SMCL gets around double the price for Dolomite compared to its predecessor

The State Mining Corporation Limited (SMCL) took charge of the Chunaikhola Dolomite mines from Jigme Mining Corporation Limited (JMCL) in September 2020 and started operations from 7th November 2020.

It did not have the right to sell until 9th January 2021 as SMCL has to wait for JMCL to clear out its old stock of dolomite.

Double the rate

However, once SMCL started selling dolomite to clients in India it managed to get around double of what JMCL was getting for dolomite during its operation.

In an earlier interview in June 2020 the JMCL Joint Managing Director, Ugen Kezang who ran the mine said that JMCL sells Dolomite at Nu 660 to Nu 723 per Metric Ton (MT) and this rate includes the Nu 150 per MT delivery charge 18 km away to Birpara Railway station at Dalgaon.

This means the value of Dolomite at the JMCL mine is Nu 510 to Nu 573 per MT exclusive of transportation charge.

However, now SMCL charges Nu 1,400 per MT to transport it by road to Birpara, Dalgaon and Nu 1300 for taking it by rail till there. Dalgaon has a railway station that then carries the dolomite all over India.

At the mine or ex-mine SMCL charges Nu 1,150 to Nu 1,250 per MT compared to Nu 510 and Nu 573 for JMCL. 

Tough price negotiations

A source said that given COVID-19, SMCL could not go for marketing to India so it had to conduct tough price negotiations and fix the price via online Zoom conference calls with its clients.

The source said the negotiations saw the SMCL fixing the price and asking clients to either take it or leave it. SMCL during the Zoom negotiations is understood to have bluntly told buyers that it does not want any ‘hidden costs’ and so wants the best price paid in full.

The source said otherwise in India ‘hidden prices’ come to around 20 to 30 percent of the costs for various ‘commissions’.

The Bhutanese in a detailed article in June 2020 had pointed out that Bhutanese dolomite is considered to be of high quality and its market rate in India could be around Nu 1,100 to 1,200 per ton if not higher.

Currently due to COVID-19 impact and restrictions SMCL is only able to sell around 170 trucks a day coming to around 5,600 metric tons a day. This was also what JMCL was selling during the pandemic.

In normal times in 2019 JMCL was selling around 9,000 MT a day.

However, given SMCL’s much higher selling price even at 5,600 MT a day its actual sales revenue will be higher.

SMCL’s condition for its buyers is 100 percent upfront payment and it will issue a quality assurance test report at the site.

SMCL will not accept any complaints later in quality as there is a possibility of the dolomite being adulterated in between.

The source said the narrative is often that the private sector is better than the government sector but the SMCL will show through results. The source said that already in coal and gypsum SMCL has already shown better results than the private sector.

The full picture of SMCL’s success or not in Dolomite will be known by December 2021 after it completes a year of commercial operations.

In the case of private factories in India SMCL is selling directly to them but in the case of government buyers it is selling to agents who deal with the government companies.

Sticking to the old market and big buyers

However, while SMCL has hit up a good price with buyers it is careful not to expand the market too fast or get in new buyers and so is sticking to the older and bigger buyers.

The source said that the advice for SMCL from its advisers in India is to stick to supplying to the big and reliable buyers who buy in huge quantities than new players who may offer higher amounts but only buy in smaller quantities and upset the bigger buyers.

The source said that SMCL cannot be like a shop that sells to everyone who comes as there are a lot of people interested in buying but the danger is then in losing the big clients and this is where billions are at stake.

The source said there are people offering higher rates for 1,000 to 2,000 MT but in going after them SMCL does not want to close clients like Steel Authority of India Limited (SAIL) which alone buys around 1.3 mn MT a year.

Though SMCL has not said it, one way the company seems to have got a better price than JMCL is by either eliminating middle men who may have been depressing prices or even bargaining hard with them to get a better price.

Earlier the two main companies who bought Dolomite from JMCL where Bhiringhee Commercial Pvt Ltd and Subhadra Commercial Pvt Ltd both located in Durgapur in West Bengal who bought dolomite from JMCL at Nu 660 to Nu 723 per MT and they in turn supplied it to steel factories.

SMCL’s seems to have either bypassed them or got a better deal but either way the rates are double of what it used to be a year ago. 

In 2016 the former government while revising the Royalty and mineral rent charges decided to charge Royalty at 6.5 percent of a minimum floor price of Nu 1,055 per MT. So at least on the Royalty front there was recognition from 2016 itself that the dolomite value could be higher then what JMCL was selling it for.

Long way to go for SMCL

However, before SMCL starts celebrating, it is important to remember that like in the case of both coal and gypsum the early success of SMCL in getting more revenue from the same dolomite minerals is in large part due to the readymade infrastructure and systems left behind by the private players and the markets painstakingly built by them over years. Private miners have not failed to point this out time and again.

In the current case JMCL’s entire equipment, staff, routes and market has been transferred to SMCL.

The private companies have also been much more efficient than past government entities in efficiently and profitably running mines getting more returns on investment.

While private mining firms have also been caught engaging in controversial and even in-transparent practices the recent multi-billion corruption case in the SMCL run Gypsum mines reported by this paper show that even government run mines are vulnerable to corruption.

SMCL also has an inherent advantage in not having had to bid for all three major mines unlike private players who had to pay large sums of money raised from private capital.

The real test for SMCL will come in if it can run the operations in the current mine efficiently with low costs and high profit margins over a period of time and most importantly show the same level of growth like its private counterparts.

It will also have to avoid the trap of the comparatively laidback government ‘work culture’, red tape and potential for corruption given that there is no private owner keeping a keen eye.

What could also be a challenge is if its cost of operations become too high over a period of time or if it cannot grow fast enough.

Bhutan’s dolomite in demand

Bhutan’s dolomite is classified as being of high grade by the Indian Bureau of Mines and is in short supply in India.

The Indian Minerals Yearbook 2015 on Dolomite published by the Indian Bureau of Mines (under the Ministry of Mines) in January 2017 says, ‘The requirement of low silica dolomite is increasing in steel plants at Bhilai, Rourkela, Visakhapatnam and Jamshedpur. However, the supply of such materials from indigenous sources is posing a problem. Therefore, Bokaro, Rourkela, Durgapur and Jamshedpur steel plants are drawing supplies of low silica dolomite from Bhutan for use in tar-bonded refractory bricks required for lining of LD furnaces and also for fluxing purposes.’

The report giving a future outlook for dolomite says, ‘The importance of high purity dead-burnt dolomite bricks for lining LD furnaces has gained ground due to LD process of steel making…. The resources of the refractory grade dolomite in the country (India) are meagre and this type of material is in short supply but very much required for making tar-bonded dolomite bricks. Therefore, intensive search is needed in non-Himalayan regions for locating deposits of massive non-crystalline dolomite, containing less than 2.5% R2O3 for use in tar-dolomite bricks required for lining of LD steel furnaces.’

Bhutanese dolomite is basically an important component of iron and steel industries in India.

The DGM estimates that the mine has around 592 mn MT which at the current rate of extraction would last 197 years.

However, in June 2020 the Minister for Economic Affairs giving the overall picture said that a total of about 3 billion tons’ reserves are estimated to be at the larger Chunaikhola area and as for the country around 15 billion tons’ worth of dolomite deposits is present.

From 2005 to 2018 the JMCL contributed Nu 3.239 bn to the government. This includes Nu 390 mn license fee or auction value, Nu 1.576 bn in CIT, Nu 79.11 mn in Environment Restoration Bond and Nu 1.193 bn in Royalty, mineral rent and land lease rent.

In 2019 JMCL extracted 2.859 mn MT with a sales turnover of Nu 1.623 bn and profit after tax of Nu 509.189 mn.

It employed 246 staff who have been transferred to SMCL.

JMCL had won the rights to the mine in 2005 after the highest bid of Nu 390 mn at the time.

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