NMDC Seeks Central Government’s Help Against Withdrawal Of Donimalai Mine Lease By Karnataka

NMDC Ltd. sought relief from the central government after Karnataka decided not to extend the lease for its mine in Donimalai despite the state’s high court ruling in favour of India’s largest iron ore miner.

The government of Karnataka has withdrawn the approval letter, issued in November 2018, to extend the mining lease period of NMDC for Donimalai mine and auction it, according to an exchange filing. “The company has filed a revision application against the state’s order with the Ministry of Mines, Government of India and the hearing is fixed on Aug. 21,” NMDC said in the filing. It has also requested the Karnataka government to withdraw its letter/keep it in abeyance.

Shares of the state-run miner had tumbled earlier in the day after brokerages, including Edelweiss and Philip Capital, expressed concerns over the “far-reaching impact” of the state’s decision. The stock closed about 12 percent lower—the biggest fall in more than three years—compared with a 0.33 percent drop in the benchmark Nifty 50 Index.

In November, NMDC suspended operations at its 7-million-tonne-per-annum Donimalai mine following the Karnataka government’s decision to impose 80 percent premium on sales of iron ore from it. In July, the Karnataka High Court dismissed the state’s decision to claim a larger share of revenue from sale of the raw material for steelmaking.

Lack of contribution from the mine—which according to NMDC constituted 17 percent of its total output in 2018-19—dragged down state-run miner’s production and despatches. The company, according to Bloomberg, was losing 0.5 million tonnes a month in production after the closure. NMDC produced only 32.4 million tonnes of iron ore in 2018-19 against a capacity of 43 million tonnes per annum.

“This development not only puts Donimalai’s renewal at peril but also creates uncertainty for future mining renewal in Chhattisgarh where most of the mines are due for renewal in March 2020-22. This could also have a big setback on the earnings,” said Amit Dixit, research analyst at Edelweiss Securities. Also, NMDC might have to cough up a hefty premium if it chooses to participate in future e-auction, according to its note.

Leases of NMDC’s Bacheli and Kumaraswamy mines in Chhattisgarh are due for renewal in 2020 and 2022, respectively. In the financial year ended March 2019, output from the Bacheli mine stood at 12.8 million tonnes and from the Kumarswamy mine at 7 million tonnes, according to Phillip Capital. The brokerage expects two-thirds of NMDC’s volumes to be “at risk” in case leases of the two mines in Chhattisgarh aren’t renewed.