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The Supreme Court's order partially lifting the ban on mining activity in Karnataka will benefit the steel makers and mining industry there in the long-term, India Ratings said today.
"Supreme Court verdict...Will not result in instant gains for regional steel-makers and miners. However, the judgement augurs well in the long-term," the rating agency said in a report.
The apex court's recent judgement allowed opening of category-A and B mines in Karnataka, while ordering complete closure of category-C mines.
According to the report, iron ore production in Karnataka fell from 18 % of total production in the country in FY2009-10 to 8 % in FY2011-12 due to the ban on mining."The lifting of the ban is a major step towards alleviating the iron ore shortage in state. However...Positive impact will not been seen until the miners obtain statutory approvals which might take anywhere between 12-18 months or more," the report said.
While some mining leases have expired, others will have to take various statutory approvals before resuming production.
As per the report, the category A and B mines are estimated to produce about 22-25 million tonnes of iron ore. Though inadequate for requirement of 35 million tonnes, it will provide some relief to those steel-makers and miners whose margins have been impacted in the past 12 months."The impact of removing the ban might be reflected fully in FY2014-15...," it said, adding that utilisation levels of companies such as JSW Steel and Kalyani Steel are likely to increase steadily in the medium-term.
While JSW Steel's plant is operating at 80 % of capacity, Kalyani plant is operating at 50-60 %.
The report also said that Sesa Goa, a Sterlite Industries group company, will also benefit as its mines fall in category-B; it should see improved profitability in FY2014-15.
