NMDC sees lower FY12 output, delay in Severstal JV

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NMDC sees lower FY12 output, delay in Severstal JV

Indian state-run miner NMDC Ltd's joint venture with Russia's Severstal to build a 3-million tonne steel plant in India is held up on differences over shareholding and delay in mining linkages, a senior official at the Indian company said.

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Indian state-run miner NMDC Ltd's joint venture with Russia's Severstal to build a 3-million tonne steel plant in India is held up on differences over shareholding and delay in mining linkages, a senior official at the Indian company said.

India's top iron ore miner and Russia's largest steelmaker agreed in December 2010 to build the plant in the southern state of Karnataka through an equal joint venture, but are yet to finalise a joint venture agreement. The two companies signed an implementation protocol in Moscow last November.

"They want 50 percent plus one share extra. They also want assured iron ore supply, but we don't want to give from our existing mines. We are looking for a new mine," NMDC Finance Director S. Thiagarajan told an analyst meet.

India's Supreme Court has banned iron ore mining in Karnataka due to environmental worries and allegations of illegal mining, but has allowed only NMDC to mine in the region.

As a result, the state government is not allotting licences for any new ore mines, he said.

"It is not a major issue. A joint working group has been formed, it is discussing the shareholder's agreement. The land has already been taken," Thiagarajan said.

He said both the partners were keen to have the management control as that would allow them to consolidate accounts of the joint venture in their books, as per draft IFRS guidelines.

NMDC and Severstal plan to produce auto grade steel at the plant. NMDC is to supply iron ore for the project, while Severstal plans to source coking coal from its captive mines in Russia.

NMDC is separately building a 3 million tonne steel plant at Chhattisgarh in central India.

FY12 output to slip

NMDC is likely to produce 26 to 27 million tonnes in the current fiscal year, lower than its target of 30 million tonnes, Thiagarajan said.

The state-run company, which accounts for about 15 percent of iron ore mined in India, hopes to return to the 30 million tonnes output level in the next fiscal year starting April.

"We have scaled down. There was disruption in power supply to our pipeline (evacuating iron ore) for almost five months," he said. "There were also bottlenecks on night movement in the initial periods of the e-auctions in Karnataka."

He said the company has cut prices for both iron ore lumps and fines for January-March, in line with the fall in international iron ore prices, but expects the prices to consolidate around the current levels.

NMDC has cut prices for fines by almost 20 percent from the previous quarter, while lumps are being sold at prices that are about 3 percent lower.

"Prices are getting consolidated now that exports have come down," he said, referring to the Indian government's recent move to raise duty on iron ore exports to 30%.

The miner had posted a 22% rise in December quarter profit.

Shares in NMDC, valued by the market at nearly USD 16 billion , closed 1.4% higher on Thursday, in a weak Mumbai market. The stock has risen 24% so far in 2012, compared with a 17% rise in the main index.