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Jul 12, 2012, 08.23 AM IST
Karnataka has recommended the approval of eight iron ore mines. RK Goyal, MD of Kalyani Steel said that these mines had to follow the rehabilitation and resettlement process, in accordance with the Supreme Court directive. Although, they have been cleared, only some mines are expected to start operations from mid-August.
At present, Kalyani Steel is operating at 40-50% capacity and Goyal believes, the cost of iron ore will come down once all the mines become operational. It is also likely to improve their profitability as increased productivity will drive up operational efficiencies and reduce the cost of raw material. In an interview with CNBC-TV18, he further added that the company does not face any loss on inventories.
Below is the edited transcript of his interview with CNBC-TV18. Also watch the accompanying video.
Q: Give us a sense on whether you all would now be able to start operations in one of these eight iron ore mines and is it now a done deal with regards to this recommendation which has come in from Karnataka?
A: These mines had to follow the rehabilitation and resettlement (R&R) process as directed by the Supreme Court. Out of category A mines, most of the mines which were operational before the closure have been cleared by Federation of Indian Mineral Industries (FIMI) and part of them have been cleared by Indian Council of Forestry Research and Education (ICFRE) and a few have been cleared by Central Empowered Committee (CEC).
But, they have to submit their revised mining plan to The Indian Bureau of Mines (IBM), get their approval and consent for operation before starting the mine. It is going to take some time. We expect some of the mines to start opening at the beginning of next month and then it will take some more time for mining to start and for metal to come for auction.
As per the CEC guideline, the metal has to be e-auctioned. It cannot be sold directly by the miner.
Q: So you are saying in the next one month, realistically you can start mining operations and when will coal be available for auction following that?
A; It will take some time. It is difficult for us to say anything as of now. But once the mine starts, we expect coal to come for auction within a month or so.
Q: What is the level of utilisation that you have been operating with currently and once the mining operation begins, how much of a relief are you expecting to see?
A: Currently we are operating at 40-50% and once all the mines open, depending on how fast they open, we will definitely run at 100% or even more than 100%. But to me, it will take 3-4 months time for all mines to be operational and then we should be able to ramp our production to that level.
Q: We understand that there are 45 mining leases which are currently cancelled in Karnataka and only 8 are possibly recommended for approval, what happens to the remaining part of the mining leases?
A: There are 41 mines in Category A. Out of that 21 were operational before the closure. In phase I, these 21 mines will be completing their R&R plan and will become operational. For Category B mines, more than 50 hectares will follow and then the mines in Category A&B which are less than 50 hectares.
So it is not that out of 45 only 8 mines are cleared. As of now, that is the situation. Going forward, all the mines will open, except Category C, for which Supreme Court is yet to decide the course of action. Whether they will permit them, increase the penalty or whether they will recommend them for auction is yet to be decided.
Q: What do you think your numbers will possibly look like in Q1 FY13 because we understand that you are possibly dealing with a lot of high cost inventory at this point in time as well?
A: We do not have much of inventory. Whatever material we are getting, we are able to process. We do not have any loss on account of inventories. Our problem is not having adequate quantity of iron ore.
Q: Now that iron ore availability will improve, what kind of volume pick up are you expecting to see in FY13 and how much does Karnataka contribute to your total portfolio?
A: As far as we are concerned, about 100% manufacturing of Kalyani Steel is in Karnataka. As far as volumes are concerned, we are currently operating at 40-50% and once all the mines open, we should be able to produce in accordance with our capacity which is around 0.7 million tonne.
Q: In effect, what will that do to improve your profitability and your revenues as well, if you can just give us an indication on how it will help you see an improvement in your books?
A: There are several things. Number one, the cost of iron ore will come down once the availability goes up. By improving the productivity, cost of production will come down. Number three, operational efficiencies will come up everywhere in the plant and hence, our total cost of production including cost of raw material will come down substantially. Therefore, it will improve our profitability.
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