That domestic miner NMDC Ltd’s name figures in the government’s recently-prepared list of the select few state-run enterprises that have the potential to boost India’s economic growth should not come as a surprise. The government wants to spur investments in the infrastructure sector by capitalising upon the Navratna company’s huge bank balance of Rs 18,000 crore — a cash surplus generated on the back of its half-century-old leadership position in the commodity sector.
NMDC is India’s largest producer of iron ore, a critical building block for the steel backbone of Asia’s third-largest economy. Sustained raw material supplies by the company have helped the nation’s key infrastructure and manufacturing sectors grow multi-fold since its inception in 1958. The company’s hunger for growth does not seem likely to be satiated in the near future, with its turnover having jumped more than ten times over the past decade to Rs 12,687 crore — in addition to a whopping 88 per cent rise in last fiscal’s net profit at Rs 6,499 crore — and an aggressive strategy of venturing into newer business areas chalked out.
Sitting over iron ore reserves of 1,300 million tonnes (MT), NMDC currently has an operational capacity of 30 MT a year coming from three fully-mechanised mines, two in Bailadila in Chhattisgarh and one in Donimalai in Karnataka. At a time when the mining sector is suffering a historic slowdown, the company sees its operational capacity growing to 50 MTPA in the next three years. It has projected a 37 per cent jump in annual investments from Rs 3,399 crore in the current financial year to Rs 4,655 crore in 2012-13.
“After establishing a strong foothold in our traditional area of expertise in the iron ore sector and venturing into sponge iron production, NMDC has now forward-integrated into steel production, thus gaining control over the entire mineral value chain,” Chairman and Managing Director N K Nanda told Business Standard. The company is setting up a 3 MTPA steel plant in Nagarnar in Chhattisgarh. It plans to invest over Rs 15,000 crore to commission the project in the next four years.
“This, however, is only a part of our mega diversification and investment plan which also includes a foray into the pelletisation business, mining of fertiliser minerals like rock phosphate and power generation,” Nanda said. The huge diversification element of the growth strategy is explained largely by the slow pace of award of new iron ore mines. The company, however, wants optimum utilisation of its spare mining capacity. NMDC, thus, plans to commission new iron ore mines of up to 10 MT capacity at a cost of Rs 1,000 crore over the next few years, Nanda said. This would require investing Rs 300 crore every year.
NMDC’s growth aspirations have now crossed national boundaries. To insulate its growth from the vagaries of project clearance mechanisms at home, the company has embarked on a strategy of mass acquisition of mineral assets overseas. It recently acquired a controlling stake in Legacy Iron Ore in Australia with around 1 billion tonnes (BT) of reserves, and does not want to press the brakes just yet. NMDC is actively looking at acquiring phosphate mines in that country.
It is also closing in on more acquisitions — a 1 BT iron ore mine in Brazil, a 50 MT coking coal mine in Russia and another 150 MT mine in Mozambique. “We have re-engineered our acquisition strategy in a way so as to fast-track overseas buyouts,” said Nanda, a first-class post-graduate from the Indian School of Mines (ISM) in Dhanbad with 27 years of experience in the Indian mining sector.
“To sum up, our core areas of strength in future would be the mineral reserves acquired overseas, developing the new high grade iron ore mines of 10 MT capacity, and faster execution of the Nagarnar steel plant. These plans will be backed by the development of a strong research and development (R&D) base,” Nanda said. The company is investing Rs 135 crore to set up a high-technology research centre for beneficiation of low-grade iron ore. The plan when implemented will help ensure zero-waste mining. The R&D hub would be up and running by 2013.
“Going forward, the broad vision for the company is to ensure timely ramp up in production capacity to 50 MT over the next three years,” Nanda said. Acquiring good-quality foreign coal and iron ore mines to enlarge the reserve base is also a part of this vision, he added.
