The change has cleared the decks for NMDC to restart Donimalai iron ore mines, one of the biggest source of the material for JSW Steel
The Mines and Minerals Development and Regulations Act (MMDRA) was recently amended. One important part was this: replacing "may" with "shall."
What difference can that make?
A lot. Earlier, the law said that, if a public sector undertaking has requested a state government to renew a mining lease, the government 'may' do so.
The 'may' opened up the law to several interpretations. Just like in the case of the Karnataka government.
What did it say?
The issue cropped up in 2018, when state-miner NMDC requested the Karnataka government to renew its lease of Donimalai mines in the state. Donimalai is important for the miner. The mine produces 6 million tons of ore a year, about 17 percent of NMDC’s capacity.
The Karnataka government said it would renew the mines, but with a condition that NMDC will have to pay a premium of 80 percent on the sale value of the mineral.
Didn't NMDC protest?
It did. The mining company went to the High Court, which set aside the premium condition. But, it was a short victory. The Karnataka government withdrew the approval for the renewal of the mining lease. Clearly, the government made the most of the ‘may’ clause in the law.
Fortunately, for NMDC, the Centre amended the MMDRA Act in late September, replacing 'may' with 'shall', which automatically renewed the lease of Donimalai.
Ok, good for NMDC. But, how does JSW Steel benefit?
The renewal of the lease will soon allow NMDC to restart mining in Donimalai, thereby increase the supply of iron ore in the state.
This will be welcomed by the state's steelmakers, who were otherwise forced to source the important raw material from outside. The steel industry in Karnataka imported around six million tonnes of iron ore during 2018-19 due to shortage and inferior ore quality.
JSW Steel, which has a huge plant in Bellary located very close to Donimalai, is the biggest beneficiary.
JSW Steel buys five million tonne of iron ore a year from NMDC's Donimalai mine for its Bellary plant. The unit requires a total of 20 million tonnes of iron ore a year.
But, without the iron ore coming in from Donimalai, JSW Steel was forced to buy from other sources, Joint MD and Group CFO Seshagiri Rao, told Moneycontrol.
Equally important, the ore now was more expensive than the one sourced from Donimalai. "The difference was of Rs 600 a ton," said Rao.
What is the total benefit?
JSW Steel may gain as much as Rs 300 crore if it once again starts sourcing five million tons of iron ore from Donimalai.
But things may still change.
Why is that?Sources say that the Karnataka government has not given in on its demand for higher premium, and may resist renewing the mining lease.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.