Why NMDC’s Share Price Jumped The Most In Nearly Three Years
Shares of NMDC Ltd. jumped the most in nearly three years as a change in language of India’s mining norms could pave the way for the iron ore miner getting a renewal for its Donimalai mine in Karnataka.
The central government has amended the language in the Mines and Minerals (Development and Regulation) Act, 1957, according to a notification by the Ministry of Mines uploaded on the website of the Gazette of India. In Rule 3, Sub-rule (2), for the words “may, for reasons to be recorded”, the words “shall, for reasons to be recorded” shall be substituted, it said.
The MMRDA Rule 3 previously read as “the state government, upon an application made to it in this behalf by the government company or corporation at least 12 months prior to the expiry of the mining lease, ‘may’ for reasons to be recorded in writing, extend the period of the mining lease for further periods of up to 20 years at a time”.
With this move, the central government has passed on the message that renewal of any public sector mine in the future will not be put in jeopardy by any action of state governments, according to brokerage Emkay Securities.
“This notification is positive for NMDC and MOIL Ltd., as several of their mines are coming up for renewal over the next two years,” it said in a note. “This saves the (NMDC’s) Kumaraswamy mines from further action by the state government of Karnataka as it is due for renewal in October 2022.”
NMDC’s stock jumped as much as 8.57 percent during the day compared with the benchmark Nifty Metal Index’s 1.68 percent drop. The central government’s ruling removes a key overhang as analysts had downgraded the stock citing uncertainty over future lease renewal for the company’s mines in Chhattisgarh.
The ruling stems from Karnataka’s decision to withdraw the approval letter to extend the mining lease period for Donimalai and auction it even as the state’s high court ruled in favour of the nation’s largest iron ore miner.
NMDC suspended mining at Donimalai in November last year after the Karnataka government decided to impose an 80 percent premium on sales of iron ore from the mine. After the Karnataka High Court dismissed the state’s decision to claim a larger share of revenue from sale of the raw material for steelmaking, it decided not to extend the lease for mining at Donimalai. NMDC then sought relief from the mines tribunal under central government, which stayed the state’s order.
Lack of contribution from the mine—which according to NMDC constituted 17 percent of its total output in the financial year ended March 2018—dragged down the state-run miner’s production and despatches. The company, according to Bloomberg, was losing 0.5 million tonnes a month in production after the closure.
Sales of NMDC fell to its lowest in six years in August as Donimalai mine remained non-operational. Its production fell the most in six months during the month.