NMDC on a fast track

MoU with Tata Steel is a major move forward

The state-owned Navratna mineral company NMDC has emerged as a darling of the investors. While the imminent public offer of shares by the government could be one reason, this cannot be the only factor. In fact if one looks at the business-as-usual stance of NMDC and its CMD Rana Som and the rapid steps being taken to add value to the company, one can easily understand why NMDC has emerged as a hot pick in the Indian bourses.

First take a look at the grand alliance with the Tata Steel on January 22. India’s oldest steel maker has entered into a grand pact with NMDC which ensures both to collaborate on a host of activities — from building steel plants and setting up iron ore beneficiation units in India to scouting for mines both within and outside the country.

Som was justified in terming the memorandum of understanding as “historic”. Point to note is that NMDC is the eighth largest iron ore producer in the world. So is Tata Steel in its line of business. The combined strengths of India’s second largest steel producer and the largest iron ore company would find it easy to overcome even seemingly insurmountable problems, like acquiring land as also working undisturbed in so-called Naxalite dominated regions.

The doubting Thomas may take look at the track record of NMDC in the region. NMDC has been able to operate in Maoist strongholds in Chhattisgarh and has acquired land for greenfield projects in the state. Rightly, therefore, Som emphasised, “Government participation evokes trust, which is lacking in several land acquisition process in the country today.”

The NMDC-Tata MoU is unique since never before had a miner and a steel company come forward to work together on all fronts — mining, steelmaking, beneficiation and infrastructure sharing. In early January, ArcelorMittal and BHP Biliton — the largest steel producer and the biggest miner in the world attempted to do so and began discussions to integrate their iron ore interests in Liberia and Guinea in Africa.

Here, their talks were limited to mining only. In contrast, Som and Nerurkar of Tata indicated that their strategic alliance would be more inclusive.

To begin with, both companies will stand to gain in Karnataka, where all steel giants are keen to set up plants. Apart from Posco and ArcelorMittal, NMDC and Tata Steel have separately been pursuing plans to build plants in the southern state, and there is now a distinct possibility that they can do it jointly. Nerurkar informed that the two companies would explore the possible areas where they would work, “We are setting up working groups to explore possibilities where two companies can work. They will identify the areas in the next two months.”

The MoU will lead to solving amicably any dispute the two companies had over acquiring mining rights in Chhattisgarh. When they can work together why will they waste energy, time and money in setting disputes! Also, Tata Steel can help NMDC realise its dream to become an integrated player.

NMDC, on its part, can share knowledge on beneficiation — a process by which low grade iron ore is used in steelmaking — and help Tata Steel in accessing good quality raw material. After all it was NMDC provided iron ore which helped Japan emerging a major steel manufacturer in the world.

NMDC is now setting up a 3 million tonne beneficiation plant in Chhattisgarh, where it has rich deposits of ore, using a technology developed by its own research team. The joining of hands between NMDC and Tata Steel might see a prompt decision on the steel manufacturing facility in Karnataka and also a decision to work jointly to develop a deep water port in Karnataka. One may recall that the Vijaynagar Area Development Authority had invited NMDC to set up a deepwater port at Tadri, a location between Goa and Mangalore.

The MoU with Tata is an important milestone. No less important is NMDC signing pact with the Andhra Pradesh Mineral Development Corporation (APMDC). NMDC and Director of Mines and Geology (DMG) of Andhra Pradesh entered into a memorandum of understanding on January 29 for exploration of low grade iron ore deposits in Kadapa, Kurnool, Chittoor and Karimnagar districts. This coupled with NMDC capacity of beneficiation will help the Indian steel manufacturers immensely.

AP Chief minister, K Rosaiah, in whose presence the MoU was signed, admitted the same and stated that the main objective was to upgrade the low grade iron ore so that it could be marketed and thus generate revenue and employment. He wanted the exploration and upgradation to take place at the earliest. The iron ore deposits in these four districts are estimated to be about 200 million tonnes valued at about Rs 40,000 crore.

The MoU between APMDC and NMDC would lead to formation of a 50:50 joint venture company to explore both iron ore and gold deposits. The state government would get a revenue of about Rs 4,000 crore towards royalty from iron ore and Rs 17 crore royalty from gold deposits. DMG with the financial support of both APMDC and NMDC will carry out the investigations.

The other pro-active initiative of Rana Som-led NMDC to have a talk with Lakshmi Mittal’s ArcelorMittal for a project in Africa. It is speculated that they might even have signed a confidentiality pact for ArcelorMittal’s Faleme iron ore project in Senegal.

This apart, NMDC is also looking at a entering a joint venture between Australia’s Boulder Steel and Saudi Arabia’s ABS LLC. The company is said to be looking at joint development of the Ridley iron ore property in Australia and is looking at similar proposals from Brazil and other countries.

If investors have taken note of the fast-footed management of NMDC and its keenness to add value, can they be faulted for investing in NMDC shares? There are badmouthers plenty, after all not everyone is a winner. Losers need to fall back on something to hide their failures and express their frustration.

NMDC has been, after all , among the top five fastest and biggest wealth creator between 2004-09 in India. It created wealth worth Rs 578 billion, more than that of ONGC, ITC and Infosys. Between the five year period of 2004-09, NMDC valuation increased at a cumulative annual rate of 71 per cent much faster than any of the large-cap companies.

Did anybody say PSU’s are laggards?

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