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[Ferro-alloys.com]New Delhi: Steel Authority of India Ltd (SAIL), which is struggling with a $13.2 billion (around Rs.71,980 crore today) expansion plan in the face of Maoist rebel attacks and government red tape, will reopen an iron ore mine key to capping costs.
India’s second-largest steel maker will resume work at the Gua mine in Jharkhand this week after authorities renewed an environmental permit four years after expiry, A.K. Singh, spokesman for the raw materials division, said in a phone interview. The mine will initially supply to a new $3 billion plant being set up in West Bengal and help boost the state-run company’s output by 60%.
SAIL, whose competitive edge lies in having its own mines, has been beset by delays in forestry clearances and land acquisitions, and threats from Maoists who have sworn to chop off a head for every tree should jungle cover be removed to start new mines in their hideouts. The hurdles faced by Indian steelmakers have come amid slowing economic growth and mining bans that have led to shortages of raw materials.
“Iron ore security has been the saving grace for SAIL,” said Abhisar Jain, an analyst with Centrum Broking Ltd in Mumbai, who recommends investors sell their shares. “High wage costs, slowing infrastructure orders and importing coking coal with a weakened rupee are pressuring margins.”
Wages, rupee
A 6.2% decline in the local currency against the dollar in the past year has made shipments from abroad more expensive, while SAIL spent 12% more on wages in the quarter to 31 December than a year earlier. Earnings margin before interest, taxes, depreciation and amortization narrowed to 13.1% for the 12 months ended 31 March 2012, the least in at least seven years.
SAIL gained 0.7% to Rs.60.85 in Mumbai on Wednesday. The shares have declined 33% this year, compared with a 5.2% drop in the benchmark Sensex. Tata Steel Ltd, India’s biggest maker of the alloy, has fallen 29% since January.
SAIL plans to increase its crude steel capacity to 21.5 million mt a year, spending about Rs.72,100 crore, according to its website, which doesn’t mention a timeline. The investment will include improving the product mix, upgrading machinery and expanding output at its iron ore and coking coal mines.
Quadrupling capacity
The company expects to increase annual iron ore output to 39 million mt from 22 million mt to feed its enlarged operations. Coking coal production is expected to quadruple to 4.3 million mt, according to the website.
Gua’s capacity will rise fourfold to 10 million mt in three years, allowing the mines to also feed SAIL’s expansion in Durgapur in West Bengal and Bokaro in Jharkhand. A plan to develop its biggest iron ore mine in Madhya Pradesh has stalled because the company failed to remove forest cover that would have allowed mining in a 5,016 acre area.
Assured iron ore supplies have provided a buffer to SAIL’s cost of coking coal, another key raw material, almost all of which the company has to buy locally or overseas. The steelmaker consumes 12.6 million mt of coking coal annually, 70% of which is imported.
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