NMDC Shares End At 10-Month High As Donimalai Mine Issue Resolves

Shares of NMDC Ltd. rose to the highest since February after a long-pending issue of its key mine was resolved.

The central government has reached an agreement with Karnataka and the Ministry of Steel to extend the iron ore lease for the Donimalai mine, India’s largest producer of the key steel-making raw material said in a media statement. “The decision has not only paved the way for operationalisation of the mine, but also a timely decision taken in a situation when the steel companies are facing a shortage of supply of iron ore,” the company said in the emailed statement.

NMDC, in November 2018, had suspended operations at the mine following the Karnataka government’s decision to claim an 80% premium on the sale of iron ore from it. In July 2019, the Karnataka High Court dismissed the state’s decision to claim a larger share of the revenue from the sale of the raw material. In August that year, the miner had sought relief from the central government after Karnataka withdrew the extension of lease of Donimalai iron ore mine, which it had earlier granted for a period of 20 years till November 2038, and auction it.

The Donimalai mine, which has a total concession area of 597.54 hectares and estimated resource of 149 MT, expects to increase the annual production in the country by 7 million tonnes per annum, NMDC said in the statement. “At the existing high price of ore, it is expected that the Donimalai iron ore mine will contribute around Rs 400 crore to the state exchequer, during the ongoing financial year.” On an annual basis, operationalisation of the mine will contribute Rs 1,100 crore to the state’s coffers.

“After a two-year impasse, the government of Karnataka renewed Donimalai mines at a premium of 22.5% of sales price,” Kamlesh Bagmar of Prabhudas Lilladher said in a note. “We expect that a similar premium would be paid for its iron ore operations in Chhattisgarh, which constitutes 78% of its overall volumes,” said the brokerage, as it upgraded the stock to ‘buy’ from ‘accumulate’, citing a strong pricing outlook and attractive valuations, and raised its price target on the stock to Rs 125 from Rs 98 apiece.

“Severe shortage in the domestic market, strong profitability of steel producers and firm outlook on global prices shall help NMDC mitigate higher costs with stronger product prices,” Prabhudas Lilladher said.

Shares of NMDC ended 2.3% higher at Rs 109.35 apiece—the highest since Feb. 13, 2020. The stock gained for the seventh straight day—its longest winning streak in four months.

Of the 22 analysts tracking NMDC, 14 have a ‘buy’ rating, six suggest a ‘hold’ and the remaining two recommend a ‘sell’. The average of Bloomberg consensus 12-month target prices implies an upside of 3.8%.