KSMCL: Learning from past mistakes

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Karnataka State Minerals Corporation Limited (KSMCL), formerly known as Mysore Minerals Limited (MML), has been in the news over the last decade for many wrong reasons. A decade ago, the then Karnataka Lokayukta Justice Santosh Hegde’s report on illegal mining in Karnataka stated that the state-owned MML caused huge losses to the state exchequer by entering into agreements with several companies for extraction and sale of iron ore.

As many as six former managing directors of the company were charged by Lokayukta for causing a loss of around Rs 549 crore to the state government. The comptroller and auditor general in multiple reports between 2004 and 2012 had pointed out several irregularities in its functioning, which later led to an investigation by the Central Bureau of Investigation.

Later, in 2013-14, the company emerged as the saviour of steel companies. The Supreme Court, while upholding the state government’s order of banning iron ore mining, had allowed MML along with central public sector undertaking NMDC to produce extra iron ore to help tide over the shortage of key steel-making raw material. While the mining operations of over 100 mining leases came to a halt following the apex court order, MML produced around 3-4 million tonnes of iron ore (lumpy and calibrated ore) and supplied to steel mills through e-auctions. It was a temporary arrangement carried out under the supervision of the court-appointed monitoring committee and was successfully executed by the firm.

“The production in any mine depends on three factors. One is the existing ores and secondly the dump capacity to dump waste material. Supreme Court came down very heavily on mines because they were dumping waste outside their boundary. Thirdly, the capacity of the road to move the ore. Now the court has made it mandatory to install conveyor belt. In 2014, the additional mandate was given to MML and NMDC because private mines were banned to produce. So, we chipped in and helped put out additional iron ore,” Naveen Raj Singh, Managing Director, MML and Secretary to Government told DH.

He said MML, as a government company, came to the rescue of the steel industry in those days. Next year, a similar situation will arise due to the expiry of several mining leases in the country. MML will be there to rescue the private industry. “As a PSU, we are always there to help the private sector steel companies in any distress situation. An estimated 10-15 million tonnes of iron ore shortage is expected next year,” he said.

KSMCL has been in the business of exploration, mining and marketing of minerals and granite since 1966. It presently operates two iron ore mining leases and seven granite quarries in Karnataka. It is also in possession of bauxite, limestone, dolomite, magnesia, china clay and dunite among others and supplies china clay to ceramic industries.

Falling sales

The company sold a record 3.6 million tonnes of iron ore in 2015-16 valued at Rs 423 crore. In terms of value, the highest sales realisation was achieved in 2016-17, when the company sold 3.5 million tonnes of iron ore valued at Rs 564 crore. In the following year, its sales dropped to 2.45 million tonnes valued at Rs 542 crore. However, during the last fiscal ended March 2019, the company witnessed a massive drop in sales of iron ore at 23,655 tonnes valued at Rs 6.4 crore.

The company’s profits have drastically dropped to Rs 19 crore in FY19 from Rs 306 crore in FY18. The drop was mainly on account of lower sales.

“We did not sell iron ore last year because of low prices. Our biggest buyer JSW Steel has not been buying our iron ore citing high prices. Unlike other producers we did not bring down our prices,” said Singh.

The company kept its prices between Rs 3,609 and Rs 3,467 per tonne between January 2018 and June 2019. Whereas during the same period, public sector mining giant NMDC Limited sold its iron ore in the range of Rs 3,101 to 2,208 per tonne. “We have not come under pressure from any private buyers to reduce prices. Instead, we chose not to sell our stock and that is the reason, our sales dropped last fiscal,” the KSMCL MD explains.

Currently, the company is holding an estimated 3 million tonnes of iron ore stock at its mines valued at over Rs 600 crore. “We have brought down our prices gradually from June onwards to Rs 2,798 per tonne in October,” Singh said.

Forward integration

In order to achieve higher realisation, the company is now planning to convert iron ore into pellets and export. It is planning to set up a pelletisation plant with a capacity of 1.2 million tonnes at a cost of Rs 300 crore. “We have enough cash to take care of future expansion and diversification. Currently, there is a ban on the export of iron ore and pellets from Karnataka. We are waiting for the Supreme Court to lift the ban so that we can diversify into pellet making,” he added.

KSMCL currently has a cash surplus of over Rs 2,100 crore.

It is also planning to restart bauxite mining at its Baindoor mines in Udupi district. The company, which had suspended bauxite mining a few years following the expiry of the lease, is currently awaiting approval from the ministry of environment and forests (MoEF) to restart mining. It has got a lease for extracting 1.5 lakh tonnes of bauxite and has also tied up with Hindalco for supply.

As part of its future expansion plans, KSMCL is looking at more iron ore leases and granite quarries. It is also planning to introduce black granite this year.