Singapore (Platts)--17Aug2012/618 am EDT/1018 GMT

The southern Indian state of Karnataka has allowed the resumption of iron ore mining after more than a year, a senior official from Mineral Enterprises Ltd, or MEL, said Friday.

"We are back in business," he said. "We are the first to restart [iron ore] mining operations in the state. This is a significant development in the sense that mining has commenced again in Karnataka," he added.

MEL has been granted approval to mine up to 380,000 mt/year of ore. Its production before the ban averaged 700,000 mt/year, the official said.

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He said it would take about a month for MEL to put up its first ore consignment for sale through the electronic auctions being conducted by state-owned trader MSTC Ltd.

India's Supreme Court enforced a ban on mining in the state in August 2011 after investigations conducted by its Central Empowered Committee highlighted environmental damage brought about by rampant illegal mining. Only state-owned miner NMDC was permitted to produce and sell ore through the electronic auctions conducted by MSTC.

Following a series of hearings in the matter, the court accepted in April the committee's recommendations that some mines deemed legal be allowed to restart following reclamation and rehabilitation but that the state's total output be capped at 30 million mt/year.

MEL's Chitradurga mine was among the few recently approved by the CEC for the restart of operations.

Sesa Goa's operations in Chitradurga also figure in the committee's list but final approvals to restart operations were yet to be received, a company spokesman said.

While MEL's mine had been classified under "Category A" or deemed legal by the CEC, Sesa Goa's was classified under "Category B" indicating that the committee had found some infringements and that the miner would be liable to pay some penalties before resuming operations. More clarity on these issues and the restart of other mines in the state is expected in a court hearing later Friday.

The restart of iron ore mining in Karnataka is not seen to impact the global seaborne trade in the near-term. This is because ore produced in the state will continue to be sold through electronic auctions for at least another two years with only domestic end-users eligible to participate in these sales.

--Anitha Krishnan, anitha_krishnan@platts.com --Edited by Elston Soares, elston_soares@platts.com

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