States look at value addition as pre-condition for new leases
Large miners such as NMDC, MOIL and Sesa Goa are set to transform into metal and alloy producers as part of their forward integration strategy.
Analysts feel there is a rush to set up steel plants as mineral-rich States such as Karnataka and Chattisgarh are looking at value addition as a pre-condition for grant of new mining leases and renewal of existing ones.
“Mining firms realise that if they have to get additional mining leases, they need to set up steel plants,” said Mr Bhavesh Chauhan, analyst at Angel Broking Ltd.
Miners, however, look at diversification as the next logical step for them, while analysts feel that the move would hurt the miners' profitability.
NMDC, the country's largest miner, is in the process of setting up a 3 million tonnes per annum (mtpa) unit with an investment of Rs 15,000 crore at Nagarnar in Chhattisgarh. NMDC has also formed a joint venture with Russian steel maker OJSA Severstal to set up a 5 mtpa specialised steel unit in Karnataka.
“Profitability, the world over is much stronger in the mining business as compared to the processing business. In case of these firms, the impact will be felt over the next couple of years, when their proposed steel units will be commissioned,” an analyst said.
Sesa Goa's buy
Sesa Goa, which operates major mines in Karnataka, recently acquired the assets of Bellary Steel and Alloys Ltd (BSAL) in Bellary for Rs 220 crore. BSAL was building a 0.5 mtpa unit and has 700 acres of land in Bellary.
However, the BSAL acquisition has been challenged by JSW Steel in Supreme Court, which has directed the parties concerned to maintain status-quo till the next hearing.
The Vedanta Group company is expanding its pig iron capacity in Goa, besides planning to set up two small steel mills ranging from 1 to 1.5 mtpa in Orissa and Jharkhand, where it has prospecting licence to carry out mining operations.
MOIL, the country's largest manganese miner, is in the process setting up two ferro alloy units through joint ventures with SAIL and RINL. It is likely to be operational in June 2012. Ferro alloy is a key raw material for producing steel.
The proposed ferro alloy plant with SAIL in Chhattisgarh will have a capacity of 1.06 lakh tonne, while the one with RINL in Andhra Pradesh will produce 57,500 tonnes.