India’s biggest iron ore miner plans to raise production by as much as 50 per cent, potentially boosting supplies and alleviating concerns of shortages of the key raw material.

State-run NMDC Ltd is targeting production of 48 million tons in the year starting April, and will surpass 32 million tons this year, Amitava Mukherjee, Director of Finance, said. The growth in supplies will come mainly from its mines in Chhattisgarh, and includes 7 million tons of iron ore from the Donimalai mine in Karnataka, that is currently closed.

“The company is positive on restarting the Donimalai mine,” Mukherjee said in a phone interview. The Karnataka government withdrew the lease for Donimalai in November 2018 after NMDC denied higher royalties from profits demanded by the State. In October, the Centre tweaked mining rules to make the renewal of mining leases belonging to state-run companies mandatory without going through the auction process. While the matter is now pending with a Mines Tribunal, the new rules favour NMDC.

NMDC’s plans to raise production come as concerns rise that delays in the auctions of mines whose leases expire in March could squeeze domestic iron ore supplies. The government has been trying to boost supplies to mitigate any shortfall next year, including by extending environmental approvals for leases of mines due to expire by March.

Appetite for iron ore is set to increase as Prime Minister Narendra Modi plans to spend $1.5 trillion on energy, road and railway projects in the next five years, boosting steel demand.

“As a merchant miner, we see a lot of positives in whatever is happening apart from the fact that iron ore production and prices itself are on an upswing,” Mukherjee said.

Analysts positive on NMDC

Analysts expect NMDC to remain India’s biggest commercial miner and are positive on the stock with 14 buy calls even after the company’s October-December profit fell.

Steel mills have grabbed many newly auctioned mines with plans to use the ore for their own plants. That shrinks the supply with NMDC’s rival miners, boosting the investment case for NMDC, according to a Systematix Institutional Equities report.

“NMDC plans to spend about ₹2,300 crore ($322 million) in capital expenditure next year to raise production, add a slurry pipeline, and also develop two new coal blocks allotted by the government,” Mukherjee said. “Funding for projects will be from internal cashflows but sooner or later we will have to leverage,” he said.

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