Why is the verdict on Karnataka mining case crucial for NMDC?

V Rishi Kumar | | Updated on: Jan 21, 2019
image caption

NMDC achieved an annual production of 34 mt and 35.57 mt in 2016-17 and 2017-18 respectively

The outcome of the ongoing case between the Karnataka government and iron ore mining major NMDC on the issue of payment of premium will have a significant bearing on the business prospects of the mining company going forward.

Posted for January 22, the case relates to the Karnataka government making a demand of 80 per cent share in revenue as a condition for renewal of mining lease agreement for the Donimalai mine.

The mining company’s profits had to take a hit due to this in the third quarter this fiscal. The NMDC mining leases in Karnataka include Donimalai and Kumaraswamy mines with an annual output of about 7 million tonnes per annum each.

Revenue sharing

However, due to the ongoing tussle between the Karnataka Government and NMDC over Donimalai mine, linking its renewal to payment of 80 per cent share has impacted the mining prospect of NMDC and its overall output.

According to sources tracking the development, NMDC expects to despatch about 30 million tonnes (mt), which is likely to be down by about 15 per cent, in the current financial year even without Donimalai.

In the past three quarters, NMDC managed to dispatch 22 mt and expects to achieve another 9 mt in the fourth quarter, according to analysts at Motilal Oswal.

NMDC had achieved an annual production of 34 mt and 35.57 mt in 2016-17 and 2017-18 respectively. And if the stalemate continues, its overall production will be hit for the current financial year.

The Donimalai mine lease renewal was initially approved by the State government for 20 years from November 4, 2018. However, it called upon NMDC to sign up for 80 per cent premium.

The State-owned mining company has contested the matter in the High Court and is hopeful of a favourable judgement.

As per estimates, if the State insists on premium, NMDC is likely to lose nearly about ₹900-1,000 crore per annum.

If there is a stalemate, the State government has indicated that it will auction the mine and generate more revenues.


Meanwhile, IDBI Capital has notified the NMDC buyback process approved earlier during the month by the company Board.

As per plans, it is proposed to offer up to 10.2 crore shares of ₹1 each for ₹98 each on a proportionate basis through a tender process.

This will mean buyback of 4.11 per cent of the equity will be within 10 per cent of aggregate fully paid up equity share capital and free reserves. The buyback offer size will not exceed ₹1,000 crore cap set by the company management.

Published on January 22, 2019

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor

You May Also Like

Recommended for you