The bidding process in Odisha iron ore mining is no less than a T20 match. The aggressive bidding by the large steel manufacturers to get these mines is unprecedented and the aggression seems to be increasing with every passing day, each auction is moving at higher premium with biddings running through midnight to wee hours of morning. Last, we hear that JSW Steel has pocketed its 4th mine (Jajang block) as a successful bidder at a premium of 110% .
Past one week has seen tremendous aggression by the steel majors to secure the mines. The result so far for the mines auctioned are:
i. Nuagaon iron ore mine block won by JSW Steel Limited at a premium of 95.2% . This mine has EC of 5.62 million tons per annum with geological reserves of 790 million tons and was operated by K J S Ahluwalia until now. This mine was auctioned as a merchant mine. JSW can also use iron ore for its steel plant which it is planning to set up in Paradeep.
ii. Narayanposhi iron ore mine block again won by JSW Steel Limited at a premium of 98.5%. This mine has EC of 6 million tons per annum with geological reserves of 190 million tons and operated by AMTC until now. This mine was auctioned as a captive mine.
iii. Thakurani iron ore mine block won by ArcelorMittal at a premium of 107.5%. This mine has EC of 5.5 million tons per annum with geological reserves of 180 million tons and operated by Kaypee Enterprises (Part of K J S Ahluwalia) until now. This mine was auctioned as a captive mine.
iv. Balda iron ore block retained by Serajudin & Co. by paying a premium of 118.1%. The mine until now was operated by Serajudin & Co. only and has an EC approval of 15.2 million tons per annum with geological reserves of 210 million tons. This mine was auctioned as a merchant mine.
v. Ganua iron ore mine block won by JSW Steel Limited at a premium of 132.0% . This mine has EC of 1.2 million tons per annum with geological reserves of 119 million tons and is operated by P K Ahluwalia until now. This mine was auctioned as a Captive mine.
vi. Jiling Langalota iron ore mine block won by Kolkata based Shyam Steel (SEL) at a premium of 135.0% . This mine has EC of 6.3 million tons per annum with geological reserves of 79 million tons and is currently operated by Essel Mining. This mine was auctioned as a merchant mine.
vii. Jajang iron ore mine block won by JSW Steel Limited again at a premium of 110.0% . This mine has EC of 16.5 million tons per annum with geological reserves of 59 million tons and is currently operated by Rungta Mines Ltd. This mine was auctioned as a merchant mine.
JSW Steel Limited seems to be playing on a front foot, grabbed 4 mines out of 7 auctioned until now and secured its place of sourcing raw material for its upcoming Paradeep steel plant
What is this Premium of 95.2%…….135% ? Premium is the final offer price to be paid to the government which is in percentage and calculated on the IBM published price and to be paid by the successful bidder on monthly basis. (IBM price is calculated at the end of every quarter and is based on the volume weighted average price of the top 10 miners in the state) The premium is over and above the Royalty / dead rent and DMF payment.
Why are the Premium so high? Apart from the securing the raw material for the significant part of the plant life; the size and proximity of sourcing, the dedicated iron ore mine gives an option to the bidder to set up a fixed logistic arrangement from the mine to the plant which could significantly reduce its logistics cost. The possibility of JSW / ArcelorMittal setting up a slurry pipelines from the iron ore mine won by them to the plant cannot be ruled out. These would significantly reduce the logistics cost which was not possible when raw material was sourced from multiple mines. The other major reason for such high premium which we believe is that these steel majors are expecting the iron ore cost to significantly come down once all the mines are auctioned by the government and there would be a significant over supply of iron ore, pushing the (IBM) prices to come down.
While the T20 is underway, the exchequer of the country is going to enjoy the match pocketing huge money into its kitty for welfare schemes.
