The state-owned KIOCL Ltd (formerly, Kudremukh Iron Ore Company Ltd) is trying to extend its life further after its captive mine was shut down from January 2006 following a Supreme Court order. With its proposed merger with NMDC falling through, the company is making all out efforts to secure a fresh mine in Karnataka to survive. In an interview with Mahesh Kulkarni, KIOCL chairman and managing director, K Ranganath says while attempts are on to secure captive mines, the company will continue to source iron ore from NMDC to keep its pellet plant running.
With the government shelving its plans to merge KIOCL with NMDC, and without having your own captive mines, how will you survive?
The merger with NMDC has not happened and we will continue to be an independent company like before. We will continue to procure iron ore from NMDC at the present market prices, until we are allotted captive mines. Presently, we buy iron ore fines from NMDC at long-term prices, which work out to Rs 1,663 per tonne of iron ore fines. Meanwhile, we are making efforts to secure another captive mine in north Karnataka.
Is it cost effective for you to procure raw material from the market and make profits?
Presently, it costs us $52 to buy iron ore fines and $37 to process and another $10 for transportation. In addition to this, another $10 goes towards fixed costs. This works out to $109 to make pellets, whereas we are selling at $98.5 presently. Though it is not profitable, we are able to recover variable costs and reduce fixed costs to $8 per tonne by running the plant. As long as we have positive contribution it makes sense to run the plant. We expect prices to hit $110 per tonne in the next few months.
How are you managing the costs with raw material coming from a distance?
For some time we brought from Chhattisgarh and blended with the ore from Bellary. This was very costly for us because of higher transportation charges. At present, we are bringing iron ore from NMDC’s Donimalai mines in Bellary district. This has helped us reduce the cost of production by $10 per tonne. But this being a soft and moist ore, we require more power and furnace oil to dry the pellets which may increase cost of power by four to five dollars. But, still our total cost will fall $6 per tonne. Our R&D team is constantly evolving methods to reduce the cost of production.
What attempts have you made to secure fresh mines in Karnataka?
Much before the Supreme Court ordered us to close down mining in eco-sensitive Kudremukh in Chikmagalur district, we had applied for licence to operate Ramanadurga mines in Bellary district. Our application is presently pending with the government. There are a lot of litigations over the matter and we expect to secure this mine in the next few months.
What is the availability of iron ore in Ramanadurga? And if allotted how long can you extend your business?
These mines contain 150 million tonnes of iron ore deposits, which will be sufficient for us to run the company for 30 years. Meanwhile, we were allotted mines at Chikkanayakanahalli in Tumkur district. We have completed a public hearing and got the ministry of environment and forests’ clearance. We are waiting for the final report to be submitted by the deputy commissioner of Tumkur to the forest department. Once the state forest department issues clearance, we will start mining here. We hope that it will take another year to secure all approvals before we start mining. Here we have 10 million tonnes of deposits and sustain for the next 3-4 years.
What has been the impact of the global economic recession on your export performance?
Over the last one year we have seen a huge variation in prices of iron ore pellets in the international market. We have seen prices hitting a peak of $245 per tonne in August 2008 and a low of $54 in December 2008. For most part of the present calendar year we had shut down our pellet plant and we have started production from October 22.
However, the recession period is over and the prices are warming up. The pellet prices in the domestic market are better than the international prices.
What is the current position of your sales?
In the last sales attempt we made, we got a price of $98.75 per tonne in the domestic market as against $96 in the international market. The local market is looking good. If the price further improves there is no difficulty for KIOCL to go ahead with full production, because it covers variable cost and generates positive contribution. And if the price improves to $108 per tonne we will make net profit on the sales.
When do you expect further surge in pellet prices?
We hope that in the next four months, the price should reach $108 per tonne in the domestic market at least. The Chinese market may start consuming iron ore after the New Year. By March or April we hope to get above $99 per tonne and by July and August it may cross even $110. If that happens there is no looking back on our pellet production.
KIOCL had taken a long break from production. What is the outlook for the remaining months of the year?
We started production on October 22 and reached a record daily production of 10,300 tonnes on November 1. We had never produced so much in a single day after shifting to haematite ore. We are confident of producing 9,000 tonnes per day going forward and if we can produce for 300 days in a year we will end up with a production of 2.7 million tonnes during the next financial year.
What is the current export position? How are you managing your export commitments?
Exports are going on pretty well. We are maintaining our EOU status. Export prices are still lower than our variable cost. In the last two months, we exported two shipments to China. Again this month a small shipment of 20,000 tonnes are going to West Asia. If this market widens, chances of prices warming up are better. At $97.1 per tonne we sent to China last month. We expect to export one shipment a month to West Asia. We are planning to export about eight shipments to West Asia and close to 20 shipments to China next fiscal.
What is the outlook for iron ore sales in the present fiscal?
The remaining five months of this fiscal we will sell more in the domestic market, which is not much affected by the recession compared to overseas market. We are presently selling to Ispat Industries, Bhushan Steel and Jindal Steel at $98.5 per tonne. We are also talking to Essar Steel for sales presently. In the next four months, we will sell about 400,000 tonnes in the domestic market and 200,000 tonnes in the overseas market. With this, our sales will touch 1 million tonnes this fiscal compared to 1.13 million tonnes last fiscal.
