NMDC gains from a reviving global economy

NMDC has big ambitions for overseas acquisitions. For iron ore, the company is looking at availability of good assets in Brazil, Australia and African countries such as Cameroon. For coal, NMDC has not yet received any concrete proposal in the overseas market, says SUGATO HAZRA

The time ahead is full of excitement for NMDC. Asia’s third-largest iron ore mining company which failed to generate the demand expected for its public offer at the beginning of the current year is now gearing up for another round of superlative performance. The company has now doubled its prices for Japanese and South Korean mills including Nippon Steel Corp and Posco. It has announced increase in its iron ore production to meet increased demand. It also has announced its plan to go ahead with the five-million tonne integrated steel plant in Karnataka at an investment of Rs 92 billion. It is also setting up another Greenfield plant in Chhattisgarh. The company is on course to provide good return to those who invested in its share.

NMDC has approached the State government regarding the plant. Rana Som, Chairman and Managing Director, NMDC said, “Initially, we would start with two million tones.We are a cash-rich company with about Rs 140 billion in our kitty. We can substantially finance this project from our resources.” However, NMDC is on the look out for a joint venture partner. “We are talking to companies in Japan and other countries. We would like to join hands with the one that offers a better technology,"”said Som. Karnataka Government has in principle agreed to give 2,500 acres for the project.

He said that the company was using about six million tonnes of iron ore from Karnataka and plans to secure an additional mine for the proposed project.

In its core business as iron ore miner NMDC benefited this year from a rise in the commodity price. Globally iron ore mining companies are seeking to capitalize on spot prices that doubled in the past year. In India steel consumption rose 9.6 percent in April, boosted by demand from power projects and makers of appliances and cars. With the growth forecasted to rule at more than 8 per cent demand for steel is likely to increase both in the short and medium term. NMDC will benefit both from the firm price as well as its foray into steel making.

NMDC, sold about 15 percent of its output overseas last year. This year the company will export fines with 63 percent iron content at about $122 a metric ton free-on-board (FOB).For local mills the price is Rs 2600 a tonne — US$ 59 - half of the global price.

Following Vale NMDC is also switching over to quarterly contracts. Vale, the world’s largest ore exporter, broke a 40-year system of negotiating annual key contracts in March when it agreed on new quarterly prices with Japanese buyers. BHP Billiton Ltd., the world’s largest miner, has also switched to quarterly pricing.

NMDC’s output is likely to increase more than 23 percent to 37 million tons from December after it starts operating a new mine in Bailadila in Chhattisgarh. The company, which plans to lift production to 50 million tons by end of fiscal 2015, is in the process of building the 11B Bailadila mine and will start production by December. The annual capacity of the mine will be 7 million tons.
Meanwhile Som confirmed that the company was coming out of the confines iron zone and diversifying into coal, rock phosphate, potash, limestone and metal mining. The company has lined up investments of Rs 26,000 crore in the Eleventh Plan.

On his strategy Rana Som reiterated the fact that NMDC had been a company with strong fundamentals. Its immediate task was to take up iron ore production from 30 million tonnes annually to 50 million tonnes in the next few years. “We would also like the company to clock a turnover of Rs 30,000 crore by 2015. Besides, NMDC has created new focus areas, aimed at building food, infrastructure and energy security. We have identified three focus areas, energy (Coal), food (potassium and rock phosphate) and infrastructure (iron ore, manganese, limestone, magnesite and other natural resources that are needed for steel making). To expand the presence in new areas, we will look for partnerships with other companies. The exploration activities would be pursued both in domestic and overseas markets,” he said.”

NMDC has big ambitions for overseas acquisitions. For iron ore, Som is looking at availability of good assets in Brazil, Australia and African countries such as Cameroon. For coal, NMDC has not yet received any concrete proposal in the overseas market. Som said, “Our aim is to build a vast network so that we can catch and grab assets more aggressively. Our aim is that acquisition of assets should generate value for the company and therefore the nation.”

Som knows that the outlook for the sector is strong. In fact, demand for iron ore and its price have exceeded expectation. If Japan and Europe had come out of recession, both demand and prices would have shot up further. "I feel that increase in ore prices will take the effective rate to a level over prevailing a year before last when prices were impacted severely due to global economic meltdown,” felt Som.

On the quarterly fixation of ore price and the chances of volatility Som was not much concerned. After all the system came into being with some sellers and buyers agreeing to a quarterly review system. “I feel that it is not a bad idea to go in for regular review of prices. Contrary to expectation, this will actually lead result in bringing a check on iron ore prices. If long term ore prices are close to spot prices, then one possibility is that the spot prices (which are higher) will decline. Decline in spot prices will result in long term prices falling further. So a quarterly price review system may actually benefit customers,” Som, a trained economist, argued.

Meanwhile NMDC reported a 4.4 percent gain in fourth-quarter profit, rising for the first time in a year, on higher prices of the steelmaking raw material. Net income rose to 10.66 billion rupees ($227 million) in the three months ended March 31 from 10.21 billion rupees a year earlier. Sales rose 2.4 percent to 19.83 billion rupees. The average price of 62 percent iron-content ore in the spot market at Tianjin port in China almost doubled to $131.62 a ton in the last quarter from a year ago, according to The Steel Index. In January, NMDC raised contract prices by as much as 16 percent after spot prices jumped more than 30 percent in the nine months to December. Sales fell 17.5 percent to 62.39 billion rupees in the full year, following disruptions at NMDC’s biggest mine, located in Chhattisgarh. Production was affected after Maoists rebels damaged a slurry pipeline that carried iron ore to customers.

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