Tata Steel stops production at chromite mine as lease ends
Prolonged disruption of production at the mine could threaten firm’s profitability at minerals division, say analysts
Mumbai: Tata Steel Ltd, India’s third-largest steel producer, has halted production at its chromite mine in Sukinda in Orissa following the expiry of its mining lease on 12 January.
add_main_imageIts clearances are delayed, two senior mining officials in the state said.
The company’s spokesman confirmed it had stopped production at the mine and added Tata Steel was confident of getting the clearances that would allow it to resume activity. Analysts said a delay in lifting the closure will affect the company’s profitability.NextMAds
“Their renewal is under process, it takes time,” said Deepak Kumar Mohanty, director of mines in Orissa. “They can get a ‘deemed extension’ and continue to mine (till the lease is renewed), provided they show statutory clearances.”
An 8 January notice asked Tata Steel to stop mining, said another senior mining official in Jajpur district where the chromite mine is located. Chromite is an essential ingredient in the making of stainless steel. The mine has been in operation since the 1960s.
It caters to the ferro alloys and minerals division of the company, the largest non-steel business of Tata Steel, besides selling to other steel plants. The company started preparations to build an underground mine in the same location last year, according to the company’s website.
Ferro alloys contributed 8% to operating income in the September quarter of the current fiscal year, according to the company. Three analysts said a prolonged disruption of production at the mine could threaten the profitability of the division.
“We can’t quantify to what extent profitability could be hit,” said an analyst at a foreign brokerage who didn’t want to be named. “But it has the potential to become serious.”
“A continued closure of the mine would affect the operating margin of the ferro alloys business and will impact the overall business marginally,” said Arun Kejriwal, director of research firm KRIS. sixthMAds
To be sure, Tata Steel can procure chromite in India or import it, said Bhavesh Chauhan, an analyst at Angel Broking Ltd. Shares of Tata Steel closed at ₹ 414.05 on BSE on Monday, down 0.14%. The benchmark Sensex rose 0.31% to close at 20,101.82 points.
“Our applications are being processed by various government departments, and we are confident of getting the necessary approvals soon,” the Tata Steel spokesman said. “In the interim period, the mining operation has been temporarily discontinued but will recommence immediately upon getting the clearances.”
According to him, the company applied for the third renewal of its lease one year ahead of its expiry as per the provisions of the Mines and Minerals (Development and Regulation) Act.
The company also applied for the so-called forest clearance two years ago and for the temporary working condition nine months in advance, the spokesman said.
Tata Steel’s chromite mine covers 406 hectares, including 106 acres of forest land, and had been leased to the company for 20 years. That expired this month. The mine has the capacity to produce 2.4 million tonnes (mt) of chrome ore, 0.6mt of chrome concentrate and 0.5mt of pyroxenite ore per annum, according to a report on the website of the ministry of environment and forests.
The official in Jajpur district said there was a provision to grant a temporary forest clearance by the forest department in Orissa state (as the environment ministry’s forest clearance is delayed), but this is under process with no predictability of when it may be issued.
With the mining department preoccupied by the Orissa government campaign against illegal mining, other work such as clearances has taken a back seat, said the official.
In a clean-up drive, the state government has slapped penalties on 196 mining lease holders, including Tata Steel and Aditya Birla group unit Essel Mining and Industries Ltd, for breaking statutory rules and excessive mining. Tata Steel, which has levied a ₹ 5,900 crore penalty, is in dialogue with the state government to resolve the issue.
“This is a procedural delay,” said the mining official in Jajpur, not wanting to be named, when asked why Tata Steel’s clearances have been held up. “The Shah commission was here…the forest officials were also busy (during his visit) which could have kept them from issuing the temporary forest clearance.”
The Justice M.B. Shah commission has been investigating illegal mining in several states in India since 2010 and is due to submit its report on Orissa soon.
The Jajpur official said Tata Steel is unable to get the “deemed extension” as it does not have one statutory clearance—the forest clearance from the concerned ministry.
“They need environmental clearance, the mining plan, the pollution control board clearance and the forest clearance,” the official said. “All except the forest clearance is there with them.”
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First Published:21 Jan 2013, 10:39 PM IST
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