Problem for NMDC is ore evacuation, not production: CMD

CS Verma, CMD, NMDC says that state-owned miner has set a production target of 27.4 million tonne for FY14, which indicates minimal growth going ahead.

"For NMDC, production is not an issue but evacuation of iron ore is an issue. NMDC has been deciding iron ore prices on a monthly basis from last five months and the pricing is also based on demand and supply situation," Verma said in an interview to CNBC-TV18.

He added that, the recent Supreme Court verdict on Karnataka mining will not have any impact on NMDC's operations. The company is in the process of enhancing the iron ore capacity from 32 million tonne to 48 million tonne a year. The company is laying slurry pipeline between Jagdalpur & Vishakhapatnam.   

Below is the edited transcript of his interview to CNBC-TV18.

Q: The Street is disappointed with 27.4 million tonne production target that NMDC has set for FY14, which signifies minimal growth going ahead. Are there any chances of this being surpassed?

A: We have fixed the target for FY14 taking into account that slurry pipeline will not be available to NMDC, the capacity of Bailadila region slurry pipeline from where we evacuate ore around 8 million tonne. Right now, we are benefiting from the evacuation of Bailadila region pipeline. Production is not an issue for NMDC, it can be enhanced anytime by working in three shifts. Our current capacity is 32 million ton. Evacuation of iron ore is a problem. How iron ore should be evacuated and what steps should be taken to evacuation.        

We have already started uni-floor system in Bailadila region. We have signed an agreement with the Indian Railways to double the track between Jagdalpur and Kirandul which will take some time, the distance of about 150 kms and the entire money is being paid and invested by NMDC. The real issue for NMDC is not production but evacuation of ore.

Q: The bigger concern is that NMDC has not managed to push through any pricing increases for itself in last six months. When do you think that may happen for the company?

A: The prices are demand and supply related. In last five months, NMDC has been deciding prices on a monthly basis. It is a fact that iron ore prices remain at Rs 2,610 per tonne. There has been drop in lump prices in last six months. But pricing will depend upon the demand and supply situation.

Q: Will the recent Supreme Court verdict on the Karnataka mining case have any impact on NMDC’s operations per se? 

A: There is no impact on NMDC. NMDC has been producing iron ore and as per the decision of the Supreme Court, we have been auctioning all the iron ore produced in Karnataka region.

Q: What would be your production target be for 2013, report suggests that NMDC’s total production in Karnataka will be capped at 7 million tonne. Is there any truth to this?

A: No. Today our production is about 27 million tonne. In 2012-13 our production has been 27 million tonne and around 80 percent came from Bailadila region and around 20 came from Karnataka region. The company managed to have a production of 27 million tonne in 2012-13 inspite non availability of slurry pipeline in Bailadila region for a single day in 2012-13.   

Q: How do you define the restart of operations in Karnataka? Do you think business will be at the normal rate or will there be subdued performance from Karnataka in terms of output?

A: We will continue to function normal as before, on the other hand we are enhancing our iron ore capacity from 32 million tonne to 48 million tonne per annum. Equipments has already been ordered. The enhanced capacity will be available to the company in next 1-1.5 years. We are a new mine called Kumaraswamy in the Karnataka region, which will give about 7-8 million tonne per annum while Donimalai is getting depleted.

Q: There are some concerns that what will NMDC choose to do with its cash reserves because suggestions have been made such as NMDC investing in another public sector undertaking (PSU) etc. Has the board or the management taken any decision on how to utilise the cash?

A: Till date we have a cash and bank balance of Rs 20,000 crore and as part of our corporate strategy we are also making huge investment of around USD 3 billion in 3 million tonne capacity steel plant. Equipments have already been ordered.     

In the 11th Five Year Plan, our capex for the five year as a whole was about Rs 3000 crore. In the 12th Five Year Plan, our budget capex for five years as a whole is 10 times more at Rs 30,000 crore.

The company is investing around Rs 15,000 crore for a new plant in Nagarnar, in addition to it the company is also setting up a slurry pipeline of 335 kilometers between Jagdalpur and Vizag. NMDC is also setting up pallet plant in Vizag and Jagdalpur. Donimalai pallat plant is also getting ready at total investment outlay of about Rs 600 crore, which we have spent on 1.2 million capacity.

We will set up value-added products like pallet, steel plant which is already coming up and we will also take up stakes in overseas mines. We have 50 percent stake in Legacy Iron Ore mine in Australia and we are trying to develop that mine. We are also eyeing other overseas opportunities. NMDC is also a part of International Coal Ventures and the company via ICVL is looking for overseas opportunities.      

Q: Besides Steel Authority of India Ltd (SAIL) or Rashtriya Ispat Nigam Ltd (RINL), has there been any other steel major who has expressed interest as joint venture partner in your proposed steel project in Chhattisgarh?

A: Only SAIL and RINL have expressed their interest to become a strategic partner in Nagarnar region plant. But NMDC has decided to go in for fresh expression of interest so that the interest of other major steel players could also be invited.