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Business News/ Companies / India’s iron ore entrepreneurs look to diversify
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India’s iron ore entrepreneurs look to diversify

India’s iron ore entrepreneurs look to diversify

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After minting profits from the Chinese building boom, Karnataka’s iron ore miners are now turning their money and attention to new businesses, from the logical steel sector to areas such as wind power and air cargo.

The fortunes of those who mine iron ore—the key ingredient in making steel—skyrocketed as India decided to relax export laws in the late 1990s, a move that coincided with China’s frantic steel-making drive to support its infrastructure growth. India’s iron ore industry has grown 143% since 2001. Prices have shot up 133% in the same period.

Nowhere has the boom been more evident than Karnataka, which boasts nearly 40% of the country’s ore reserves, mostly in the eastern Bellary-Hospet area. Now cash-rich firms, such as MSPL Ltd, Mineral Enterprises Ltd, BMM Ispat Ltd and RB Seth Shreeram Narsingdas have ambitious plans to manufacture everything from wind power to steel. To attract more investment, the state government wants to start competitive bids for captive iron ore mines to make steel.

Other miners, such as VS Lad & Sons, which is also setting up a steel plant, have big plans unrelated to their core activity—an entry into the niche speciality air cargo business. Crescent Air Cargo, which will be launched in two months, will operate air transport services for perishable goods. It has already bought three aircraft.

The diversification illustrates how firms, which have made their riches through exporting, are now looking inward for business opportunities. And, while the Union cabinet’s group of ministers, which recently cleared a new mineral policy, has not curbed or capped iron ore exports—although duties remain—Indian firms say they are starting to see enough demand at home to sustain their ventures.

“Demand of steel will grow in the next three years and instead of importing steel, we can contribute in meeting domestic production," said Sanjay Lad, managing director of VS Lad, which has revenues of Rs1,000 crore.

Lad is also a member of the state’s legislative assembly from the Sandur constituency, where the company’s new 240,000-tonne steel plant is planned. The company’s 180,000-tonne pig iron plant in Chitradurga district started in January this year. China’s per capita consumption of steel remains 200 times more than India’s, but Indian growth has started catching up.

MSPL, which has revenues of Rs1,800 crore with interests in industrial gas apart from mining, plans to set up a 5 million-tonnes plant in Karnataka with an investment of Rs18,000 crore. Of this, one-fifth will be dedicated to making speciality steels for car makers. With several mining leases in Karnataka, the company is targeting a production of eight million tonnes of iron ore this year to fuel its own plans.

“We now want to be part of the Indian steel sector," said Rahul N. Baldota, executive director of MSPL. “We are bullish on the India story." Baldota was elected president of the Federation of Indian Minerals Industries, a mining lobby, last week in New Delhi.

In 1996, he was the first to start exporting fines, the dust of iron ore, to China, opening doors for other miners to follow. “It took a year to convince the government that it’s a material that was not in demand in India," he recalls.

As profits began to flow, the company also began to make small investments in wind power in 2000, initially for tax breaks by claiming 80% depreciation on investments made.

But, in October, it raised capacity to 120MW, becoming one of the country’s largest renewable energy producers, supplying power to the grids of Gujarat, Maharashtra and Karnataka. By March next year, the company wants to double capacity.

From the 1960s, iron ore was among several commodities whose exports were controlled by the government to shore up India’s meagre foreign exchange reserves. Miners had little option other than to dispatch ore through a quota system to MMTC Ltd, which lifted between 5,000 tonnes and 10,000 tonnes from individual miners. Back then, ore that MMTC did not take was sold at a little over $1 (about Rs40)for use as road gravel.

“In 50 years, MMTC must have bought iron ore from the Tumkur and Chitradurga district only once," says Basant Poddar, managing director of Minerals Enterprises, who has leases in the two districts of Karnataka. “The iron ore industry was gagged for four decades. There was no incentive to invest in machinery or explore for new mines."

Now Minerals Enterprises, which exports two million tonnes of iron ore annually, is the first?firm?in India to set up a plant to to upscale low-quality lumpy ore into saleable grade.

Within 24 months, its 0.75 million tonne steel plant, set up with an investment of Rs400-500 crore, is expected to begin production in Karnataka. It was among several companies to set up a 100% export-oriented unit for iron ore in 2003, exporting some 1.2 million tonnes.

In another reflection of the good times, Bellary Iron Ore Pvt. Ltd, which mines 2.2 million tonnes of iron ore a year, set up three months ago a 300,000 tonne beneficiation or ore-upgrade plant. Now it plans to invest Rs60 crore in a one million tonne plant with German technology to improve ore grades—even with as little as half iron content.

“We have seen the worst for 20 years," says Santosh Kumar Modi, the company’s managing director. “Now things are finally looking up."

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Published: 18 Jul 2007, 12:38 AM IST
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