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After the extension of iron ore mining ban in the remaining two regions of
Karnataka last Friday, the Supreme Court today allowed monthly
auction of 1.5MT of iron ore out of the 25MT stockpile at the mines in
the state (as per Bloomberg). In addition to NMDC’s Bellary production,
the 1.5MT/month is sufficient to meet the requirements of the steel and
related industries in the state. The court has also asked the steel companies
and miners to provide a rehabilitation program in three months, post which
regulated mining could be allowed in Karnataka.
Pricing to depend on iron ore available for sales and industry
participation, in our view: The iron ore would be sold through an eauction
(MSTC is the appointed agent) and the reserve price is based
on NMDC’s prices (depending on the grade of ore). However, given
the lack of clarity on whether the miners have to compulsarily
participate in the auction process, the pricing would depend on the
iron ore available and the participation by the industry in the
auction process. As highlighted in our previous Alert of August 26,
“Iron and Steel: SC bans mining in other areas in Karnataka,
implications, NMDC fines are currently priced at Rs2870/MT (vs. JSW’s
1QFY12 iron ore cost of ~Rs2600/MT) and we believe that JSW could
try passing on much of the higher iron ore cost through steel price hikes.
The auction is open to only end user industries dependent on iron ore
produced in the state and will be carried out once the steel companies in
the state submit their requirements.
Positive for JSW but pricing to be higher: The availability of ore from
the auction and NMDC production (SC allowed NMDC’s Bellary mines
production of 1MT per month) should, in our view, allow the company to
increase production beyond the current 80% capacity utilization levels.
However, the iron ore cost for the company could increase depending on
the miner/end-user participation at these auctions (determining the
premium to the base price). However, the sourcing mix and therefore,
blended cost of iron ore could improve if the auction price is lower than
the cost of sourcing from Bailadila mines.
Interim production to decline for JSTL: The court has appointed a
three-member committee to work out the sales and transport process of
the auctioning process. As per JSTL, this would require ~7-10 days (to
start the auctioning process) during which production would be impacted
reducing JSTL’s iron ore requirement to 30kt/day (vs. previous
requirement of 45-50kt/day), which will be sourced from NMDC’s
Bellary mines and Bailadila.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
After the extension of iron ore mining ban in the remaining two regions of
Karnataka last Friday, the Supreme Court today allowed monthly
auction of 1.5MT of iron ore out of the 25MT stockpile at the mines in
the state (as per Bloomberg). In addition to NMDC’s Bellary production,
the 1.5MT/month is sufficient to meet the requirements of the steel and
related industries in the state. The court has also asked the steel companies
and miners to provide a rehabilitation program in three months, post which
regulated mining could be allowed in Karnataka.
Pricing to depend on iron ore available for sales and industry
participation, in our view: The iron ore would be sold through an eauction
(MSTC is the appointed agent) and the reserve price is based
on NMDC’s prices (depending on the grade of ore). However, given
the lack of clarity on whether the miners have to compulsarily
participate in the auction process, the pricing would depend on the
iron ore available and the participation by the industry in the
auction process. As highlighted in our previous Alert of August 26,
“Iron and Steel: SC bans mining in other areas in Karnataka,
implications, NMDC fines are currently priced at Rs2870/MT (vs. JSW’s
1QFY12 iron ore cost of ~Rs2600/MT) and we believe that JSW could
try passing on much of the higher iron ore cost through steel price hikes.
The auction is open to only end user industries dependent on iron ore
produced in the state and will be carried out once the steel companies in
the state submit their requirements.
Positive for JSW but pricing to be higher: The availability of ore from
the auction and NMDC production (SC allowed NMDC’s Bellary mines
production of 1MT per month) should, in our view, allow the company to
increase production beyond the current 80% capacity utilization levels.
However, the iron ore cost for the company could increase depending on
the miner/end-user participation at these auctions (determining the
premium to the base price). However, the sourcing mix and therefore,
blended cost of iron ore could improve if the auction price is lower than
the cost of sourcing from Bailadila mines.
Interim production to decline for JSTL: The court has appointed a
three-member committee to work out the sales and transport process of
the auctioning process. As per JSTL, this would require ~7-10 days (to
start the auctioning process) during which production would be impacted
reducing JSTL’s iron ore requirement to 30kt/day (vs. previous
requirement of 45-50kt/day), which will be sourced from NMDC’s
Bellary mines and Bailadila.
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