Mining in the deep end: Iron ore and manganese miners are staring at mayhem

Leases of miners are going to expire in March 2020 and there is no way the arduous process of auction of mines will complete before the it expire

The non-captive merchant iron ore and manganese ore miners that meet as much as 45 per cent of the requirement of critical raw materials of the steel industry in the eastern sector are staring at mayhem as their leases expire on March 31, 2020. 

Production shutdown at a number of mines in Odisha and Jharkhand, leading to massive unemployment and social unrest that are fodder to extremist movement will inevitably coincide with the start of the next financial year.  There is no way the two states will be able to complete the arduous process of completing the auction of mines, whose leases under the law are to expire in March. In the exceptional event that new lessees emerge from the auction, it will take them a long time to get all the sanctions and then install machinery and equipment to start mining. 

The genesis of the impending crisis is found in the January 2015 amendment of the 1957 Mines and Minerals (Development and Regulation) Act. The amended Act, for the first time, made a distinction between merchant, captive and government-owned mines. Earlier, the three groups of mines received identical treatment in all respects, including the terms of leases. Now, merchant miners say they have got a raw deal: Their leases will be valid till March 2020, whereas the lease tenure of captive mines will be up to March 2030, with the right of first refusal when fresh auctions are held. The most favoured are mining agencies belonging to the centre and states. They are allowed extension of leases for 20 years beyond the stipulated period of 50 years. There is, however, no economic justification for treating the three sets of owners differently on validity period of mining leases. Perhaps, the authors of the amended Act did not foresee the chaos that will inevitably follow the expiry of merchant mining leases in March 2020. 

Steelmakers with financial muscle to make bids for iron ore mines at hefty premiums are pressuring the government to hold auction of mines belonging to non-captive owners that are to expire in nine months. After all, auctions will give them a chance to bid for 24 working and 208 non-working iron ore mines. Moreover, seven working and 14 non-working manganese ore mines are also to come under hammer as the present owners will have their mining rights extinguished in March 2020. 

Unlike their counterparts abroad, big Indian steelmakers are obsessive about ownership of iron ore and manganese ore mines, knowing full well that the skill sets required for running the two businesses are different. In any case, captive mine owners in India will not claim that their mine work matches the best in the trade, their focus being on making steel and steel products. 

Yes, the world’s largest steelmaker ArcelorMittal has a significant portfolio of mining assets that principally include iron ore and coking coal. Iron ore production of 58.5 million tonnes (mt) in 2018 gives an idea of how big a miner ArcelorMittal is. In comparison, India’s largest miner NMDC’s ore output in 2018-19 was 32.4 mt. None of the mines owned by ArcelorMittal is captive to any of its steel mills. Mining is a separate profit centre for the company. When iron ore and coal are shipped to its own plants, these are done mostly at market prices and to a small extent on a cost plus basis. Unlike ArcelorMittal, captive mine owners here provide scanty information about their mining activities. 

Surprisingly, some steelmakers’ campaign for expediting auction of mines that are to run their course in nine months is not tempered by their recent disappointing experience of only half the earmarked non-coal mineral blocks being actually auctioned and the follow-up sanctions needed to start mining not coming through. What is particularly upsetting is that for the 34 auctioned greenfield mineral blocks, not even one mining licence is executed. The Supreme Court gave a ruling that the new lessees of auctioned mines that were operational earlier would automatically get the environment and forest clearances transferred to them from earlier lessees. But as it would happen, the new lessees of the three ‘C’ category mines in Karnataka are kept waiting for the clearances to come to them. 

Clarity is in absence in the government as to how to go about auctioning the merchant mines whose tenure ends in March 2020, particularly the functioning ones. For example, at a recent coordination-cum-empowered committee (CCEC) meeting of the mines ministry, it was mentioned that the concerned states were advised to start auctioning mines expeditiously “so that the incoming miners have time to take preparatory steps to make the mines functional.” But the law clearly states that auction can happen only “on the expiry of lease period.” A spokesperson for an Odisha-based major mining group says by proposing auction before lease expiry, the CCEC is walking into a minefield. The existing lessees may take recourse to law to “stop prospective bidders from carrying out due diligence which will inevitably interfere with mining work,” he says. Any anarchy in mining in Odisha and Jharkhand will shrink iron ore supply by at least 60 mt, resulting in foreign ore filling the vacuum. 

The miners have a strong case as under the minerals concessions rules, 2016, lessees are allowed seven months to remove excavated minerals and plant and machinery. Besides the legal issues, there is the issue of the iron ore stocks of 127 mt, mostly fines that the mines in Odisha (85 mt) and Jharkhand (42 mt) are saddled with. The mines are unable to liquidate the stocks for two reasons. First, local steel mills will buy ore that has higher iron (fe) content than found in mountains of unsold stocks at pitheads. Second, because of the 30 per cent export duty on iron ore with 58 per cent plus fe content, there is no demand for the stocks in the global market. The question then is: Will the prospective new lessees be willing to buy the pithead stocks?