Tata Steel, despite the availability of captive mines until 2030, has made an offer at an aggressive premium of 140%, noted Rakesh Arora, commodities expert and managing partner at Go India Advisors. He appears to be concerned that India will become a net importer of iron ore or defend its relative advantage of being a captive steel producer, he said.
The tender would meet the foreseeable challenge of the availability and supply of quality iron ore in the domestic market due to the declining share of merchant mining, said the spokesperson for Tata Steel. It would also reduce dependence on imports, he said.
India was last a net importer of steel raw material in 2015. Otherwise, the country exported ore, thus ensuring sufficient supply in the markets.
As these mines become operational, free market demand will decline, Sharma said. This will reduce the iron ore pricing power and benchmark rates of the Indian Bureau of Mines, resulting in lower achievement for the government, she said.
Indeed, the payment of the premium will depend on the current IBM prices, which are expected to decline due to an overabundance of supply. The new regulations also allow the sale of ore by captive miners on the open market.
Under the auction rules under the MMDRA of 2015, winning bidders must make an upfront payment equal to 0.5% of the value of the reserves. The remainder is to be paid to the state government in three installments of 10%, 10% and 80%.