With mining leases renewed ahead of deadline, NMDC set for a promising 2020

With iron ore prices set to firm up from January 2020 and both steel production and prices starting to move up from November, the country’s largest iron ore mining company NMDC Ltd has a lot going for it to cash in on the expected buoyancy.

The Hyderabad-based State-owned mining company, whose focus has been on iron ore mining, has also received a shot in the arm with the Union Coal Ministry allocating two coal blocks — the Rhone and Tokisud North — both located in Hazaribagh district of Jharkhand, its iron ore mining leases in Chhattisgarh have been renewed three months ahead of the scheduled expiry and it has secured nod from the government for expansion of the Kumaraswamy mines in Karnataka from 7 MTPA to 10 MTPA.

In a major development, the Chhattisgarh government has extended the mining lease of four mines of the Bialdila iron ore projects, in December, which were due for extension in March 2020.

NMDC operates three iron ore complexes in the country, with two of them in the Dhantewada district of Chhattisgarh sharing a major portion of company’s total output and one is located in Karnataka’s Donimalai project.

Of the 33 million tonnes per annum (MTPA)production, two complexes in Chhattisgarh in Bacheli and Kirandul under Bailadila projects contributed 24 MTPA in 2018-19, shows the significance of the lease renewal ahead of time for NMDC.

Of the five mines in the Bailadila sector, lease of four mines with an installed capacity of 29 MTPA has now been extended and one mining lease received extension in 2017 itself.

According to a research report by Emkay Global, “The Government is of the view that there is a risk of domestic demand for iron ore outstripping local supplies after March 2020 with imports still not a viable alternative, given the high landed cost of imports.”

It further stated, “The approval of production increases (for Kumaraswamy) comes despite only two years of lease still remaining for this mine. This implies an immediate need to boost production in FY 2021 to counter a possible shortage as 60 MT of ore production in Odisha goes under the hammer.”

Opportunities

The allocation of the coal mines with extractible coal reserves of 191 million tonnes at Rhone coal block and 52 mt of thermal coal at Tokisud, will enable the iron ore mining major to diversify into coal production as well. The allocation of coal mine augurs well for the mining company as the coal produced could be used for captive consumption for its diversification projects, including steel.

Emkay has factored 2/3 MT incremental production sales in FY 2021-22, considering the expansion of mining plan.

In yet another important move, NMDC as also signed up with the Andhra Pradesh government for supply of iron ore for the proposed greenfield integrated steel plant in YSR Kadapa district, where a the linkage will be for a 5 MT of iron ore per annum in the first phase.

It also expects a favourable development for Donimalai mines paving way for production.

During the first half of this fiscal, NMDC logged sales of ₹5,505 crore, up 13 per cent over same period last year and profit after tax of ₹1,883 crore, up 17 per cent.