CM claims mining would start; miners say it can't, unless...

PROMIT MUKHERJEE/MINT, MUMBAI | 01 September 2015 11:50 IST

Miners in the western state of Goa, where mining activities have begun after a gap of nearly three years, are set to incur losses as higher taxes and poor infrastructure have made mining operations in the state uncompetitive.

According to officials at mining companies, every tonne of iron ore mined in Goa now costs a total of $40-45 per tonne, inclusive of taxes.

This is nearly double the $20 per tonne cost incurred by global miners.

A large part of this is because of the taxes imposed on ore mined in Goa, along with the high cost of logistics and transportation.

“While global companies selling in China have a cost structure of about $18 per tonne, we are in the third quartile of the cost curve,” said Kishore Kumar, head of iron ore, Vedanta Ltd.

Unless the cost structure is brought down to below $25 per tonne-range through streamlining of logistics, selling the un-auctioned stocks and a reduction of taxes, mining in Goa will not be viable for the industry, he said.

While Kumar did not give details about the company’s cost of production, analysts say it ranges between $40 and $45 per tonne.

“...it will be difficult for any miner, including Vedanta, to restart mining due to low global prices and present taxes and duties to be paid for mining in the state,” said Goutam Chakraborty, analyst with Emkay Global Financial Services Ltd.

Taxes are a key reason behind the increased costs.

Mining in Goa attracts a 30% export duty on 58% Fe grade iron ore (the grade refers to the quality of iron ore; anything below 60% is low grade), a 15% royalty paid to the state, a 5-15% levy in the form of a district mineral foundation tax and a 10% levy on the export price of iron ore which goes to the Goa Mineral Ore Permanent Fund Scheme, according to data shared by the Goa Mineral Ore Exporters’ Association (GMOEA).

“There are several other taxes that are imposed by the state. Unless the entire tax structure is simplified, mining is not worthwhile in Goa,” said S. Sridhar, executive director, GMOEA.

Mining in Goa stalled in September 2012 when the state government imposed a ban on all mining activities in response to a report by the Justice M.B. Shah commission, which found rampant illegal mining in the state.

In October 2012, the Supreme Court upheld the ban imposed by the state.

In April 2014, the Supreme Court lifted the ban on the condition that all mining leases have to be renewed and fresh approvals have to be sought from the ministry of environment and forest and the state pollution control board.

However, final permissions to mine came through only in July 2015.

Except for the 30% export duty, most of the taxes have been imposed in the last three years since the reports of illegal mining in the state came to light, said Sridhar, while explaining the reason behind the increased cost of production of ore in Goa.

While miners have appealed to the government to ease the tax burden, that may not be enough to solve the problem.

Miners say they will also incur costs in clearing the old stock of mined ore, which has not been sold. Rebuilding roads for transportation (which were not maintained in the last three years) and getting a fleet of trucks in place will add to costs as companies restart mining.

Kameswara Rao, partner-energy, utilities and mining at PwC, terms these as start-up costs. Rao adds that with the fall in iron ore prices, larger producers who have economies of scale will overtake smaller firms.

“This makes it almost impossible for newcomers (such as Goa miners) with disadvantages such as of lower quality, taxes, and start-up costs,” Rao said.

According to Bloomberg, the price of high grade iron ore (with more than 62% Fe content) delivered to Qingdao Port of China has fallen 36% over the past year to about $56.04 per tonne. The price of 58% Fe grade ore, which is the quality of ore available in Goa, is $4 per tonne less than that.

Due to the low quality of the ore, any additional cost incurred in inland transportation and seaborne freight add to the overall cost of the ore, bringing its price on par with 62% Fe grade ore, said Saumit Jena, a Goa-based trader and exporter. This makes it unattractive for exports, Jena added.

Kumar from Vedanta adds that a heap of almost 3.5 million tonnes of iron ore lying at the company’s Codli mines will need to be cleared before any fresh ore can be mined and sold.

Original Report

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Previous Comments

The only way the environment can be saved from hungry hyenas aka big mining companies and donkey politicians like those mla's from the mining belt and those into mining.

- sanjay, goa | 01 st September 2015 23:06

 

Very much right. It is difficult to start the mining operation in this situation.

- Ramdas Dessai, valpoi sattari goa | 01 st September 2015 14:54

 

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