MOSL: NMDC (Buy)-Iron ore dispatches to grow even without Donimalai-17mtpa capacity already renewed
NMDC: Iron ore dispatches to grow even without Donimalai; 17mtpa capacity already renewed; Maintain Buy
(NMDC IN, Mkt Cap USD4b, CMP INR91, TP INR111, 22% Upside, Buy)
We met the management of NMDC for a business update. Key highlights:
- Karnataka mining complex: Donimalai and Kumarswamy are NMDC's two mining leases (ML) in Karnataka with permitted annual production of 7mtpa each. Donimalai operations are temporarily shut pending a hearing in the High Court regarding unreasonable demand of 80% share in revenue as a condition for renewing the ML. Management is very confident of winning the case because (1) this judgment will have unprecedented impact on all Public Sector Undertakings (PSUs), (2) the mining act doesn't provide for it, and (3) it will stifle merchant mining. The next court hearing is on 22 January 2019.
- Chhattisgarh mining complex: Two MLs with total capacity of 17mtpa have already been renewed, which is half of current production. ML of 7mtpa deposit 11B is valid up to September 2037 (20 years) and 10mtpa deposit 13 is valid up to 2067 (50 years). Renewal of other leases is in process. NMDC is currently shipping about 23mtpa iron ore from this complex. In the worst case if outcome in the Donimalai judgment is not favorable, NMDC will still have 17mtpa profitable capacity. Further, NMDC is confident that the Chhattisgarh government will not be as demanding as the Karnataka government. The Chhattisgarh government is aware that MLs will not fetch much price from private miners in auction because of the Naxal problem in the area.
- Targeting 30-31mt dispatches in FY19 even without Donimalai: NMDC has already dispatched 22.1mt in nine months and is targeting another 9mt dispatches in 4Q. A slightly better volume can be achieved in FY20 aided by higher exports.
NMDC Limited is an India-based company engaged in mining of iron ore. The Company's segments include Iron Ore, and Other minerals & services. It is also engaged in the production and sale of diamond, sponge iron and wind power. Its projects under construction include Bailadila Deposit-11/B, Kumaraswamy Iron Ore Project, 1.2 million tons per annum (MTPA) Pellet Plant at Donimalai, 3.0 million tons per annum (MTPA) Integrated Steel Plant in Chhattisgarh, Panthal Magnesite Project, Screening Plant III at Kirandul Complex, Screening Plant II at Donimalai Complex, doubling of Railway Line between Kirandul and Jagdalpur, Steel Plant at Bellary and Rail Link between Dalli-Rajhara-Rowghat-Jagdalpur Railway Line Project. It proposes to diversify into other commodities, such as steel making raw materials (coking coal, manganese ore nickel); fertilizer raw materials (rock phosphate potash), and thermal coal. It also proposes to invest in raw materials, such as tungsten and rare earth minerals.
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