CBI visits JSW’s Vijaynagar plant in widening probe

CBI visits JSW’s Vijaynagar plant in widening probe

Mumbai: JSW Steel Ltd, India’s second largest private producer of the alloy, said Central Bureau of Investigation (CBI) officials visited its Vijaynagar plant in Karnataka to seek information on iron ore procurement as the agency widens its probe to include companies accused of illegal mining in the state.

News of the investigating agency’s visit, which broke on Monday morning, sent the company’s shares to a 26-month low of 540 in intraday trade on the Bombay Stock Exchange. The stock ended trading 7.1% lower at 549.50, underperforming the 1.8% fall in the benchmark Sensex.

The federal agency said in a statement that it has registered two separate cases under the Prevention of Corruption Act and the Indian Forest Act and MMDR Act against two Bellary-based mining firms and others at the direction of the Supreme Court.

It didn’t name the companies against which these cases were registered.

A report by the Karnataka anti-graft watchdog, or Lokayukta, on illegal iron ore mining presented in late July forced B.S. Yeddyurappa to resign as chief minister.

CBI on Monday said that searches were being conducted at the residence of the then Karnataka mines minister; the then deputy conservator of forests for Bellary; the then director, mines and geology department, Karnataka; and proprietors and directors of various firms at Bangalore, Bellary, Dharwad, Davangere and Chitradurga.

“Incriminating documents seized, so far, are being scrutinized," the statement said. “Investigation is continuing."

The Lokayukta report accused the $5 billion JSW Steel, a part of the O.P. Jindal Group, of having avoided hundreds of crores of state levies between 2006 and 2010 by receiving excess iron ore in overloaded trucks, paying only royalties due on the normal weight of trucks. More than 1.2 million tonnes (mt) were so processed by the company, according to the report.

The excess minerals were the property of the state. “Hence, it amounts to theft," said the report.

Former Karnataka Lokayukta Justice Santosh Hegde had said that the state government “should take immediate steps" to recover 342 crore from the suppliers and JSW Steel, whose Vijaynagar plant is in Bellary district, the hub of mining in the state before a Supreme Court ban.

The company was also accused of transferring, through a trail of bank transactions, 10 crore to an educational trust run by the family of Yeddyurappa in March 2010.

On 5 September, CBI arrested mining baron and former Karnataka minister G. Janardhana Reddy, also named in the Lokayukta report, on charges related to his mining operations headquartered in Bellary.

In its defence, JSW Steel said that it has and will fully cooperate and provide all the information that may be sought by the authorities concerned in this regard.

“JSW Steel has been procuring iron ore from various sources for its steel production requirements and every tonne procured is accounted, paid for and in compliance with applicable rules and regulations," the company said in a statement.

Ravindra Deshpande, an analyst with Elara Securities who tracks the company, said that things look bleak for the company in the near term.

“Volume growth was the main story for the company but now with economic growth slowing, demand is dented. They have no backward linkages and added to all that is this negative news flow now," Deshpande said.

He has a “reduce" rating on the stock with a target price of 584.

Over the past month, the company’s cost of iron ore procurement has risen after the Supreme Court imposed a blanket ban on iron ore mining in the state, after the Lokayukta report. The court allowed state-run NMDC Ltd to continue mining but the miner hasn’t been able to raise production significantly to meet demand.

Last week, the steel maker said that it cut production to 30% of the 10 million tonnes per annum capacity at the Vijaynagar plant but vice-chairman Sajjan Jindal has warned that the entire plant could be shut down if iron ore issues aren’t ironed out soon.

In a 9 September report, JP Morgan’s Pinakin Parekh and Neha Manpuria said that they expect average iron ore costs to increase by at least 20%.

Sahil Makkar in New Delhi contributed to this story.