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Leadership is the asset in NMDC: Som shows the way

That an organization is as good as its CEO was proved once again when NMDC Chairman Rana Som clinched a deal with Russia’s Severstal and signed an MOU with the company in Delhi.

That a company like Severstal opened dialogue with NMDC in October and concluded the same in less than two months, illustrates the management bandwidth that Som has infused into NMDC, earlier dismissed as a state-owned iron ore exporter.

With the MoU, NMDC is well on its planned course of turning into a major steel manufacturer from India pipping the PSU SAIL in the race.

On December 10th, 2010, NMDC and OJSC Severstal signed an MoU to set-up a joint venture company to set-up an integrated steel plant in India. The 50/50 JV will set-up a steel plant with a capacity of upto 5 million tonne in Karnataka.

According to Som, there are four to five features to the memorandum. The MoU will bring in the first foreign investment in the steel sector. Yes the much hyped POSCO investment notwithstanding.

Severstal will bring in technology, especially auto grade, for which the company is well known. It supplies to the US steelmakers. There are linkages of critical raw materials as well.

“Severstal will supply coal and will also consider supplying to our Chhattisgarh plant,” said Som while signing the MoU with Severstal CEO Alexey Mordafhov.
The exact size of the investment in Karnataka will be known later. Initially, Severstal is expected to pump in around $1 billion (Rs. 4,500 crore) which will rise in due course. It is expected to go up to $3 billion (around Rs. 13,500 crore).
The JV will have a captive coking coal mining subsidiary in Russia and iron ore mining subsidiary in India, which will ensure long-term supply of the critical raw material for the plant. The plant will have an initial capacity of 2 mtpa (million tonne per annum), which is expandable to 5 mtpa, said NMDC chairman.

“The signing of this MoU is an important strategic development for us as it will establish the steel plant in one of the most attractive growth markets in the world, with India poised for 9 per cent growth,” Mordafhov said.

Steel Secretary PK Misra pointed out that this was the first JV in steel production between Russia and India. Severstal will share its latest steel-making technology with NMDC for the venture, which will produce auto grade and electrical steel to meet rising demand in the country. Severstal is known for its expertise in producing specialized steel. The Karnataka government has allotted 3,000 acre of land to NMDC for the project.

Severstal will have 50 per cent ownership of the plant and will be investing 50 per cent of the total fund in the plant. The best of auto grade technology which Severstal will bring to India is something what India needs today, an emerging auto-manufacturing hub in the world.

“More important is that Severstal has agreed that they will share a high grade coking coal mine with us, that means in the JV, and that could be the source of coking coal for the new steel plant,” Som said.

Once the engineering feasibility study is completed, expected to be by the end of 2011 and clearances are in place, the plant will take another three years to complete.

Som expects that by the end of 2015, NMDC-Severstal plant will commence production. As regards cost of available raw materials Som said, “The terms will be the same as for our supply of iron ore, which will be discounted from the market prices. Moreover, Severstal will share coking coal from its Siberian project, where the joint venture will have equity.”

NMDC meanwhile has commenced work on its proposed plant at Dantewada in Chhattisgarh. But Som will not just stop at that.

He said, “Our two mining applications are pending with the Ministry of Mines. One is deposit-4 of Chhattisgarh, which is coming to us as a captive mine for steel plant which we are setting-up in Chhattisgarh. The other mine is in Jharkhand. That mine has also been recommended to be allotted to us and the papers are lying with the ministry of mines, Government of India.”

These apart Som is hopeful that NMDC would get recommendations for allocation of Ramandurg mine in Karnataka and Ghatkuri mine in Jharkhand.

NMDC has also been scouting for mineral resources abroad. One destination is Australia. There Som is not trying to acquire mines which are already developed. To use the skill available in the company in exploration, geological alliances and goe-statistics Som is partnering with a smaller mining company in Australia.

“We will be carrying out the geological exploration and after that we will be sharing the mine 50-50 between us and the junior miner. One such company identified is Legacy. With Legacy we are going to carry out the exploration on their behalf and that is a very good mine. It is supposed to contain hematite iron ore. So the similar strategy we are going to adopt for another company.”

That is not all. NMDC is also in talks with Atlas Iron Company for quite some time. “Earlier we wanted to be a junior partner, but now I think that we will try to acquire a larger part of the equity in this company so that we can develop the mine and that could be a very big acquisition for us in Australia. We are still in negotiation stage so far as Atlas Iron is concerned,” he said.

NMDC will like management control which it might forgo if there is some definitive offtake agreement. Rana Som will not compromise on the nation’s requirement. He will bring resources to India for use here.

There have been some reports recently that NMDC is set to acquire an asset in Australia jointly with Rio Tinto. In fact the Indian mining PSU had earlier, two years back, signed an MoU with Rio Tinto.

Two factors came in the way of jointly exploring mineral assets. The Naxalite violence in India did not help Rio Tinto partnering NMDC. Also the proposed tie-up between Rio Tinto and BHP Billiton came as a roadblock. However now that this alliance is unlikely, NMDC and Rio Tinto are again exploring the option of acquiring assets, not only in Australia but elsewhere like Africa as well.

Severstal is not the only Russian partner that Som has brought in. He is in advanced stages of negotiation with Kolmar for its rich coking coal deposit.
Som said that NMDC has started technical due diligence. “We will complete technical and financial due diligence by January 2011.”

The makeover of NMDC from a laid-back mineral extraction company to that of an emerging steel manufacturer with resource tie-up, both iron ore and coking coal, did happen under the leadership of Rana Som.

No other mining company in the country, even in the private sector, has shown this kind of resilience nor did NMDC attempt it before Som. The point to note is that a company is as good as its CMD.

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