Odisha mining auction: High premiums may lead to sharp hike in Iron Ore prices

Bhubaneswar: The Odisha government has already auctioned 13 of the 19 mining blocks and the highlight of this auction season is the high premium at which the blocks are being leased out, putting a question mark on the feasibility factor. So, can we expect a sharp rise in Iron Ore price in coming months?

Yesterday, the Bishal LPG fuels private Limited won the Nadidih Iron Ore & Manganese mines at a premium of 142.35%. Similarly, Yazdani International has won Kalmong Iron Ore & Manganese mines at a premium of 100%.

This implies that the miners will have to pay the premium amount on the IBM specified sale price of the material mined. So when we say Bishal LPG’s winning bid is 142.35%, it means, the company will have to pay 142.35%, of the monthly value of the IBM set price of iron ore to the Odisha government. This will be on per tonne of iron ore sold by the company. This is apart from the royalty, contributions to the District mineral fund and National mineral exploration trust.

“The premium is a percentage of the price of the iron ore that is set by the Indian Bureau of Mines (IBM) each month for different states and grades. The premium will be taken by the state as its tax. The premium is not the only tax the new owners will pay to the state government. There will also be a royalty 15% of the base price, District Mineral Fund contribution 30% of Royalty and NMET (National mineral exploration trust) 2% of Royalty that will be charged separately on the base price. Premium and royalty will be charged on sales of iron ore and not on production” said steelmint.com, a mining data analysis firm.

So the questions arise, is this high premium feasible? Can we expect a stiff rise in Iron Ore price in the coming months?

The answer is, at the current prices of Iron Ore, it is not feasible. So we can expect prices of Iron Ore to go up. But in case of JSW, which has bagged 4 mines so far, the calculations could be different. The steelmaker may try to offset the high mining cost with its high-value finished products.

“The high premiums are set to put iron ore prices on a different orbit altogether. Since many of the large companies are emerging as the winners, they will become the new price makers in the market” said Steelmint.