India’s largest iron ore miner NMDC Limited, which is all set to come out with a follow-on public offering (FPO) next month, is “expecting a reasonable increase in iron ore prices next year.”
The public sector undertaking has appointed CRU, a London-based business analysis and consultancy group, to have a relook at its pricing structure.
“We are currently benchmarking our domestic prices to the price offered to our Japanese customer. The agreement with our Japanese customer expires in 2011. Due to some reason if the agreement is not renewed (which is unlikely), there will be no mechanism for us to fall back to determine our ore prices,” NMDC chairman and managing director, Rana Som, said explaining the reasons for appointing a consultant.
CRU had been asked to have a relook at NMDC's pricing structure for the past five years and its evaluation would be helpful in further optimising the iron ore prices, Som told mediapersons here on Wednesday.
He said NMDC was planning to renegotiate the iron ore prices offered to its domestic buyers after the export prices were finalised by April 1. Its agreements with the domestic customers would expire by March 11, 2010.
“From January 1, we have increased the price of our iron ore by 15 per cent,” he said, adding the prices of iron ore next year were expected to be better than the prevailing prices.
NMDC is currently selling iron ore to its Japanese customer at $61.5 per tonne of fines and $71.1 a tonne of lumps. For the domestic buyers, the price ranged from Rs 1,970 to over Rs 3,000 a tonne depending on the quality of ore.
NMDC and NTPC have no similarity
Addressing what he termed as the “first press conference" before embarking on a domestic road show for the forthcoming FPO, Som said he was confident that there would be a good response to the NMDC issue of 332,243,200 equity shares of Re 1 each.
He would not like to compare NMDC with NTPC Ltd, whose recent FPO received a muted response from retail investors. “Except the “N” in the names of the both organisations, there is no similarity between them,” he said.
According to Som, NMDC is a natural resources company, which has got "highest grade" iron ore reserves of substantial quantity. Its iron ore reserves currently stand at 1.27 million tonnes. The EBIDTA margin is 78 per cent, “very high compared to any other mining company in the world.”
Besides, NMDC currently has a cash reserve of Rs 13,000 crore. Hence, the company’s shares would be attractive for any investor. The price or price band of the equity shares to be offered would be decided by the Group of Ministers in the second week of March, he said.
Som said NMDC had embarked upon a Rs 26,000-crore expansion-cum-diversification programme to be executed over a period of next four years. This included setting up of a 3-million tonnes per annum (tpa) steel plant in Chhattisgarh at a cost of Rs 16,000 crore, two pelletisation plants at a cost of Rs 1,400 crore, a Rs 2,000-crore beneficiation plant and opening up new mines at cost of Rs 1,500 crore.
He said the construction of the steel plant would start from the middle of this year and would be complete in a span of 40 months. NMDC was also diversifying into mining of coal, rock phosphate, potash, lime stone, magnesite and manganese. It proposes to acquire coal mines in India and abroad.
NMDC finance director, Thiagarajan, said the company would achieve a turnover of Rs 30,000 crore by 2014. Of this, Rs 22,000 crore would be from steel and Rs 8,000 crore from iron ore production. It would produce 50 million tpa of iron ore in 2013-14 as against 30 million tpa at present.
