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NMDC is not in any rush to buy foreign mineral assets

ET Bureau Jan 1, 2013, 04.01AM IST
(NMDC is not in any rush to…)

HYDERABAD: Just days after the state auditor faulted it for not having a specific strategy to acquire mines abroad, India's largest iron-ore producer NMDC, which is sitting on a big cash hoard, said it is not in any rush to buy foreign mineral assets.

NMDC chairman and managing director CS Verma told ET that the miner is happy with interest earned from cash deposits of more than 20,000 crore. The government had raised 6,000 crore through a follow-on offer by divesting a 10% stake earlier this month.

For the year to March 2012, the iron-ore producer earned interest of nearly 2,000 crore on deposits of 20,264 crore. But NMDC's iron-ore production has fallen to 25.16 million tonnes in 2010-11 from 32 million tonnes in 2007-08.

"Company has been making efforts to acquire mines abroad but no specific strategy has been formulated," the Comptroller and Auditor General had said in a recent report. "The company needs to work out its strategy on reserve accretion and acquisition of new mining areas in India and abroad to enhance its production while maintaining operations on a longer term."

Verma, also the CMD of public sector steel giant SAIL, said he cannot give a timeline for overseas acquisitions. "It is not buying a vegetable in the market. We cannot be a desperate bidder or acquirer of assets. We are custodians of the government money and every penny that we spend on overseas acquisitions has to yield results."

NMDC, he said, has been actively looking at acquiring mineral assets in the overseas markets, both independently and in alliance with several government-owned entities. The iron-ore giant has already short-listed eight to 10 assets which are in different stages of due diligence.

"For the sake acquisition, we don't want to do any. The large acquisitions don't happen overnight. They are highly time-consuming. The success rate is also not very high," said Verma.

On criticism that NMDC was missing out on higher returns, Verma said, "The cash is not lying idle. It is earning interest. Having money does not mean that we can dump it."

Pointing to the large cash pile and limited choices before NMDC, Kotak Securities' analysts Kawaljeet Saluja and Abhishek Poddar wrote in a recent report that "the probability of meaningful value investment through the inorganic route looks remote due to a long process of acquiring approvals from the government (being public sector undertaking) and limited investment choices."

Verma said the company has chalked out a strategy to utilise cash reserves for domestic organic growth initiatives. "As against 3,000 crore of capital expenditure during the 11th Plan period, we have firmed up 30,000 crore of capex."

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