Renewal of mining leases critical to keep NMDC alive

Last Updated 09 October 2019, 02:48 IST

India’s first prime minister Jawaharlal Nehru once said: “Certain industries we want to reserve for the State, because a particular thing may be strategic, i.e. of basic importance, since through its ownership you can control other things. Private Ownership has not helped mineral development. Such things as heavy machine making plants, minerals, I think, should be owned by the State.”

However, the public sector mining behemoth NMDC Limited, which has been in the business of mining iron ore for 61 years, is facing a threat of losing its leases in Karnataka and Chhattisgarh. While Karnataka recently cancelled the lease renewal for its mine at Donimalai in Ballari district, the company’s three other leases are expiring in Chhattisgarh by March 2020.

Although the government recently amended the MMDR (Amendment) Act, 2015 to pave way for easy extension of leases for government companies, the matter pertaining to the Donimalai lease cancellation is still to be decided by the Mines Tribunal.

The company does not want any unfavourable precedence to be set in Karnataka that could jeopardise its lease renewals in Chhattisgarh next year.

“I have been in discussion with the chief minister of Chhattisgarh and government officials. They are very positive. The chief minister has mentioned in the public forum on the extension. I don’t expect any Karnataka like-issue in Chhattisgarh,” N Baijendra Kumar, Chairman and Managing Director, NMDC Ltd said.

However, in what could be a major relief to NMDC, the government last week amended the Mineral (Mining by Government Company) Rules, 2015, and made the renewal of mining leases of public sector companies mandatory without going through the auction process.

The new amendment paves way for renewal of NMDC’s iron ore mining lease at Donimalai in Ballari district of Karnataka. The company suspended operations since November 3, 2018. Donimalai has iron ore reserves in excess of 140 million tonnes.

“We believe that the development is unlikely to result in any material positive for NMDC as the State government has the final right to approve the renewal and it would use this as a tool to prolong the proceedings for a bargain on its rationale of revenue loss,” equity analyst firm Prabhudas Lilladher said in a report.

Failure to secure a renewal for its leases in Karnataka and Chhattisgarh will not only impact the company’s existence as a major iron ore producer but also disrupt the government’s ambitious programme of achieving 300 million tonnes of steel by 2030. The decision by the Mines Tribunal is keenly awaited by the company. Any decision that is taken will make or break the company.

NMDC is currently in the process of executing a massive expansion cum diversification programme. The company is investing close to Rs 23,000 crore to set up a 3 Million Tonne Per Annum (MTPA) steel plant at Nagarnar in Chhattisgarh.

Despite closure of Donimalai mines, NMDC accounted for 24% of India’s iron ore output at 32.4 million tonnes of iron ore in 2018-19, a minor drop over 34 million tonnes produced in the previous year.

It hopes to maintain last year’s production in FY20 as well.

With a net profit growth of 21.9% at Rs 4,642 crore on a turnover of Rs 12,153 crore, which grew by 4.6%, it is also among the country’s top profit-making Navaratna companies.

The company aims to play a major role in realising the government’s ambitious target of achieving 300 million tonnes of steel by 2030. This requires 450 million tonnes of iron ore and NMDC aims to contribute in excess of 67 MTPA by 2023.


Backward integration by steelmakers into iron ore mining through auction route will significantly shrink the market of the company. Non-renewal of leases by the state governments is a big threat to the company’s future growth. Government actions including tariffs and duties, speculative trades and regulatory issues arising due to judicial verdicts are likely to impact the company’s business.

Legacy of NMDC

Incorporated in 1958, NMDC started its journey from the jungles of Bastar in Chhattisgarh. Today, it has three major mechanised iron ore complexes – Kirandul and Bacheli in Bailadila of Chhattisgarh with a yearly production of 22 million tonnes and Donimalai in Karnataka, which produces 12 million tonnes per annum. It also owns and operates the only mechanised diamond mines in Asia at Panna in Madhya Pradesh. It produces around 35,000 carats of diamonds annually. The company also has a sponge iron unit of 60,000 tonnes per annum at Paloncha in Telangana.

Future growth plans

NMDC is in the process of expanding its capacity at all its existing mines and looking for new ones in many states. It has made a comprehensive plan to enhance iron ore production capacity to 67 MTPA by FY22. It is developing a greenfield mine (Deposit 13) through a joint venture with the Chhattisgarh Mineral Development Corporation.

It is also setting up a slurry pipeline for the evacuation of iron ore from Kirandul to Vizag. For further capacity expansion, it is pursuing allocation of new iron ore deposits both through participation in auction and reservation through government dispensation route.

As part of its diversification and forward integration plan, NMDC is setting up a 3 MTPA greenfield steel plant at Nagarnar in Chhattisgarh, which is expected to be commissioned in June 2020. The cash-rich company’s investment in the steel plant is likely to touch Rs 23,000 crore by the time it is commissioned in June 2020. Besides, it is also investing another Rs 3,000 crore for a slurry pipeline project, Rs 1,500 crore for a third screening plant at Kirandul complex among others. Currently, the company has a cash surplus of Rs 5,000 crore.

It is also planning to set up a 2 MTPA pellet plant at Nagarnar, while its 1.2 MTPA pellet plant became operational in Karnataka’s Donimalai two years ago, which uses slimes and produces pellets and is considered a step towards zero waste mining.

“Our aim is to become a Rs 50,000 crore company in the next five years. Our upcoming steel plant will contribute a lot to this goal besides other diversification projects,” says Sumit Deb, Director, Personnel.

The company currently employs 6,000 direct employees, while another 14,000 workers are engaged on contract basis.

Global presence

NMDC is in the process of setting up a pilot-scale processing plant for gold in its mining lease in Tanzania. NMDC also holds a majority stake of 78.56% in Legacy Iron Ore Limited, Australia, which has iron ore, gold, nickel and base metals interests. It also has an interest in a JV company with SAIL, RINL, NTPC, CIL to operate a thermal and coking coal mine in Mozambique.

(Published 09 October 2019, 02:45 IST)

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