State-owned Coal India Ltd (CIL) has launched a gambit to diversify into iron ore mining after emerging as the top bidder for a key mining block in Odisha. This marks the coal behemoth's entry into a highly competitive sector dominated by its public sector peer, NMDC Ltd.
State-owned Coal India Ltd (CIL) has launched a gambit to diversify into iron ore mining after emerging as the top bidder for a key mining block in Odisha. This marks the coal behemoth's entry into a highly competitive sector dominated by its public sector peer, NMDC Ltd.
The Gadadharpur block, spread over 265.05 hectares in the Keonjhar district, holds estimated resources of about 258.04 million tonnes of iron ore. CIL won the bid by quoting a 114% premium over the notified value, according to people familiar with the matter.
The Gadadharpur block, spread over 265.05 hectares in the Keonjhar district, holds estimated resources of about 258.04 million tonnes of iron ore. CIL won the bid by quoting a 114% premium over the notified value, according to people familiar with the matter.
In a stock exchange filing post market hours on Thursday, Coal India confirmed it is the preferred bidder for the Odisha block and that the auction premium was 114.05%.
The development comes at a time when India's leading steelmakers have repeatedly flagged concerns over soaring premiums for iron ore blocks, warning that these erode the economic benefits of owning captive mines. Iron ore is a key raw material used in steel production.
Coal India did not immediately respond to Mint’s queries.
In an earlier interview with Mint, Tata Steel chief executive T.V. Narendran had said the economics of iron ore mining have changed sharply over the past few years.
“The cost of iron ore in India is going up. A lot of the value of upstream, not just for Tata Steel but for the industry, was that iron ore was plenty and available at a competitive price. But in the last five or six years, the iron ore cost has gone up hugely,” Narendran had said. "So, a lot of that value is going as premium and taxes and levies to the government even before you start making steel. Some of that value which was automatically available upstream is no longer available so easily."
His remarks show why major steelmakers have become increasingly selective in mine auctions. Both Tata Steel and JSW Steel have indicated reluctance to bid for iron ore blocks where auction premiums exceed 100%, arguing that such bids make the long-term economics difficult to justify despite the strategic importance of securing raw material.
Big picture
Indeed, CIL's move aligns with the government's broader objective of increasing domestic production of iron ore to support the country's ambitious steel capacity target of 300 million tonnes by 2030.
“Unlike integrated steel producers, whose profitability is directly influenced by the cost of captive ore, CIL could potentially monetize the resource through commercial mining and supply to the domestic steel industry. This would also increase the supply of the ore in the country as India’s top steelmakers add capacities”, said Dhruv Goel, chief executive officer of BigMint, a commodities market intelligence firm.
The bid premium also highlights the intense competition for high-quality iron ore deposits in Odisha, India's largest iron ore-producing state. With steel demand expected to remain strong over the coming years, access to long-term iron ore reserves has become important even as high auction premiums continue to divide opinion within the industry.
The coal ministry is also pursuing a broad diversification strategy for coal public sector enterprises (CPSEs) to reduce their dependence on coal and ensure long-term sustainability amid the country's green transition, while strengthening India's energy security.
As part of this push, companies such as Coal India are expanding into renewable energy, critical minerals, coal gasification and power generation. However, iron ore was not a part of this strategy.