However, investors need to be cautious as analysts see limited benefits for NMDC on account of the weak domestic prices and increased supplies by other local producers. Most analysts say that only the restart of its Donimalai mines will be a major boost.
NMDC has taken 25-27 per cent price cuts due to a weakening outlook on domestic pricing, and rising supplies. Analysts attribute these price cuts to softness in sponge iron, pellet and steel prices and say the price cuts by NMDC were in line with those implemented by other Odisha-based miners.
Some analysts, as those at IIFL and Edelweiss Securities, expect further price cuts in the domestic market. Analysts at Edelweiss say: “We anticipate international iron ore prices to remain firm in the short term, owing to the dam breach at Vale’s Córrego do Feijão mine. However, further price cuts by Odisha-based iron ore miners are likely, as production ramps up ahead of the bidding process in March 2020.” They expect this to add more pressure on NMDC to cut prices from its current levels.
It may be noted that iron ore prices (ex-China) of 62 per cent Fe grade, which had fallen from around $76 a tonne in October to less than $66 a tonne in November, have rebounded to $75-76 levels. This indicates that Indian iron ore prices are not following the global trend, owing to higher domestic supplies and pricing pressures.
NMDC has two mines — Donimalai and Kumarswamy in Karnataka — with permitted annual production of 7 million tonnes (mt) each. Operations at Donimalai remain temporarily suspended, pending a hearing in the High Court on the unreasonable demand of 80 per cent share in revenue as a condition for mining renewal.
While analysts were expecting about 5 mt of sales volume being hit with the halt in production at the mines during FY19, they believe that a restart of mining at Donimalai will provide the required trigger for the stock.
Analysts at Motilal Oswal Securities believe NMDC will eventually get its mining leases renewed without having to share any revenue as per the Mining Act Amendment 2015, but are not sure how long the legal battle will drag.
Those at IIFL, too, believe a restart of the mines is unlikely before FY20, and hence have cut their profit estimates for NMDC by 10-11 per cent for FY19-21, to factor in the volume miss in FY19 and the downtrend in iron ore prices.