Hospet-headquartered iron ore mining company, MSPL Ltd has entered into trading of iron ore to honour its supply obligation as the company is facing a tough time in generating requisite volume on the back of recent iron ore mining controversy in the state.
The company, which exports 98 per cent of its iron ore to China, had exported around 3.5 million tonne of iron ore in 2007-08 and 2.8 million tonne in 2008-09, a drop of 25 per cent over the previous year.
However, the recent controversy relating to alleged illegal iron ore mining and exports has put the company in a fix as it is unable to generate enough volume of iron ore. MSPL is licensed to extract close to 5 million tonnes per annum.
“We have entered into trading of iron ore to meet the supply obligation to exporters and manufacturers. There has been no defaults by the company in honouring the contracts,” a top company official said.
The company has a trading house in Goa that procures iron ore from local miners and supply it for exports, he added.
As per industry sources, Chinese steel manufacturer, Sino Steel is one of the major clients of the company. Sino Steel had imported close to 2 million tonne of iron ore from MSPL in 2007-08.
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“We don’t want to loose our present client base and will honour all the past contracts through trading,” the official said.
However, margins of the company have been adversely impacted due to supply of iron ore through trading.
“Profit margin of iron ore has been in the range of $2-3 per tonne due to trading which was substantially lower in comparison to iron ore prices supplied from our own mines,” the official said.
As per industry estimates, margin could vary from 50-70 per cent for a miner with own mines in case of exports.
He, however, said that the company would be able to supply the required volume to importers which was likely to reach 2007 level this fiscal.
MSPL along with many iron ore mining companies have been badly hit due to recent mining controversy in Bellary-Hospet-Sandur area, which has the highest deposit of high grade iron ore in the state.
As per estimation, there were as many as 64 mining leases in operation before the controversy and produced around 35-40 million tonne of iron ore post 2004.
However, with allegation of illegal mining, Indian Bureau of Mines has suspended operation in 26 major mines for deviating from the norms of Mineral Conservation and Development Rule, 1988, the official said.
This has not only impacted iron ore output from this area, but also has reduced the reliability of foreign importers for supply contracts.