NMDC targets 50 percent jump in output next year

Feb 13,2020

India's leading iron ore miner plans to increase output by as much as 50 percent, potentially improving supplies and alleviating concerns about key raw material shortages.

State-run National Mineral Development Corporation (NMDC) Ltd. is targeting output of 48 million tons in the year beginning in April and will exceed 32 million tons this year, said Amitava Mukherjee, Director of Finance. The rise in supplies is mainly due to its mines in Chhattisgarh and includes 7 million tons of iron ore from the Donimalai mine in Karnataka, which is currently closed.

The company is "positive" to re-start the Donimalai mine, Mukherjee said in an interview. The Karnataka government revoked the lease for Donimalai in November 2018 after NMDC refused higher royalties to the state. In October, the federal government amended the mining rules to make the renewal of mining leases belonging to state-owned companies compulsory without going through the auction process. While the matter is currently pending before the Mines Tribunal, the new rules favor the National Mineral Development Corporation.

The NMDC's plans to increase production comes as concerns rise that delays in auctioning of mines whose leases expire in March could constrain domestic supplies of iron ore. The Government has been trying to raise supplies in order to mitigate any deficit next year, including by extending environmental permits for mining leases due to expire in March.

Appetite for key steel-making raw materials is set to increase as Prime Minister Narendra Modi plans to spend US dollar1.5 trillion on energy road and rail projects over the next five years, rising demand for steel.

"As a merchant miner, we see a lot of positive things happening apart from the fact that iron ore production and prices itself are on the upswing," Mukherjee said from the southern Indian town of Hyderabad.

Analysts expect National Mineral Development Corporation to remain India's largest commercial miner and to be optimistic on the stock with 14 buy calls even after the company's October-December profit dropped. Steel mills have grabbed a number of newly auctioned mines with the intent to use coal for their own plant. This decreases the supply with NMDC’s rival miners, improving the investment case for NMDC, according to the Systematix Institutional Equities report.

NMDC plans to spend around Rs2300 crore (US dollar322 million) on capital expenditure next year to increase production, install a slurry pipeline, and also build two new government-allotted coal blocks, Mukherjee said. Project financing will come from internal cashflows, but "sooner or later we will have to leverage," he said.

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