NMDC falls 2% after Macquarie downgrades to neutral on Donimalai lease issue

Team Udayavani, Nov 22, 2018, 1:51 PM IST

Bengaluru: NMDC shares fell 1.8 per cent in morning on Thursday after global brokerage house Macquarie downgraded the stock to neutral amid Donimalai lease issue.

The research house also reduced its FY20-21 EPS estimates by 9-5 percent as it feels Donimalai lease issues may be a drawn-out legal battle.

“We build a 6-month disruption into the base case, but risks are on downside. Steel plant is facing some delays, & we push commissioning by 6 months to FY21,” Macquarie said.

NMDC suspended iron ore-mining from its Donimalai mine in Karnataka following the decision of the State government to impose 80 percent premium on the iron ore sales from the mine, according to a regulatory filing by the public sector undertaking.

The state-run iron ore mining company said it had requested the government to reconsider its decision and the Karnataka Chief Minister Kumaraswamy had convened a meeting with senior officials on November 14.

“In response to our representation, the Chief Minister had convened the urgent high-level meeting on November 14 in Bengaluru and directed all the concerned to re-look into the representation given by us regarding the legal and other issues raised,” the company said.

The meeting ended on a positive note and there was information that the Karnataka cabinet has not taken any decision to cancel the lease of Donimalai to NMDC, it said.

Pending the decision on representation by the Karnataka government, production has been temporarily suspended, the NMDC said.

Sources had said if the Karnataka government decided to stick to the 80 percent premium, NMDC would be losing Rs 1,348 per tonne and may result in a loss of Rs 944 crore per annum as it mines about seven million tonnes of iron ore per annum from Donimalai.

The lease of Donimalai mine has already been extended by the Karnataka government with effect from November 4 for 20 years, NMDC said.

The Karnataka cabinet has approved the mining lease of Donimalai till November 2038, on payment of 80 percent of the average sale value as published by Indian Bureau of Mines, the NMDC said.

“Since imposition of such conditions is not according to the MMDR (Amendment) Act, 2015 read with Mineral (Mining by Government Companies) Rules, 2015 and as it is also not economically viable, we have raised the issue with the Karnataka Chief Minister,” the NMDC said.