India’s largest state-owned iron ore producer and exporter, National Mineral Development Corp Ltd (NMDC), has set an ambitious target of becoming a global mining firm by acquiring iron ore, coal and gold mines across the globe.
NMDC is all set to invite expressions of interest from potential joint venture partners for a proposed Rs10,000 crore integrated steel plant in Karnataka. Chairman and managing director Rana Som talks about the company’s plans with Sugato Hazra
Give us an overview of NMDC's operations in India?
NMDC Ltd is the largest iron ore producer by volume in India and has produced 28.5 million tonnes of iron ore in fiscal 2009. The company's principal operations include its three iron ore mining complexes at Kirandul and Bacheli in the State of Chhattisgarh and Donimalai in Karnataka, each of which consists of several iron ore mines.
NMDC has total iron ore reserves of 1,273.3 million metric tonnes (MMT) as of April 1, 2009 with 995.2 MMT of proved reserves as per Behre Dolbear’s assessment of the Company’s iron ore reserves and resources. We have access to significant reserves of high grade iron ore, predominantly greater than 64 per cent in Fe content. The company appointed Behre Dolbear to review, validate and classify its mineral reserves and resources in accordance with the JORC code. We believe our costs of production are competitive with those of the leading iron ore producers in the world.
In your AGM speech, you have mentioned a target of 50 million tonnes of iron production as a target. Could you give some details of how you plan to do this?
Since NMDC has filed its DRHP, we have to restrict ourselves to the declarations made in it. The company’s principal strategic objectives are to increase its mining capacities and expand its customer base through expansion of its existing iron ore business and diversification of its product portfolio. To pursue these goals, the company plans to continue diversifying and expanding its mining activities and products.
We believe that the diversification and expansion fits well with its strategy of becoming an integrated producer of iron and steel and will enable it to balance the cyclical change better in mineral prices and economic change as well as to grow its business.
As a result of exploration and development activities, the company has applied for and been granted mining leases for diamonds, limestone and magnetite.
We intend to expand our exploration activities to acquire more prospecting licenses and mining leases in India and abroad, including for non-ferrous minerals. We have also acquired two coal blocks and are looking forward to diversify into other minerals including minerals used in fertilizers.
NMDC plans to expand and establish its presence as an integrated producer of iron and steel through selective value addition projects. The Company has signed an MoU with the state government of Chhattisgarh to develop a steel plant with a capacity of 3 mtpa at Jagdalpur, and also has plans to develop a steel plant in Karnataka.
Furthermore, we expect to complete its acquisition of Sponge Iron India Limited in early 2010, a company involved in the production of sponge iron. In addition, the Company plans to develop two pellet plants at Donimalai and at Bacheli.
And, we will continue to give high priority to environment management, addressing environmental issues that may be raised by its mining operations, including, restoration and conservation of forests as well as issues related to air, dust, water and noise pollution.
Give us an overview of the Pellet Plant projects?
Pellet plants are intended for the utilisation of slimes and value addition of NMDC’s existing products which will enable us to reduce waste and contribute to the protection of the environment. NMDC presently has two pellet plants under development. One is at the Donimalai area in the State of Karnataka. We intend to have a capacity of 1.2 mtpa at an investment of Rs 5,460 million. The other is in the Bailadila area in the State of Chhattisgarh with an intended capacity of 2 mtpa and an investment of Rs 7,870 million. We have identified land for both these plants and a Techno- Economic Feasibility Report has been completed and a due diligence report has been received with respect to each.
NMDC has appointed an EPCM consultant and environmental clearance has been obtained for the Donimalai pellet plant while a public hearing is underway for the Bacheli plant. Also, let me share the information about International Coal Ventures Private Limited.
Pursuant to a memorandum of understanding dated August 3, 2007 and a subsequent joint venture agreement dated January 14, 2009 (Agreement), NMDC, Steel Authority of India Limited (SAIL), Rashtriya Ispat Nigam Limited (RINL), Coal India (CIL) and NTPC Limited (NTPC), a joint venture company by the name of International Coal Ventures Private Limited was incorporated on May 20, 2009, for securing metallurgical coking coal and thermal coal supplies from overseas.
The Ministry of Steel has accorded its approval for the formation of a special purpose vehicle (SPV) for securing metallurgical coal and thermal coal assets from overseas by our Company, SAIL, RINL, CIL and NTPC with the following objectives:
(i) To ensure supply of imported met coal, of atleast 10 per cent of the 2019-20 requirements of SAIL and RINL i.e. say five million tonnes per annum, from assets overseas as medium term target to be achieved by 2011-12, being a step towards security of supply;
(ii) To be an owner of about 500 million tonnes of net coal reserves (share of SPV) by 2019-20; and
(iii) To meet the requirements and to serve the organizational aspirations of other participating companies like CIL, NTPC and our Company by providing a facility for enhancing and leveraging their domain knowledge and human capital for international mining business development and also for procuring high quality thermal coal for companies like NTPC.
Pursuant to the agreement, ICVPL was incorporated on May 20, 2009 under the Companies Act. ICVPL is authorised to engage in the business of carrying on the business of coal mining in India and abroad for overseas acquisition and/or operation of coal mines or blocks of assets or properties by way of purchasing, taking on lease, license, grant, amalgamation or otherwise acquiring stake in mines/blocks/companies having coal mines overseas, and to undertake all development activities related thereto.
The authorized share capital of ICVPL is Rs 100 million divided into 10 million equity shares of Rs 10 each and the paid up capital of ICVPL is Rs 7 million (divided into 0.7 million equity shares of Rs 10 each). Our Company holds 0.1 million equity shares in ICVPL, i.e. 14.29 per cent of the issued and paid up capital of ICVPL.
What about the coal blocks being allotted to NMDC by the Ministry of Coal?
The Ministry of Coal allotted two coal blocks, in the State of Madhya Pradesh, to the Company in July 2007. Geology of Shahpur East and West Coal Block, Shahdol District, in the State of Madhya Pradesh Shahpur East and West coal blocks fall under in the North western part of Sohagpur coalfield, about 12 km north-west of Shahdol town, in the State of Madhya Pradesh.
Since the area of Shahpur East and West coal blocks are entirely covered by Barren Measures formation, the structure of the coal blocks is very simple with locally steeping dip. In general, the strike of the coal seam is northwest-southeast, locally deflecting slightly and dipping towards the southwest about two degrees. Two dolerite dykes intrude into the formations. The seam occurs mostly in the depth range of 50-100 m below the surface. The above blocks are regionally explored. Dominant grade is C and D and to some extent E. A total of seven coal seams occur in the blocks. The total resource of Shahpur East coal block is 63.4 million tonnes and Shahpur West coal block is 52.7 million tonnes.
You have tied up with Tata Steel for overseas projects. What is the scope of this alliance?
NMDC entered into a memorandum of understanding, on January 22, 2010, with Tata Steel Limited. We will explore the possibility of acquisition, exploration and development of mines, extraction and processing of minerals, setting up integrated steel plants and other businesses of mutual interest.
Steel prices and demand have fluctuated sharply over the past couple of years. How do you see the scenario shaping up over the next 2-3 years?
In India, National Steel Policy (NSP) has set a steel production goal of 110 million tonnes by the year 2019-20 from the level of 38 million in 2004-05, requiring a compound annual growth rate of 7.3 per cent. This would require an availability of 190 million tonnes of iron ore for domestic consumption.
Presently, India is producing approximately 220 million tonnes of iron ore (FY 2008-09) out of which approximately 106 million tonnes is being exported. In order to meet the iron ore demand of domestic steel producers of 190 million tonnes by 2019-20, the iron ore industry will need to increase its production to approximately 300 million tonnes by the same year (assuming that exports continue at the present level of 100 million tonnes per annum), requiring a compound annual growth rate of 3.4 per cent.
Over the last five years, India's iron ore production grew at a compounded annual rate of 11.12 per cent to reach 222.54 million tonnes in 2008-09. In value terms, production grew faster, at an annual rate of 33.23 per cent to reach Rs.223.22 billion in 2008-09. India has approximately 260 iron ore mines (in the year 2005-06 as per the Indian Bureau of Mines). Among them, 41 mines were in the public sector and 220 in the private sector. Firming up of steel price will depend on the pace of recovery of the global economy.
Several big ticket steel projects in Orissa and other places seem to be stuck. As an industry player, what do you think may be the problems? What needs to be done?
We need to look at the macro picture where the Indian economy needs big ticket projects in the manufacturing sector in order to keep up the strong pace of growth. The Government is already working on various initiatives to ensure that the requisite demand supply mix is achieved.
What about your plans of developing steel plants?
NMDC intends to develop an integrated steel plant project in Jagdalpur in the State of Chhattisgarh with a capacity of 3 mtpa. The iron ore required for the production of steel would be supplied by our existing mines. We are in possession of 995 acres of land and have submitted an application for additional land of 777.2 acres.
Environment clearance to operate the steel plant was obtained on September 15, 2009 where it has been specified that construction work can start after obtaining approval from the Central/State Government for the 25.7 acres forest land under the Forest (Conservation) Act, 1980.
We have received clearance for rail transport on February 17, 2009 and a Railway Consultant was appointed on December 29, 2009. We have obtained sanction for construction power from the Chhattisgarh State Power Distribution Company Limited and discussions are in progress for operational power.
NMDC has been allocated 2,500 acres of land in Karnataka for construction of a steel plant and has obtained power connectivity and water connectivity in the Bellary/Hospet area. We intend that this steel plant will have a production capacity of 2 mtpa.
NMDC is all set to invite expressions of interest from potential joint venture partners for a proposed Rs10,000 crore integrated steel plant in Karnataka. Chairman and managing director Rana Som talks about the company’s plans with Sugato Hazra
Give us an overview of NMDC's operations in India?
NMDC Ltd is the largest iron ore producer by volume in India and has produced 28.5 million tonnes of iron ore in fiscal 2009. The company's principal operations include its three iron ore mining complexes at Kirandul and Bacheli in the State of Chhattisgarh and Donimalai in Karnataka, each of which consists of several iron ore mines.
NMDC has total iron ore reserves of 1,273.3 million metric tonnes (MMT) as of April 1, 2009 with 995.2 MMT of proved reserves as per Behre Dolbear’s assessment of the Company’s iron ore reserves and resources. We have access to significant reserves of high grade iron ore, predominantly greater than 64 per cent in Fe content. The company appointed Behre Dolbear to review, validate and classify its mineral reserves and resources in accordance with the JORC code. We believe our costs of production are competitive with those of the leading iron ore producers in the world.
In your AGM speech, you have mentioned a target of 50 million tonnes of iron production as a target. Could you give some details of how you plan to do this?
Since NMDC has filed its DRHP, we have to restrict ourselves to the declarations made in it. The company’s principal strategic objectives are to increase its mining capacities and expand its customer base through expansion of its existing iron ore business and diversification of its product portfolio. To pursue these goals, the company plans to continue diversifying and expanding its mining activities and products.
We believe that the diversification and expansion fits well with its strategy of becoming an integrated producer of iron and steel and will enable it to balance the cyclical change better in mineral prices and economic change as well as to grow its business.
As a result of exploration and development activities, the company has applied for and been granted mining leases for diamonds, limestone and magnetite.
We intend to expand our exploration activities to acquire more prospecting licenses and mining leases in India and abroad, including for non-ferrous minerals. We have also acquired two coal blocks and are looking forward to diversify into other minerals including minerals used in fertilizers.
NMDC plans to expand and establish its presence as an integrated producer of iron and steel through selective value addition projects. The Company has signed an MoU with the state government of Chhattisgarh to develop a steel plant with a capacity of 3 mtpa at Jagdalpur, and also has plans to develop a steel plant in Karnataka.
Furthermore, we expect to complete its acquisition of Sponge Iron India Limited in early 2010, a company involved in the production of sponge iron. In addition, the Company plans to develop two pellet plants at Donimalai and at Bacheli.
And, we will continue to give high priority to environment management, addressing environmental issues that may be raised by its mining operations, including, restoration and conservation of forests as well as issues related to air, dust, water and noise pollution.
Give us an overview of the Pellet Plant projects?
Pellet plants are intended for the utilisation of slimes and value addition of NMDC’s existing products which will enable us to reduce waste and contribute to the protection of the environment. NMDC presently has two pellet plants under development. One is at the Donimalai area in the State of Karnataka. We intend to have a capacity of 1.2 mtpa at an investment of Rs 5,460 million. The other is in the Bailadila area in the State of Chhattisgarh with an intended capacity of 2 mtpa and an investment of Rs 7,870 million. We have identified land for both these plants and a Techno- Economic Feasibility Report has been completed and a due diligence report has been received with respect to each.
NMDC has appointed an EPCM consultant and environmental clearance has been obtained for the Donimalai pellet plant while a public hearing is underway for the Bacheli plant. Also, let me share the information about International Coal Ventures Private Limited.
Pursuant to a memorandum of understanding dated August 3, 2007 and a subsequent joint venture agreement dated January 14, 2009 (Agreement), NMDC, Steel Authority of India Limited (SAIL), Rashtriya Ispat Nigam Limited (RINL), Coal India (CIL) and NTPC Limited (NTPC), a joint venture company by the name of International Coal Ventures Private Limited was incorporated on May 20, 2009, for securing metallurgical coking coal and thermal coal supplies from overseas.
The Ministry of Steel has accorded its approval for the formation of a special purpose vehicle (SPV) for securing metallurgical coal and thermal coal assets from overseas by our Company, SAIL, RINL, CIL and NTPC with the following objectives:
(i) To ensure supply of imported met coal, of atleast 10 per cent of the 2019-20 requirements of SAIL and RINL i.e. say five million tonnes per annum, from assets overseas as medium term target to be achieved by 2011-12, being a step towards security of supply;
(ii) To be an owner of about 500 million tonnes of net coal reserves (share of SPV) by 2019-20; and
(iii) To meet the requirements and to serve the organizational aspirations of other participating companies like CIL, NTPC and our Company by providing a facility for enhancing and leveraging their domain knowledge and human capital for international mining business development and also for procuring high quality thermal coal for companies like NTPC.
Pursuant to the agreement, ICVPL was incorporated on May 20, 2009 under the Companies Act. ICVPL is authorised to engage in the business of carrying on the business of coal mining in India and abroad for overseas acquisition and/or operation of coal mines or blocks of assets or properties by way of purchasing, taking on lease, license, grant, amalgamation or otherwise acquiring stake in mines/blocks/companies having coal mines overseas, and to undertake all development activities related thereto.
The authorized share capital of ICVPL is Rs 100 million divided into 10 million equity shares of Rs 10 each and the paid up capital of ICVPL is Rs 7 million (divided into 0.7 million equity shares of Rs 10 each). Our Company holds 0.1 million equity shares in ICVPL, i.e. 14.29 per cent of the issued and paid up capital of ICVPL.
What about the coal blocks being allotted to NMDC by the Ministry of Coal?
The Ministry of Coal allotted two coal blocks, in the State of Madhya Pradesh, to the Company in July 2007. Geology of Shahpur East and West Coal Block, Shahdol District, in the State of Madhya Pradesh Shahpur East and West coal blocks fall under in the North western part of Sohagpur coalfield, about 12 km north-west of Shahdol town, in the State of Madhya Pradesh.
Since the area of Shahpur East and West coal blocks are entirely covered by Barren Measures formation, the structure of the coal blocks is very simple with locally steeping dip. In general, the strike of the coal seam is northwest-southeast, locally deflecting slightly and dipping towards the southwest about two degrees. Two dolerite dykes intrude into the formations. The seam occurs mostly in the depth range of 50-100 m below the surface. The above blocks are regionally explored. Dominant grade is C and D and to some extent E. A total of seven coal seams occur in the blocks. The total resource of Shahpur East coal block is 63.4 million tonnes and Shahpur West coal block is 52.7 million tonnes.
You have tied up with Tata Steel for overseas projects. What is the scope of this alliance?
NMDC entered into a memorandum of understanding, on January 22, 2010, with Tata Steel Limited. We will explore the possibility of acquisition, exploration and development of mines, extraction and processing of minerals, setting up integrated steel plants and other businesses of mutual interest.
Steel prices and demand have fluctuated sharply over the past couple of years. How do you see the scenario shaping up over the next 2-3 years?
In India, National Steel Policy (NSP) has set a steel production goal of 110 million tonnes by the year 2019-20 from the level of 38 million in 2004-05, requiring a compound annual growth rate of 7.3 per cent. This would require an availability of 190 million tonnes of iron ore for domestic consumption.
Presently, India is producing approximately 220 million tonnes of iron ore (FY 2008-09) out of which approximately 106 million tonnes is being exported. In order to meet the iron ore demand of domestic steel producers of 190 million tonnes by 2019-20, the iron ore industry will need to increase its production to approximately 300 million tonnes by the same year (assuming that exports continue at the present level of 100 million tonnes per annum), requiring a compound annual growth rate of 3.4 per cent.
Over the last five years, India's iron ore production grew at a compounded annual rate of 11.12 per cent to reach 222.54 million tonnes in 2008-09. In value terms, production grew faster, at an annual rate of 33.23 per cent to reach Rs.223.22 billion in 2008-09. India has approximately 260 iron ore mines (in the year 2005-06 as per the Indian Bureau of Mines). Among them, 41 mines were in the public sector and 220 in the private sector. Firming up of steel price will depend on the pace of recovery of the global economy.
Several big ticket steel projects in Orissa and other places seem to be stuck. As an industry player, what do you think may be the problems? What needs to be done?
We need to look at the macro picture where the Indian economy needs big ticket projects in the manufacturing sector in order to keep up the strong pace of growth. The Government is already working on various initiatives to ensure that the requisite demand supply mix is achieved.
What about your plans of developing steel plants?
NMDC intends to develop an integrated steel plant project in Jagdalpur in the State of Chhattisgarh with a capacity of 3 mtpa. The iron ore required for the production of steel would be supplied by our existing mines. We are in possession of 995 acres of land and have submitted an application for additional land of 777.2 acres.
Environment clearance to operate the steel plant was obtained on September 15, 2009 where it has been specified that construction work can start after obtaining approval from the Central/State Government for the 25.7 acres forest land under the Forest (Conservation) Act, 1980.
We have received clearance for rail transport on February 17, 2009 and a Railway Consultant was appointed on December 29, 2009. We have obtained sanction for construction power from the Chhattisgarh State Power Distribution Company Limited and discussions are in progress for operational power.
NMDC has been allocated 2,500 acres of land in Karnataka for construction of a steel plant and has obtained power connectivity and water connectivity in the Bellary/Hospet area. We intend that this steel plant will have a production capacity of 2 mtpa.
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