Iron ore tax to hit miners' diversification plans

The Rs 300 per tonne tax on the export of iron ore will not just dent the profit margins of the top mining firms, but also seriously affect their diversification plans.

With the iron ore exports fetching huge profits in the last four years, top mining companies in the country had forayed into non-mining sectors such as wind energy, publishing, agriculture, ship building and food processing. Some companies had even started steel and sponge iron projects.

"The demand for mineral resources across the world is good. Some of the mining companies were able to diversify their business through large internal accruals all these years. However, future investments in non-mining sectors will be affected since the margins will be squeezed by the new export tax. The diversification plans of all the companies will take a hit," Federation of Indian Mineral Industries (FIMI) senior vice-president, Rahul Kumar Baldota told Business Standard.

Mineral Sales Private (MSPL), the second largest iron ore exporter (5 million tonnes in 2006-07) in the private sector, invested more than Rs 1,000 crore on wind energy projects (close to 200 mw). It is in the process of setting up a Rs 2,200 crore alloy steel plant in NorthKarnataka.

"We have a specialty gases division catering to industry. We intend to commence gold mining some time later this year in Karnataka. We also have a diamond prospecting licence. We diversified into various sectors long back. However, iron ore exports constituted the bulk of our revenues. Now the export tax may slow down the pace of diversification," Rahul Kumar Baldota, who is also the executive director of MSPL, pointed out.

Similarly, Sesa Goa Ltd, India's largest iron ore exporter (9 million tonnes in 2006-07) from the private sector, has interests in metallurgical coke and pig iron. It is still unclear about the extent to which the new export tax might impact its non-mining business.

A number of Goa-based iron ore mining companies have extensively diversified their businesses over time. The Dempo Group, which exported 4.5 million tonnes of iron ore last year, has forayed into the production of iron and steel and petroleum coke, ship building and engineering, food processing, media and travels. Salgaocar Mining Industries is into shipping, agriculture, publishing, pharmaceuticals and distribution of construction/earth moving equipment. The Chowgule Group, another large exporter, has interests in real estate, shipping and industrial gases.