 As per the Hon’ble Supreme Court Order in WP:562/2009, State of Karnataka has prepared a scheme for allotment of category ‘C’ Mines and has submitted the same for approval of the Hon’ble Court.  Initially 15 mines will be put for auction.  State has appointed CRISIL Risk & Infrastructure solutions Ltd as Transaction advisor for preparation of auction documents and to assist in conducting the auction.  MECL has been entrusted the exploration work of the Mines to know the reserve position. Presently reports of 6 mines are received by the DMG.

1. Auction Format:  e-Auction through the e-portal of the State Government with the reliable exploration data.  Bidder quoting the highest premium will be awarded lease’ rights.  Technical evaluation will be done only on the parameter of end user industry to qualify for financial bid. 2. Eligibility criteria :  End user industries.  that are located or proposed to be located in Karnataka in the production of; (a) Sponge iron (b) pig iron & (c) integrated steel CEC has proposed to include (a)pellet manufacturing, (b) standalone beneficiation plants and (c) the units that are presently consuming mineral from Karnataka e-auction from outside State.  State has also proposed that the erstwhile category ‘C’ mines lessees shall be considered as ineligible, even if they are engaged in end use operations.

3. Bidding Parameters: 3.1. Floor Price;  Floor price is the minimum price to be set for the mineral asset – Auction Premium in terms of % of selling price.  The successful bidder has to pay the same % of sale value for the entire lease period Sale price Index to fix Floor Price;  The average of All India level and Karnataka sale price of IBM for concerned grade of Iron Ore.  All India price- captures the prices realized from various selling mechanism  Averaging- smoothens wide fluctuations in prices.  The weightage for Fine and Lumps is taken to be % based on monitoring committee data.

3.4. Floor Price calculation; Floor price (in %) = x% of Average of IBM All India level and Karnataka level for the latest 12 months of the average grade of ore present in the mine (sale Price) Where, x = y * (Average of IBM sale price of ore present in the mine – Nominal cost of production – Normative Profit Margin) / (Average of IBM All India level and Karnataka for the latest 12 months corresponding to the average grade of ore present in the mine) Eg: X= 0.5* ( *3812)/ 3812= 34% (for 65% Fe grade) Presently State has proposed to fix 35 % as Floor price for all the Mines. 4. Annual Production limit & Minimum Payment of premium:  APL will be fixed as per principles laid by the Hon’ble Supreme Court- Resources available, Dump area, Infrastructure.  Has to produce minimum 50% of the Annual production limit fixed and is liable to pay the premium for shortfall quantity.  The minimum average grade shall be of MECL report. Further adjustment shall be done on yearly basis.

5. Payment Structure:  Auction Premium payable for n th month (in INR) = (z%, as quoted by the successful bidder) * (IBM published average sale price for the corresponding grade of iron ore for n th month)* production in n th month.  The Premium calculation shall be in line with Royalty. i.e., calculation on available rates and re-conciliation once or twice in a year.  Auction premium payable shall be over and above all the statutory payments. i.e., Royalty, FDT, Tax, SPV contribution etc.  It view of the provisions of the Ordinance, it is proposed by CEC that the contribution to DMF, NMET will be deducted from the Contribution to SPV.

6. Force majeure:  Force majeure is clearly defined and It is expressly clarified that an Event of Force Majeure affecting the End Use Plant(s) shall not constitute an Event of Force Majeure. 7. Security Deposit:  2 years premium amount shall be paid in advance as security deposit. 50 % in the form of DD and remaining 50% in the form of Bank Guarantee. 8. Other Factors:  Amount payable on non-saleable sub-grade Ore- same % of premium.  Implementation of R & R- works till start of mine expenses will be refunded after collection of same from erstwhile lessee.  Cost of Exploration- upfront after signing the lease.  Timeline to operationalize Mines- One and Half years  Restriction on sale of Iron Ore.