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India ‘not short of iron ore, but output is low’

March 24, 2015

Vedanta Resources Plc has been facing challenging times because of low commodity prices. The group has cut capital expenditure, and is focussing on trimming costs further. Tom Albanese, Chief Executive Officer, spoke to BusinessLine about the way ahead. Edited excerpts:

What is the status of Bellary Steel acquired in 2011?
 
We were interested in producing more iron ore in the State (Karnataka) and looking to club an opportunity to create a steel industry.
 
It’s a partially built plant and production was suspended in 1992. One of the opportunities we saw was rebuilding it, but it would have been on a small scale. We are looking at something larger than what was in vision in the early 1990s. We are looking at different options, various products and understanding the market. Our natural business is merchant mining of iron ore. Though we are a merchant miner, in Goa, we have our own pig iron plant. We would like to see the same thing happening in Karnataka, but we would like to see the overall position in terms of iron ore tenements become larger in Karnataka so that we have the assurance of iron ore supply.
 
What is the status of mining in Goa?
 
The progress has been slow. We have sought clarification on dumping waste from mines outside the mining area. This is because the mining lease area is small. If we put the waste inside the lease area, we will be sterilising the resource.
 
But the Supreme Court order has called this practice into question. We would like to seek clarification on that. In addition, we have a very low price for seaborne iron ore. We would also like to see some relief from export duty. We met the (Goa) Chief Minister and he is aware of the problems.
 
Are the high iron ore prices in e-auction justified?
 
We do not sell in e-auctions. But I would say a similar feature we see in coal. We have seen seaborne price of coal dropping, but Indian prices rising. It’s the same with iron prices.
 
In both cases, it’s a result of the Indian iron ore and steel industries running below their capacities. In both cases, there are surplus resources. There is a shortage of mining capacity. I think it should be priced according to the weighted cost of the international ore coming into the country. .
 
Why should steel companies import iron ore?
 
It’s a paradox. India has very high quality natural resources, but mining is small scale and infrastructure is inefficient.
 
India is not short of iron ore, but it is short of capital in the iron ore industry.
 
Since it’s under-capitalised, the production level is low. I think it’s going to be a problem in the future as the Indian steel making capacity increases iron ore will not be available even though the iron ore resource is huge.
 
Will the high auction price for coal mines make power companies incompetent?
 
The issues we have in coal and iron ore are the same. We have huge reserves but production is not meeting demand.
 
My own take on the success of coal auction, including the high price for the government, is that the bidders have put more value on assured supply. On the calorific adjusted basis, the coal price in India is becoming more expensive than prices of coal in most countries.
 
Do you think mine auctioning will solve the problems?
 
The new mining law will break the logjam. You will see more interest from captive and merchant miners.
 
Merchant miners will build the mine not just to the size of captive plan, but to the size of the market. So a healthy merchant mining sector provides an added safety wall of steel sector.
 
Are we depleting resources by exporting raw materials?
 
I think there are resources for hundreds of years, but there is no capital.
 
The question is not about diminishing resources but how do you find a way to bring capital into the iron ore sector. One way to bring capital into this sector is to make the business look like it can make money.
Source : The Hindu Business Line
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