“Long pending issue of Donimalai Iron ore mine has been finally resolved. It is a timely decision taken in a situation when the steel companies are facing a shortage of supply of Iron ore,” said the company in a media statement on Friday.
The mining lease is now extended for 20 years with effect from November 2018.
The development comes as a major relief to steelmakers in Karnataka and various stakeholders and steelmakers as there is an acute shortage of iron ore in the market.
Odisha iron ore miners have increased prices by more than 100% in the last three months and it is currently at Rs 6,450 per. NMDC has also constantly been hiking prices and it is considering another price increase this month.
“Based on the existing high price of ore, it is expected that Donimalai Iron ore mine will contribute around Rs 400 crore to the state exchequer, during the ongoing financial year,” the company said in its media statement.
“Incremental supplies from NMDC are welcome and should provide a breather, though, it can’t substitute Odisha supplies,” said Investec Capital Services research analyst Ritesh Shah to ET.
As per the company, Donimalai Iron ore mine, has a total concession area of 597.54 hectares and estimated resource of 149 million tonne which will increase the annual Iron ore production in the country by 7 million tonne per annum.
However there is still no clarity on the premium and the company is in talks with the government on the same.
“Donimalai iron ore mine re-start, albeit at lower profits/tonne (on back of higher premiums), is incrementally a positive, as it would aid to profits. We would watch out for the fine print from the ministry on the royalties / premium before concluding on the profitability trends for the company,” said research analyst Ritesh Shah.
Industry has to wait for the ministry’s fine print on royalties / premiums, as it could have a wide impact on industry cost curve and consequently IO pricing., Shah added.
Iron ore-rich Donimalai in Ballari district was in the custody of state-owned NMDC for 50 years when its lease period ended in 2018. Karnataka state government had levied a premium of 80% for renewing the leases. NMDC objected to the claim and stopped mining operations since.
The company approached the Karnataka High Court on the matter and received a favourable judgement to get the leases and operationalise the mine. However, again in 2019 Karnataka government decided to cancel the lease and put it under auction.
“The operationalization of the mine would contribute a total of around Rs 1,100 crore to the State exchequer per annum…The mine shall offer direct employment to thousands of people (including the contract labours) and create indirect employment opportunity for lakhs of people,” the company statement said .