The renewal of lease by the Karnataka govt entails an added condition of payment of 80% of sale value as lease rental, which would make the operations unviable.
The Karnataka government has renewed the lease of NMDC’s Donimalai mine. However, according to analysts, the production has been halted as the renewal of lease entails an added condition of payment of 80% of sale value as lease rental, which would make the operations unviable.
Though the public sector enterprise has moved the court against the move, if the closure persists, it will be a blow for NMDC’s volume growth, analysts at Edelweiss Securities said in a recent note.
“The move seems to emanate from the aggressive bidding in round-III of ‘C’ category mine auctions. JSW Steel won Mysore Minerals block (9.7 mt reserves) with the final price offer of 95.2%; and MSPL won Sri HG Rangangouda block with a final price offer of 129.2%. Donimalai mine has an EC limit of 7 mt and 6 mt production capacity,” analysts observed.
The production halt, they say, could have larger implications as well with production disruption to the extent of 6 million tonnes per annum — which is Donimalai’s annual production, potentially higher imports of iron ore and compromising of merchant mining in Karnataka.
NMDC is India’s single largest iron ore producer, currently producing about 30 mt of iron ore from three fully mechanised mines which includes the Donimalai mine.
Earlier on Tuesday, the BSE Metal Index came under pressure, pulled down by the share price of NMDC. The fall in the metals space happened after reports that NMDC’s Donimalai mine has shut down after lease expiry, due to differences between the Karnataka government and the PSU over the royalty payable for renewal of the mine. The mine is said to contribute 20% to the company’s sales volumes. However, later in the day, NMDC clarified that the lease for the mine has been renewed, post which the metal stocks stabilised.
On Friday, NMDC touched an intra-day low of 3.53% on the BSE and closed 2.91% down at Rs 110.15.
According to analysts, the move could render merchant mining unviable in Karnataka as downstream players such as JSW Steel and MSPL have an option to pass prices through a hike or seek other iron ore sources that merchant miners such as NMDC do not have. Further, the move could potentially lead to higher imports of iron ore despite the country being self sufficient in it, they said.