Metal firms stare at uncertainty on ore front

Metal companies, especially primary steel manufacturers, are facing an uncertain future on sourcing of iron ore, the key raw material, with leases of about 288 mines, including iron ore, bauxite, limestone and manganese, set to get cancelled in March next year.

These mines will be auctioned as per the Mining and Minerals Regulation (Development) Act. They are currently owned by merchant miners without any forward integration with metal production.

In 2015, the government had mooted a competitive auction process to weed out corruption and clamp down on discretionary allotment of mines. Merchant mine owners were given a five-year support before their mines are put on auction. Following this, leases of private mine owners will expire on March, 2020. The government should start the auction from July to ensure adequate ore supply and smooth transition of leases. However, the process is expected to be delayed with the new government taking charge after the ongoing General Elections. Moreover, the auction faces many issues which need special permission from State and central governments.

Sources said a separate lobby of miners is working to put off the cancellation of existing leases by 10 years and delay the auction process.

Seshagiri Rao, Joint Managing Director, JSW Steel, said: “There will be a major disruption in iron ore supply if the government does not take the right steps and expedite the auction of mines before the lease expires.”

“There are many hurdles to auctioning. The industry is concerned and hopefully something will be done once the election is over,” he added. As per the MMRD Act, only mines that have completed G2-level of exploration can be auctioned and only select government agencies are allowed to certify G2-level of exploration.

Not enough agencies

The number of government certifying agencies that are involved in the G-2 level of exploration is very few compared to the number of mines that are waiting for exploration.

Some of the mines that have done G2 exploration also need to be approved by State governments and this is delaying the entire mine auction.

Rao said the mines that have not completed G2-level of exploration can also be auctioned with special permission of the central government.

For some reasons, he added, there is a reluctance on the part of various governments to do the auction unless G2-level of exploration is completed.

The industry has appealed to the government that the auction be on a revenue- sharing model which means that a certain amount is paid to the government on every tonne of iron ore mined. Notwithstanding the level of exploration either G2 or G3, the government is going to get its revenue as long as the resources are mined.

Various approvals, including environment clearance, pollution control board and mining plan approvals, get negated once the lease expires. The industry has suggested a seamless transfer of approvals to new lessee after the auction.

In fact, the environment clearance, once approved, is valid till the mining lease expires. In the current context, the lease expires due to change in law.

As per MMRDA Act, existing miners have to be given a six-month time to move out the mined material out of the mining area before the auction is held. This can potentially delay the auction by six months after the lease expires next March.

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