There’s a flurry of action taking place at the Gujarat Mineral Development Corporation Limited (GMDC), the State PSU that posted a shocking loss last year — its first ever in its 59-year history. Since then, the minerals major has embarked on a major transformative exercise to revive the “old gem”.
In a first for itself and among the pack of State PSUs in Gujarat, the mining major has roped in not one but four global management consultants to achieve its targeted objectives of operational efficiencies, increased profitability and production diversity.
The PSU which is the country’s leading lignite miner is going all out to make it big in newer areas such as Rare Earth Metals (REMs).
To help it recover from the shock of the losses posted last year, the Gujarat government deployed a top bureaucrat, Roopwant Singh, to oversee the PSU’s transformation. GMDC has onboarded Boston Consulting Group (BCG), McKinsey & Co, AT Kearney and Deloitte, paying top dollar to help it forge ahead. Last year was the first-ever loss on an annual basis for the company. The reason for the loss was the company's Akrimota Thermal Power Station in Kutch, for which it had taken an impairment loss as the plant had incurred cash losses during the year.
Big push with Big Four!
Each of the four consulting firms has a clear-cut role. Boston-headquartered BCG has been asked to look into the company's strategic transformation, from being known as a coal miner to its aspiration of becoming a diverse mineral resources player having interests in niche as well as volume segments. McKinsey & Co is tasked with helping the company develop a portfolio of Rare Earth Elements (REE), while Chicago-headquartered AT Kearney will help GMDC transform its thermal power projects and the London-headquartered Deloitte is expected to fast-track its six new lignite mining projects — the core business area for the company.
At an analysts call last month, the management said, "BCG has been onboarded by GMDC for strategic transformation. The non-lignite business is a far vision of our company. At present, we are defining our lignite mining and lignite business, but as associated minerals we are having a portfolio of silica sand, fluorspar, multi-metal, limestone. We are making a strategy for all the minerals with the help of BCG."
In the non-lignite space, the company's bauxite mining and sales have remained tepid in spite of having rich bauxite prospects. The company, therefore, has started addressing the issues of customer engagement to increase such sales. "We have engaged BCG and we are also chalking out the plan to actually increase the sale of bauxite in a big way," Rajat Das, General Manager (Marketing & Sales) of GMDC told analysts recently.
Back to riches
Established in 1963, the State PSU is considered as one of the gems of Gujarat to tap the mineral-rich basket of the State. Against the mineral demand of 25-28 million tonnes, GMDC produces 8.5 million tonnes, giving the company a comfortable demand environment. Considering this, the company has targeted to increase its production by 10-15 per cent per annum, with the goal of reaching 10 million tonnes of production next year.
On the lignite front, GMDC has obtained six new lignite blocks with reserves of around 540 million tonnes over and above the existing reserves. Deloitte has been tasked with helping the company fast-track these six new lignite mining projects. The company's strength, however, lies in its pricing and the quality of lignite it sells.
The helping hand is paying off. In the last two quarters of the past fiscal, GMDC not only streamlined its operations to achieve better efficiencies and profitability, it also proved its mettle with 2x growth in revenues and a remarkable return to black with ₹404 crore profits against ₹37 crore net loss last year. Joel Evans, Company Secretary, GMDC, had said, "It is the best ever annual results over the last five years and the second best in the company's entire life so far."
REM is a new bet
In an earlier interaction with BusinessLine, Roopwant Singh, MD, GMDC had indicated the company's intentions to build-on its capabilities in other minerals and metals including REMs. In the associated minerals, GMDC has strong resources in silica sand, fluorspar, multi-metal, limestone and it aims to increase the share of business to about 50 per cent from these non-lignite segments. However, lignite currently holds about 85 per cent share in its operations and will continue to be mainstay for the company's operations after six mines going on stream.
For the Rare Earth Elements/Metals, McKinsey & Co will help the company develop the portfolio. Gujarat is said to have decent prospects of REMs. There are plenty of non-lignite prospects as Gujarat's northern district of Banaskantha has base metal deposits, and GMDC holds a mining lease on about 184 hectares in the area. The company is in the process of starting a geological study of this area followed by geophysical mapping and drilling. This, according to Singh, will drive the company's objective to venture into high-value products.
GMDC has also realised that for the turnaround to be sustainable, it needs to address the cash-burn operations, which includes its 250 megawatt (2x125 Mw) thermal power plant in Kutch. The company uses its own lignite as fuel for the power plant, but the plant has been burning cash for over a decade. The GMDC board decided to rope in AT Kearney for the transformation of its thermal power projects in a bid to achieve better efficiency and profitability. The consultant has done the technical study, financial assessment of the plant with recommendations on improvements needed.
The market has noticed the company's turnaround moves and the stock, having a market capitalisation of about ₹4,300 crore, has rallied by over 200 per cent during past fiscal outperforming other Gujarat PSUs.