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Early this month, the Aditya Birla Group company had to shut five bauxite mines in Jharkhand, following which the company is said to have postponed its plan of a share sale to institutional investors.
“It is not a good idea to have dilution of equity at a lower share price,” said Giriraj Daga, analyst with Nirmal Bang Securities. “When there is uncertainty over the access to cheaper raw material, investors will ask for larger discounts. Also, what is important to note is the plan has been postponed and not cancelled. So, it is fine.”
Hindalco had announced a plan to raise Rs 5,000 crore in mid-July, when its share price was Rs 184. The latter has since fallen 13 per cent and was Rs 160 on Tuesday. Bloomberg quoting people with knowledge of the matter said on Tuesday India’s second-largest aluminum maker had postponed the share sale to institutional investors on uncertainty about its access to cheap raw materials. Pragnya Ram, a Mumbai-based spokeswoman for Hindalco, declined to comment, the report said.
Though their five mines in Jharkhand have been shut, it is important to see under what clause these were asked to stop operations, said analysts.
“The government has asked for the shutdown of all mines, not just bauxite ones, under the second and subsequent renewal clause,” Anand Mohan Thakur, deputy secretary at the state's directorate of mines & geology, told Business Standard.
“We will be sending a report to Indian Bureau of Mines (IBM). They will give us their decision and the next course of action will be taken. We are pressuring IBM to send us their decision as early as possible. If IBM fails to give their decision in three months, the decision will be with the state government, which does not want its mines to be shut for a prolonged period.”
Adding: “The case is almost similar to what we had seen in Odisha a few months earlier. It should take three-four months for this whole issue to get resolved.”
Assuming IBM will take a full three months for a decision, it is important for Hindalco to have its bauxite inventory in place during this period, said analysts. “If the shutdown lasts for 15 days to a month, the company can manage,” said an analyst with a foreign brokerage. Hindalco wouldn't disclose data in this regard. “We do not share this kind of market-sensitive information,” said Pragnya Ram, spokesperson.
SAIL, Tata Steel hit
The disinvestment of SAIL's 5 per cent shares, meanwhile, will go as per the plan by September end. The government is planning to raise around Rs 1600 crore by selling 5 per cent of SAIL stake. The Jharkhand government has shut down three mines of SAIL in the state.
Meanwhile, with its Noamandi Mine in Jharkhand closed, Tata Steel will have to import at least half a million tonne of iron ore to keep its steel plants running in the state. The Naomandi mine meets 25 per cent of Tata Steel's ore requirement. Analysts say continued shut down of the mine will have materially adverse impact of the profitability of the company.
The mines have been shut down following a scathing report by Shah Commission which says the mining companies destroyed the ecology and gained windfall profits at the cost of the exchequer. Goldman Sachs has estimated a loss of Rs 1365 crore on Tata Steel's Ebidta for the rest of fiscal 2015.
The Indian iron ore production fell from 219 mt per annum in 2010 to 136 mt pa in 2013. This was mainly due to a mining ban in Karnataka in July 2011 and Goa in September 2012.The Karnataka ban was subsequently removed in April 2012 with a production cap of 30 mt per annum. Currently, mines with 19 mtpa of capacity have started production.
The Supreme Court of India allowed mining in Goa but capped production at 20 mtpa. Currently, mining has not started. Many individual mines in Odisha have been also closed in the last 2-3 years.
