Kudremukh Iron Ore Company Ltd, the country's largest mining and pelletisation public sector enterprise, has applied to the Karnataka government for a mining lease to source its raw material (hematite ore) from teh Bellary-Hospet region in the northern part of the state.

Ever since the Supreme Court ordered in October 2002 to shut down its mining operations in the rich bio-diversity Western Ghats by December 2005, the profit-making 100 percent export-oriented unit has been on the look out for alternate mining areas as part of its survival strategy.

Kudremukh's newly appointed chairman P Ganesan told rediff.com in Bangalore on Tuesday that the company was awaiting permission from the state government to get cracking at the new mining area, which contains about 200 million tons of iron ore reserves with high ferric content.

Mining areas thrown open

As part of its new mining policy, the state government has recently thrown open the mining areas in the Bellary region to the private and public sectors through a gazette notification.

Kudremukh has filed its application on April 16, 2003, seeking license to mine in the Ramanadurg area, which falls between the steel towns of Bellary and Hospet. It has applied for a 30-year lease, with a provision (clause) for another 20-year extension for an automatic renewal of the lease agreement.

"We are in the process of finalizing alternate sources for the feed material that goes into our pellet and concentrate plants at Mangalore on the western coast of the state from 2006 onwards."

"Though the Supreme Court has permitted us to continue mining activity in the present area till December 2005, we will operate only in the broken-up areas keeping in view the guidelines that came along with its order," Ganesan stated.

Since the company will be requiring around 4.5 million tons of feed material annually to produce 3.5 million tons of iron pellets and 2.5 million tons of fines (concentrate) from the blast furnace, it is also exploring the possibility of importing some quantities of the raw material from Australian and other countries.

Contingency plans

"We are working on all contingency plans to keep our pellet and concentrate plants operate to their full capacity and meet our export commitments beyond 2005.

By the time the apex court order comes into force, we are keen to source most of our requirements from the Bellary-Hospet mines as shipping the raw material will become convenient with the opening up of the railway line from Bellary to Mangalore via Hassan by 2004-05," Ganesan disclosed.

The 34-year-old company is making a budgetary provision of Rs 400 crore (Rs 4 billion) for operating the new mines, which includes infrastructure to mine and extract the ore, site facilities, pollution control systems, and new tracks to the nearest railway station (Thorngallu) in the south west railway zone.

As the blast furnace and other machinery in the Mangalore plant have been designed to process only magnetite ore, which it has been mining in the Kudremukh region over the years, the company will be modifying the production facilities to process the hematite ore at the new mines.

The benefits

"Karnataka and the Center continue to get revenue benefit from our enterprise annually, with Rs 200 crore (Rs 2 billion) going to the state exchequer by way of cess, royalty, and energy consumption, where as the Union government is paid a handsome dividend of Rs 60 crore (Rs 600 million) for holding 99 percent of the company's paid-up equity of Rs 634 crore (Rs 6.34 billion).

The Rs 727 crore (Rs 7.27 billion) company has also floated global tenders to import the feed material from overseas and enter into joint collaboration with multinationals for marketing its high quality productions in potential countries.

Negotiations are on with an Australian firm to source the feed material and process it at its Mangalore plant for jointly exporting the product to third countries.

During the fiscal year 2002-03, the company exported its pig iron pellets and concentrate (fines) mainly to Japan, China, and Taiwan though there is enough demand for the products in the Asia-Pacific region, Africa and Europe, thanks to the cost advantage and high quality of its products.

Tough times

After the original 30-year mining lease agreement with the state government expired in 1999, the beleaguered company has been on borrowed time, seeking extension every year from the state as well as the Center to survive and fulfill its export commitments.

Out of a total revenue of Rs 727 crore, the company's net sales of Rs 636 crore (Rs 6.36 billion) came from exports, fetching precious foreign exchange during the fiscal year 2002-03. Its net sales for the previous fiscal year (2001-02) was Rs 721 crore (Rs 7.21 billion).

According to the unaudited results for the fiscal year under review, Kudremukh posted a net profit of Rs 89.10 crore (Rs 890.10 million) as against Rs 88.37 crore (Rs 880.37 million).

Expansion strategy

Even as the company draws post-2005 survival strategy, the new chairman, who was earlier with the Steel Authority of India, is planning to expand the existing operations and diversify into synergistic products for value addition and optimal utilization of resources.

"As part of our expansion plans, we are looking at contracting new mines in the iron ore-rich states of Orissa and Jharkhand. In view of the bright potential to export our products in the international markets at competitive rates, additional capacity with new plants at the ore site will be not only economical, but also profitable," Ganesan affirmed.

Under its diversification plans, the company has engaged SAIL to conduct techno-economic study for setting up a coke-oven battery plant adjacent to its blast furnace in Mangalore.

"It will be a downstream product that will enable us to utilise the lumps and the fines extracted from the pelletisation process of the iron ore," Ganesan added.