MUMBAI (Commodity Online): India-based sponge iron manufacturer, Jindal Steel & Power Ltd (BOM:532286) (JSPL) may lose its mining rights at the world’s largest iron ore mining location in Bolivia on failing to follow the contractual obligations signed with the Bolivian Government.
The company stocks reacted strongly to the possible development as the stock price fell by close to 2% to Rs.674.75 on the Bombay Stock Exchange (BSE) today. Meanwhile, the key benchmark index, Sensex was up 116.10 points, or 0.68%, to 17,168.64.
JSPL stocks hit a high of Rs.684 and a low of Rs.656.20 so far during the day. The stock had outperformed the market over the past one month till 9 March 2010, 13.36% compared with the Sensex's 6.30% rise.
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The company may, reportedly, lose the mining rights at Al Mutun Bolivia for failing to make the necessary investments in the mine as per a contract signed with the Bolivian government in 2007. According to the report, the Bolivian government's mining and metallurgical ministry has also initiated the process to encash JSPL's USD 18 million performance bond as the company failed to honour its contractual obligations.
Bolivia and JSPL had, in 2007, signed a joint venture agreement to invest USD 2.1 billion in the mines, which have a total reserve of 40 billion tonne of iron ore. The Indian firm was supposed to invest USD 300 million every year for five years and USD 200 million over three years after that.
JSPL was allowed to mine 20 billion tonne and had the approval to export 10 billion tonne of iron ore. Under the contract, JSPL was to build a 10 million tonne per annum (mtpa) pellet plant, a 6 mtpa sponge iron plant, 1.7 mtpa steel plant and a 450 MW power plant.
The Bolivian government was allowed to cancel the contract and enforce an USD 18 million performance bond on JSPL if the company failed to kick- start the project as per schedule. The government is now exercising the right. Jindal Steel & Power's net profit rose 0.1% to Rs.325.62 crore on a 1.3% decline in sales to Rs.1757.57 crore in Q3 December 2009 over Q3 December 2008.
