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The stock of Tata Steel is up around 2 per cent today after the Odisha Government allowed the steel major to resume operations at its iron ore mines in the State until January 28 as per an interim order of the Orissa High Court. The four mines that have been allowed to restart are Bamberi, Katamati, Joda West and Joda East.
Operations at these mines had to be suspended after May 16 when the Supreme Court ordered that the mines operating under deemed extension (after the end of their first renewal period of 20 years) be shut.
The mines were later allowed to reopen, following a nod from the Odisha Government. However, the operations were shut again after the company could not meet the November 15 deadline for forest and environment clearances, following which the company approached the Orissa High Court.
Captive advantage
Tata Steel, which operates in India, Europe and South-East Asia, meets the entire iron ore requirement of its Indian operations, the major contributor to profit, from its own mines in Odisha and Jharkhand. This places it at an advantage to most other steel companies that lack captive mines.
The Indian business, which accounts for 28 per cent of the consolidated revenues, makes an even larger contribution to the company's profits. For the half-year ended September 2014, the standalone (India business) net profit was ₹4,744 crore against a consolidated net profit of ₹1,592 crore.
But, following the closure of some of its mines, Tata Steel India had to import iron ore at higher prices to tide over the shortage. The latest decision of the Odisha Government brings some relief to the company, which sources 70 per cent of its iron ore requirement from its mines in Odisha.
The latest order assumes all the more significance given that Tata Steel has been expanding its capacity in India. Following the 3 million tonnes per annum (mtpa) expansion at its Jamshedpur plant, Tata Steel India’s installed capacity has gone up to 9.7 mtpa. This will rise further after the first 3 mtpa phase of the 6 mtpa Kalinganagar plant in Odisha is commissioned by 2014-15.
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