Mining License Leases Approved, India’s Iron Ore Supply Set to Increase

Iron ore mining companies in India are a relieved lot.

With the approval of at least 16 mining leases in the southern state of Karnataka by the Central Empowered Committee (CEC) appointed by the Supreme Court of India, and some more expected soon, they expect some semblance of normalcy to return to their operations.

From mid-2011 when the Court had banned mining in some Indian states following a huge financial scam around mining activities in India, the iron ore-mining sector has been moving towards a crisis situation.

Iron ore supply, both domestic and for export in 2012, has been severely impacted by the ban. Companies involved in mining activities were also worried since the ban was affecting their production and thus their bottom lines. The second round of lifting of the mining ban will in turn lift up their operations.

One such company affected by the ban is Sesa Goa. All its previously projected production and profit-loss figures have gone for a toss because of this. Sesa Goa, a company that is part of Vedanta Resources, said a few days ago that it expected iron ore production in India to fall by about 24 percent in the current financial year.

It has based this forecast on two points: regulatory constraints and production caps. The company itself claims to have been somewhat of a victim of these hurdles as its profit fell 76 percent due to lower volumes and weak ore prices.

Sesa Goa — along with another major steel producer JSW Steel — will now be the main beneficiary of the CEC’s decision. Yet companies such as these are still not completely out of the woods.

The CEC may have approved the 16 iron ore-mining leases in Karnataka to resume operations, but has not permitted them to produce over one-third of their earlier annual sanctioned capacity, according to a report in the Business Standard.

These mines together have been allowed to produce 8.2 million tons per year, as against their original sanctioned capacity of 26.5 million tons, the report said.

Continued in Part Two.

Sohrab Darabshaw contributes an Indian perspective to MetalMiner.

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