SAIL Shares Rise On Approval To Sell Iron Ore From Captive Mines
A freight train carrying iron ore. (Photographer: Ian Waldie/Bloomberg)

SAIL Shares Rise On Approval To Sell Iron Ore From Captive Mines

Shares of Steel Authority of India Ltd. on Tuesday rose to a four-month intraday high after the central government allowed the state-run producer of the alloy to sell 70 million tonnes of iron ore from its captive mines.

SAIL shares rose as much as 8 percent, before ending the day 0.15 percent higher at Rs 33.40 apiece. The benchmark S&P BSE Sensex ended 1.73 percent lower at 36,481.09 points.

“The government has taken a decisive step in assuring the supply of iron ore for India’s steel sector by allowing SAIL to sell 25 percent of its total mineral production in a year,” the Ministry of Steel said in a tweet late on Monday.

The sale of 70 million tonnes of iron ore includes sub-standard grade of the key steelmaking raw material with ferrous content of 40-58 percent, Binoy Kumar, secretary in the Union Ministry of Steel, told BloombergQuint in an interview. For 25 percent commercial mining, SAIL would be allowed to sell high-grade iron ore with ferrous content of 64 percent, he said.

This comes at a time 33 mining leases are set to expire in March next year. Any delay in auction of the licences would disrupt nearly a third of iron ore supplies to domestic steel mills, causing a risk of increase in prices of the raw material. Also, output of NMDC Ltd., India’s largest iron ore producer, fell to a six-month low as one of its key mines in Karnataka remains non-operational.

Besides liquidating SAIL’s vacant unused inventory, the move will help ramp up the company’s good quality iron ore production and ensure enough iron ore for the country, which could witness some amount of disruption ahead of the March 2020 mining lease auction, Kumar said.

SAIL’s captive mines produced 28.4 million tonnes of iron ore as of March 2019. It also has an iron ore fines inventory of 41.5 million tonnes in various mines, according to its annual report. SAIL’s captive mines have iron ore resources of about 3,700 million tonnes, of which 54 percent is available at a single location in Chiria, Jharkhand.

Asked if the government’s decision is applicable to other fully integrated steelmakers—that produce raw material to finished products—such as Tata Steel Ltd., Kumar said as of now the approval is only for SAIL. The move, however, bodes well for partially and non-integrated steelmakers, such as JSW Steel Ltd. and Jindal Steel & Power Ltd., which source their raw material.

While only 4 of the 15 analysts covering the stock have a ‘buy’ rating, it has a potential upside of around 5 percent from the current market price, according to Bloomberg data.

WATCH | Steel Secretary Binoy Kumar on SAIL being allowed to sell iron ore from its captive mines

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