21 March 2014
Update
Metals
Shah Commission report on Odisha iron ore mining
Are the actions taken sufficient?
An action taken report (ATR) along with Shah Commission’s report on Odisha illegal
iron ore mining (SCRO) running into six large volumes has been made public
recently. There is a general impression that Odisha has already initiated various
actions unlike the states of Goa and Karnataka. Thus, we should not expect a
Karnataka and/or Goa like ban in Odisha. Well, the same was said about Goa
although the set of arguments were different. Are we not underestimating the
impact on mining in Odisha and on steel producers?
Justice M B Shah
SPCB’s study has fixed the
carrying capacity of mines at
57mt for FY14 in Odisha
How will Odisha decide
the carrying capacity of
each mine?
What will be the criteria for
refusing/renewing mines
under deemed extension?
Odisha says that mines with any kind of irregularities (in its view) are not operating
now. Total iron ore production has been restricted to ~57mt in the two mining
districts of Keonjhar and Sundargarh. This has so far not affected the operations of
Tata, SAIL, JSPL and Sarda mines. The ATR has still not conclusively addressed all the
issues and the Supreme Court (SC) is still evaluating the SCRO and ATR. Post the
submission of SCRO, we understand that the environment clearance has been
enhanced 2-3x for few large leases since the recent change of MoEF minister. Is the
government machinery trying to solve the problem or aggravate it? We have many
unanswered questions.
SCRO, Odisha, MoEF have agreed that the dust pollution, heavy movement of
trucks, other environmental impact is a menace for locals and tribes living near
the mines and road. Hence, based on the state pollution control board’s (SPCB)
study of carrying capacity, the total iron ore
production has been restricted to
57mt
for FY14 by way of limited issue of transport permits, against the total
environment clearance of 154mt in the state. However, Odisha has yet to spell
out any transparent method for doing so. This has so far not been difficult for
the state because mines feared for worst. In the absence of a transparent
method, the chaos and corruption will start breeding once again (if not already).
If Odisha adopts a method very different from Karnataka or Goa, there will be
litigations in court. We are apprehensive that the mines capacities of Tata, SAIL,
JSPL and Sarda too will have to take some haircut. According to our interaction
with industry, it is likely that the captive requirements of steel producers in
Odisha will be met fully. But steel producers in other states may get affected.
Issue of
deemed extension
has not been adequately addressed by
Odisha/IBM/ministry in ATR. Odisha is likely to issue notices to such mines
asking why the renewal application should be treated as refused. However, this
does not clarify what will be the criteria for renewal or refusal of same.
SCRO has recommended a
corridor of free migration of wildlife,
linking
Mayurbhanj, Balashore through Keonjhar and Sundhargarh to Seranda Forest.
However, it is not clear which mines will be affected by the creation of a wildlife
corridor.
Sanjay Jain
(SanjayJain@MotilalOswal.com); +91 22 3982 5412
Investors are advised to refer through disclosures made at the end of the Research Report.

Metals | Update
Although there is consensus on e-auction of iron ore, there is no clarity on
pricing of captive use of ore.
Around 120mt of iron ore fines
lying in mines in the state is an environmental
hazard. The Ministry of Mines has advised Odisha to take remedial action. It is
not clear if Odisha would like to dispose or store the fines in an environmental
friendly manner.
Do not expect iron ore
oversupply in state
Expect penalty for
excess mining
Mines should expect
lower margins
Nonetheless, there is consensus on the following:
Iron ore production will be capped based on the carrying capacity. There will
hardly be any room for oversupply.
E-auction will be adopted for sale of iron ore. In the absence of oversupply,
pricing is likely to be aggressive.
Excess iron ore production volumes have not been disputed by Odisha or the
ministry. Thus, there will be some penalty on mines.
Certain amount of revenue (minimum 10%) in e-auction will be reserved for the
development of an affected area. This would mean lower margins for steel
producers depending on iron ore pricing.
Since there are many unanswered questions, there is definitely room for SC to
step in if a PIL insists. In our view, there is no reason why SC will use a different
yardstick while evaluating Odisha. We believe that eventually all the mining leases
will need to be reviewed in view of environment and wildlife issues, ecological
balance, carrying capacity and demand.
21 March 2014
2

Metals | Update
Many irregularities pointed out
Shah Commission report on Odisha illegal iron ore mining (SCRO) has pointed out
various irregularities in operation of 192 mining leases in the state such as:
109 mines have been operating under
deemed extension
much beyond the
period of a year stipulated under the law, if renewal application has been
submitted before expiry. Only 60 of them have obtained environmental
clearance. Tata Steel’s Khandband, Katamati and Joda West leases expired on
January 16, 2013, while Joda East’s lease expired on June 30, 2005. SAIL’s Bolani
mines lease expired on April 10, 1990, Jindal Steel’s TRB lease expired on May
24, 2005 among others. The steel industry has put the blame squarely on Indian
Bureau of Mines (IBM) for the delay in renewal. Around 49 mines are running
under deemed extension without having environment clearance. According to
ATR, the government of Odisha has called it illegal and action has been initiated
against defaulters. However, MoEF has yet to form a view on this issue.
Around 94 mines
do not have environment clearance.
And 55 mines among
them have extracted 52.2mt excess iron ore and 642kt of manganese ore. TATA,
SAIL and JSPL do not appear in this list.
Among the 96 mines that obtained environment clearance, a total of 225.7mt of
iron ore has been extracted in
excess of clearance or ore extracted before grant
of clearance.
Under delayed clearance, Tata Steel’s Katamati and Jodha East,
SAIL’s Bolani and JSPL’s TRB mines have extracted an excess of 1.6 and 23.3, 8.2,
and 7.4mt iron ore respectively during FY95-12. According to ATR, Odisha has
initially admitted ambiguity but later called it illegal. MoEF has yet to take a view
on this issue. The state has raised a demand notice, while steel industry has got
a stay from the revision authority. SCRO pointed out that the excess iron ore
production valuation is at INR592b, which is based on FOB export price mostly.
The valuation of excess production is not fair in our view as the ex-mines
realization was only fraction of export prices due to high inland freight and
export duties. According to ATR, Odisha will pursue the matter in the high court
to get the stay vacated.
The report pointed out that rules 10 & 12 of MCDR, 1988, which provide for
modification and review of mining plan for specific purpose,
namely safe and
scientific mining, conservation of minerals, the protection of environment, has
been misused for frequent enhancing of capacity of mines. Around 85 mining
leases have been modified in such a pattern. According to ATR, Odisha has tried
to justify the modification of mining plan/scheme saying that the law provides
for modification of mining scheme after every five years as more information is
available while mining. However, no credible justification is given on frequent
enhancement of capacity. Tata, SAIL, JSPL, Sarda mines have benefited from the
environment clearance enhancement.
No
encroachment
observed by Odisha in the 39 leases that were resurveyed.
The state is taking action against 48 leases for encroachment of 836 hectares
and illegal mining in 54 hectares in Uliburu and Revenue forest pointed out by
SCRO. Tata, SAIL and JSPL do not appear in the latter two lists.
Transfer of economic interest violates
rule 37 of MCDR, 1988.
The concept of
raising contractor frustrates this rule. Odisha has formed a committee of officers
21 March 2014
3

Metals | Update
and chartered accountants to investigate. Nearly eight cases have been
investigated.
SCRO has pointed out pollution of Baitarani river due to excessive mining.
According to ATR, Odisha has found the water to be of potable quality mostly,
except in few cases due to other reasons.
SCRO has recommended sharing of
50% revenue
for development of
local/affected area based on EBITDA margins in the last few years. Both Odisha
and the Ministry of Mines have said that the MMDR Bill 2011 has provisions for
the same -- an amount equal to royalty (10% ad-valorem currently).
Further, the Simlipal National Park delineation process in underway. Mining will
not be allowed within 10km of the park. This criteria too will affect 10 mining
leases, but the overall production has been very small, ~1mt.
21 March 2014
4

Metals | Update
NOTES
21 March 2014
5

Disclosures
Metals | Update
This report is for personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. This research report does not constitute an offer, invitation or
inducement to invest in securities or other investments and Motilal Oswal Securities Limited (hereinafter referred as MOSt) is not soliciting any action based upon it. This report is not for public distribution
and has been furnished to you solely for your information and should not be reproduced or redistributed to any other person in any form.
Unauthorized disclosure, use, dissemination or copying (either whole or partial) of this information, is prohibited. The person accessing this information specifically agrees to exempt MOSt or any of its
affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSt or any of its affiliates or employees responsible for any such misuse and further agrees
to hold MOSt or any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays.
The information contained herein is based on publicly available data or other sources believed to be reliable. While we would endeavour to update the information herein on reasonable basis, MOSt and/or
its affiliates are under no obligation to update the information. Also there may be regulatory, compliance, or other reasons that may prevent MOSt and/or its affiliates from doing so. MOSt or any of its
affiliates or employees shall not be in any way responsible and liable for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. MOSt or any
of its affiliates or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of
merchantability, fitness for a particular purpose, and non-infringement. The recipients of this report should rely on their own investigations.
This report is intended for distribution to institutional investors. Recipients who are not institutional investors should seek advice of their independent financial advisor prior to taking any investment decision
based on this report or for any necessary explanation of its contents.
MOSt and/or its affiliates and/or employees may have interests/positions, financial or otherwise in the securities mentioned in this report. To enhance transparency, MOSt has incorporated a Disclosure of
Interest Statement in this document. This should, however, not be treated as endorsement of the views expressed in the report.
Disclosure of Interest Statement
1. Analyst ownership of the stock
2. Group/Directors ownership of the stock
3. Broking relationship with company covered
4. Investment Banking relationship with company covered
Companies where there is interest
No
No
No
No
Analyst Certification
The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is,
or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. The research analysts, strategists, or research associates principally
responsible for preparation of MOSt research receive compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.
This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary
to law, regulation or which would subject MOSt & its group companies to registration or licensing requirements within such jurisdictions.
Regional Disclosures (outside India)
This report is intended for distribution only to persons having professional experience in matters relating to investments as described in Article 19 of the Financial Services and Markets Act 2000 (Financial
Promotion) Order 2005 (referred to as "investment professionals"). This document must not be acted on or relied on by persons who are not investment professionals. Any investment or investment activity
to which this document relates is only available to investment professionals and will be engaged in only with such persons.
For U.K.
Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United
States. In addition MOSL is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under
applicable state laws in the United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by MOSL, including the products and services
described herein are not available to or intended for U.S. persons.
This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major
institutional investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only
available to major institutional investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange
Act of 1934, as amended (the "Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the
U.S., MOSL has entered into a chaperoning agreement with a U.S. registered broker-dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this
report will have to be executed within the provisions of this chaperoning agreement.
The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-
dealer, MOSIPL, and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a
research analyst account.
For U.S.
Motilal Oswal Capital Markets Singapore Pte Limited is acting as an exempt financial advisor under section 23(1)(f) of the Financial Advisers Act(FAA) read with regulation 17(1)(d) of the Financial
Advisors Regulations and is a subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed
in Singapore to accredited investors, as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time.
In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited:
Anosh Koppikar
Kadambari Balachandran
Email:anosh.Koppikar@motilaloswal.com
Email : kadambari.balachandran@motilaloswal.com
Contact(+65)68189232
Contact: (+65) 68189233 / 65249115
Office Address:21 (Suite 31),16 Collyer Quay,Singapore 04931
For Singapore
Motilal Oswal Securities Ltd
21 March 2014
Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com
6