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Following the approval to restart iron ore mining in Goa, Vedanta Resources, the London-headquartered metals and mining group, will be focusing on bringing back lost market share.
On Monday, it announced the reopening of Codli, its largest mine in Goa, marking the resumption of iron ore mining in the state after nearly three years. After the news, its shares rose 0.3 per cent to Rs 130 a share on the BSE.
“The company has received all approvals to restart mining at its Codli and Bicholim mines. Final clearances to other mines are expected by the end of August. Post the monsoon season, the company plans to fully resume mining and by the end of the current fiscal year, to utilise its full annual production allowance of 5.5 million tonnes (mt),” it stated.
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Vedanta has iron ore, pig iron and met coke operations in Goa. Apart from Codli and Bicholim, it has the Sonshi and Narrain iron ore mines. Total production capacity is 14 million tonnes a year but with the state’s new mining cap of 20 mt, Vedanta is not allowed more than 5.5 mt.
“We will be starting small. We are aware the iron ore market is weak and we will not see immediate profits in Goa, given the dull price scenario and low volumes but, going ahead, we aim to generate positive cash flows even at low production levels,” said Tom Albanese, chief executive officer, in a conference call. Prior to the suspension of Goan mining in 2012, India was the third largest exporter of iron ore, after Brazil and Australia. And, Vedanta was the largest private exporter of low grade ores.
Currently, prices of global iron ore fines are $55-56 a tonne, down from nearly $100 a year ago. However, the low-grade fines category in Goa, below the 58-ferrous content grade, is being priced even lower at $45 a tonne. So, Vedanta is not going to earn much in the near term.
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Multi-layered taxes, such as the 10 per cent export duty, contribution to the district mineral fund, cess and other duties are also going to eat into the earnings.
“We will be engaging in talks with the state and national government for a fair level of taxation for the industry and will be also requesting for scrapping of the export duty of 10 per cent,” said Albanese.
Before the ban, Vedanta exported at least 80 per cent of its ore production, mainly to China, whose requirement for blended ore was high. Given the surplus market at present, it plans to try and sell to Indian customers, too. It is in talks for this. Even so, "the reality is that most will go to exports, since not many domestic players prefer the low grade ore”, said Albanese.
In the export market, he said, low cost ore producers do stand a chance to sell, even in the current dull market. So, the company plans to keep costs as low as possible.
“Our product overseas is looked at as a better mixture of lower in grade product but higher in value for use and, to that extent, we are watching the buying pattern of China,” said Albanese.
