The Indian mining industry is staring at a major churn as leases for merchant mines expire after a gap of 50 years in 2020. The move will impact a total of 334 mines. Of these, 48 working mine leases contribute significantly to the production of iron, chromite and manganese ores. Most of the working mines whose lease will expire are in Odisha (24), Jharkhand (6) and Karnataka (6). Many non-operative mines are in Goa (184), which has a blanket ban on mining.
The merchant mining leases for the ones with 50-70 million tonnes per annum production accounting for 25-35 percent of the total iron ore output are set to expire in March 2020, which will put pressure on non-integrated steel plants.
A good 60-70 percent of steel producers in India have no captive mines and are dependent on merchant miners for minerals. Considering the capacity that will go off the grid in light of the lease expiry and bidding, significant price pressure is building up for the Indian steel industry, where export competitiveness remains low due to a host of factors, including logistical bottlenecks and pricey raw material. If the price of inputs shoots up temporarily, it could open the door to higher imports of steel products.
The government is responsible for managing the operation in a fair and efficient manner. India's total iron ore mining production for FY19 was 220 million tonnes, and demand in FY20 is expected to rise by 5-8 percent.
If new operators are unable to push mine production to full throttle in a short time, it is not possible to avoid a spike in iron ore imports, significantly worsening the current account deficit.
Even after 2020, the total capacity of operative merchant mines will be 100 million tonnes per annum, supplemented by public companies with a capacity of 80 million tonnes per annum. Over and above merchant leases, captive mines in Odisha, Jharkhand, Karnataka, and Chhattisgarh will run a capacity of 99 million tonnes per annum, which puts the total available iron ore capacity at nearly 200 million tonnes per annum even after older merchant mines face underbidding. Some of the virgin iron ore blocks won by competitive auctions are expected to start mining operations after 2020 in order to push output.
Over the past few decades, the global mining industry has been plagued by declining productivity in mining. After 50 years, merchant mines will create fresh opportunities for miners to bring in global best practices, benchmark costs, and become cost-competitive in order to remain relevant in the new world order.