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The CEC has recommended i) an extension of iron ore mining ban in the districts of
Chitradurga and Tumkur ii) release of 25mt of idle iron ore stocks for the local steel industry.
An extension of the ban would directly impact Sesa Goa. The release of stocks could help
JSW Steel.
What has the Central Empowered Committee (CEC) recommended?
i) Ban iron ore mining in the districts of Chitradurga and Tumkur.
ii) Release the already mined iron ore stocks of 25mt for the steel industry.
Key observations of the CEC
The district of Chitradurga produced 6.6mt of iron ore in FY10. The CEC report mentions
that the level of illegality and environmental degradation is relatively lesser in the
Chitradurga compared to what was observed in Bellary district. The report mentions that
Sesa Goa has stored overburden outside the lease area on private lands without
permissions.
The district of Tumkur produced 2.5mt of iron ore in FY11 and the CEC report cites
several instances of illegal mining in Tumkur such as i) encroachment of Government
land of 130 acres ii) illegal mining of 1.3mt and has levied a fine of Rs2.1bn. Of the 24
mining leases in the area only 6 are working and the rest are closed.
Sesa Goa would be adversely impacted. JSW Steel may get respite.
The Supreme Court will decide on the suggestions of the CEC report next week. An
extension of the ban to the districts of Chitradurga and Tumkur would reduce iron ore
availability as it will take away 10-12mt of iron ore from the markets and would negatively
impact both iron ore miners and steel producers. JSW Steel has been buying iron ore
from private producers from the area and could impact its production and is now relying
on 30-40% of its requirements from these areas. Sesa Goa produces 4mt of ore from its
mines in Chitradurga and has pending applications to increase output to 10mt.
The report also suggests a release of 25mt of idle iron ore stocks in these districts for the
domestic steel industry. This if implemented soon, would be positive for JSW Steel,
which is currently facing the brunt of the mining ban in Bellary district. However, there
also a likelihood that the iron ore availability situation can worsen before improving.
NMDC gearing up ouput
On discussions with the NMDC management, we were informed that they have
significantly scaled up their operations by appointing contractors to increase output and
that NMDC is likely to reach an output of 10mt by next week. However, to increase output
beyond these levels would be a critical decision as the ban situation may not last for
more than a few months and could leave them with excess capacity as the local steel
industry's requirement would then be fully met.
We have BUY rating on JSW Steel, Sesa Goa and NMDC.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
The CEC has recommended i) an extension of iron ore mining ban in the districts of
Chitradurga and Tumkur ii) release of 25mt of idle iron ore stocks for the local steel industry.
An extension of the ban would directly impact Sesa Goa. The release of stocks could help
JSW Steel.
What has the Central Empowered Committee (CEC) recommended?
i) Ban iron ore mining in the districts of Chitradurga and Tumkur.
ii) Release the already mined iron ore stocks of 25mt for the steel industry.
Key observations of the CEC
The district of Chitradurga produced 6.6mt of iron ore in FY10. The CEC report mentions
that the level of illegality and environmental degradation is relatively lesser in the
Chitradurga compared to what was observed in Bellary district. The report mentions that
Sesa Goa has stored overburden outside the lease area on private lands without
permissions.
The district of Tumkur produced 2.5mt of iron ore in FY11 and the CEC report cites
several instances of illegal mining in Tumkur such as i) encroachment of Government
land of 130 acres ii) illegal mining of 1.3mt and has levied a fine of Rs2.1bn. Of the 24
mining leases in the area only 6 are working and the rest are closed.
Sesa Goa would be adversely impacted. JSW Steel may get respite.
The Supreme Court will decide on the suggestions of the CEC report next week. An
extension of the ban to the districts of Chitradurga and Tumkur would reduce iron ore
availability as it will take away 10-12mt of iron ore from the markets and would negatively
impact both iron ore miners and steel producers. JSW Steel has been buying iron ore
from private producers from the area and could impact its production and is now relying
on 30-40% of its requirements from these areas. Sesa Goa produces 4mt of ore from its
mines in Chitradurga and has pending applications to increase output to 10mt.
The report also suggests a release of 25mt of idle iron ore stocks in these districts for the
domestic steel industry. This if implemented soon, would be positive for JSW Steel,
which is currently facing the brunt of the mining ban in Bellary district. However, there
also a likelihood that the iron ore availability situation can worsen before improving.
NMDC gearing up ouput
On discussions with the NMDC management, we were informed that they have
significantly scaled up their operations by appointing contractors to increase output and
that NMDC is likely to reach an output of 10mt by next week. However, to increase output
beyond these levels would be a critical decision as the ban situation may not last for
more than a few months and could leave them with excess capacity as the local steel
industry's requirement would then be fully met.
We have BUY rating on JSW Steel, Sesa Goa and NMDC.
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