Jharkhand govt shuts 5 Hindalco bauxite mines

SAIL, Tata Steel earnings to fall due to Jharkhand mine closure

The Jharkhand government has shut five bauxite mines of Hindalco Industries, flagship company of the Aditya Birla Group. This follows a report by the Shah commission on illegal mining, which had alleged such mining was causing widespread damage to the environment and losses to the exchequer.

Earlier, the Supreme Court had reserved its verdict on Hindalco’s Mahan  mine in the coal block allocations case. The action against Hindalco follows similar moves by the Jharkhand government against Steel Authority of India Ltd (SAIL) and Tata Steel. Jharkhand  earlier ordered the closure of 12 iron ore mines and a few manganese mines in that state. These include SAIL’s mines in Budhaburu, Durgaiburu, and Kiriburu-Meghahatuburu and Tata Steel’s Noamundi mine.

In its report on Jharkhand, the Shah commission had said in 2000-2009, the royalty per million tonnes (mt) of iron ore was meagre, adding, due to this, the lessees had recorded windfall profits. “During the deemed extension when unlawful mining was carried out, the loss to the state is required to be compensated by recovery of value equivalent to the market rate or export rate, whichever is applicable in individual cases, with exemplary penalty after following due course of law,” the report had said.

Analysts say assuming all Tata Steel and SAIL iron ore mines in Jharkhand are shut for the next six months and both companies import iron ore, their book values will take a hit of two per cent and six per cent, respectively. “We forecast incremental cost of importing iron ore of Rs 1,365 crore ($228 million) and Rs 3,885 crore ($648 million) in FY15 for Tata and SAIL; this will impact their profits after tax 18 per cent and 97 per cent, respectively,” said a Goldman Sachs report dated September 8.

“However, if the Jharkhand government allows mining to start for steel producers, we expect the impact to be negligible. The actual impact could be less, given iron ore companies typically have inventory of up to 45 days,” the report added. India’s iron ore production declined from a peak of 219 mt in FY10 to 136 mt in FY13, primarily due to various regulatory and policy interventions.

In May, the Supreme Court had imposed a temporary ban on 26 iron ore and manganese leases (of a total of 56) operating on second and subsequent renewals in Odisha. It had directed the Odisha government to consider all renewal applications within six months. Subsequently, the state government had issued an order to restart mining for eight of the 26 affected leases, including four leases of Tata Steel, three of SAIL, and one of Odisha Mining Corporation.

While Tata Steel did not comment, a SAIL spokesperson said, “We are making efforts to get clearances for the mines from the Jharkhand government and till the time we do not have access to these mines, we will use the ore from our stocks.”

He, however, declined to specify the stock levels and the period for which the stock would suffice.

“We also plan to source ore from other iron ore mines of SAIL,” he added. In its report, the Shah commission had said if illegal mining was allowed to go on, it might lead to irreparable damage to the environment and if it was stopped, there might be irreparable damage to economic interest. “In case of doubt, however, protection of environment will have precedence over the economic interest,” the commission had said.

STRINGENT NORMS

• The action against Hindalco follows similar moves by the Jharkhand government against SAIL and Tata Steel
• Jharkhand has already ordered the closure of 12 iron ore mines and a few manganese mines in the state
• These include SAIL’s mines in Budhaburu, Durgaiburu, and Kiriburu-Meghahatuburu and Tata Steel’s Noamundi mine