes (~80% of iron ore production in Karnataka) of iron
ore annually. Hence, despite the partial lifting of the iron ore production ban from
the region, we believe iron ore prices should rise in other regions of Karnataka,
thus benefitting iron ore miners. Further, we expect a slight increase in iron ore
prices in other regions as well.
NMDC to ramp up capacity: NMDC will re-open its Kumaraswamy mine (in
addition to Donimalai mine, which was operational before the ban) and will be
able to produce an additional 2mn tonnes per year for FY2012 (as per
management). NMDC has been producing approximately 6mn tonnes per year
from its Donimalai mines. Ramping up production from these mines to 12mn
tonnes per year in the near term would be challenging for NMDC in our view.
We maintain our Reduce rating on the stock with a target price of `229.
JSW Steel to be worst hit: While we expect NMDC to commence supply of iron ore
to JSW Steel, the latter will still remain short of its iron ore requirements to
produce steel at its optimum capacity. Although there is no clarity on the time
period for which the ban on private miners in Bellary will remain, we believe it will
be challenging for JSW Steel to procure iron ore from other regions to feed its
steel plant. Further, procuring iron from other regions will result in a sharp rise in
iron ore costs on account of higher freight costs. Hence, we have cut our
production estimates for JSW Steel from 7.9mn tonnes to 6.0mn tonnes for
FY2012, while we keep our FY2013 estimates unchanged until further clarity. We
recommend Neutral on the stock until further clarity emerges.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Supreme Court (SC) permits NMDC to operate in Bellary: The SC has allowed
NMDC to mine 1mn tonnes per month from its mines in Bellary district,
Karnataka. Further, SC has ordered that no produce should be exported by
NMDC from its Bellary mines. The SC has also asked the state government to
charge royalty at the rate of 10% on market price. Currently, all iron ore miners
including NMDC pay royalty at the rate of 10% on prices determined by Indian
Bureau of Mines. The SC has also sought for a macro-level Environment Impact
Assessment of the mining region from the Indian Council of Forestry
Research within three months.
Iron ore prices should rise in Karnataka: The Bellary region produces
approximately 28mn tonnes (~80% of iron ore production in Karnataka) of iron
ore annually. Hence, despite the partial lifting of the iron ore production ban from
the region, we believe iron ore prices should rise in other regions of Karnataka,
thus benefitting iron ore miners. Further, we expect a slight increase in iron ore
prices in other regions as well.
NMDC to ramp up capacity: NMDC will re-open its Kumaraswamy mine (in
addition to Donimalai mine, which was operational before the ban) and will be
able to produce an additional 2mn tonnes per year for FY2012 (as per
management). NMDC has been producing approximately 6mn tonnes per year
from its Donimalai mines. Ramping up production from these mines to 12mn
tonnes per year in the near term would be challenging for NMDC in our view.
We maintain our Reduce rating on the stock with a target price of `229.
JSW Steel to be worst hit: While we expect NMDC to commence supply of iron ore
to JSW Steel, the latter will still remain short of its iron ore requirements to
produce steel at its optimum capacity. Although there is no clarity on the time
period for which the ban on private miners in Bellary will remain, we believe it will
be challenging for JSW Steel to procure iron ore from other regions to feed its
steel plant. Further, procuring iron from other regions will result in a sharp rise in
iron ore costs on account of higher freight costs. Hence, we have cut our
production estimates for JSW Steel from 7.9mn tonnes to 6.0mn tonnes for
FY2012, while we keep our FY2013 estimates unchanged until further clarity. We
recommend Neutral on the stock until further clarity emerges.
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