NMDC Ltd

1. Industry structure and developments

Established in 1958, over the years, NMDC has grown to be India's largest single ironore producer, operating its mines in Chhattisgarh and Karnataka. Adopting moderntechnologies and commitment to quality of its products, NMDC is determined to be aworld-class eco-friendly mining organization. NMDC has been paying dividends for the last20 years.

The iron ore industry being cyclic in nature, NMDC is exposed to sharp fluctuation indemand for its products. Historically, the international commodity prices for iron ore andthe prevailing market for iron have been volatile and subject to wide fluctuations inresponse to relatively minor changes in supply and demand, market uncertainties, theoverall performances of the global or regional economics, the related cyclicality inindustries the company directly serves and a variety of other factors. Prices and themarket for iron ore may continue to be volatile and subject to wide fluctuations in thefuture. Premises also may be affected by government actions, including the imposition oftariffs and import duties, speculative trades, the development of products substitutes orreplacements, recycling practices, an increase in capacity or an oversupply of thecompany's products in its main markets. These externals factors and the volatility of thecommodity markets make it difficult to estimate future prices. The demand for Iron ore isrelated to growth of Indian economy and also that of the global economy reflectedprimarily in the growth of the infrastructure sector.

2. Strength and weakness Strength

• Larger reserves of high grade of iron ore consisting principally of hematite orewith Fe content of predominantly > 64 %.

• Largest producer of iron ore by volume in the last 3 financial years.

• Resources making the Company a low cost producer - the Company's cost ofproduction are competitive with those of the leading iron ore producers in the world. TheCompany is seeking to further cover its cost across all of its operations.

• Financial strength characterized by high net worth, zero debt, good creditrating.

• Good work culture - skilled, experienced and dedicated workforce.

• Good Brand image of NMDC's iron ore in domestic/international market.

• Highly mechanized iron ore mines.

• Availability of technology and infrastructure of existing projects in Bailadilato add new projects in the area with comparatively less investment.

• Core competence in iron ore mining.

• In-house R&D capability - Research and Development Centre and an In-houseexploration capability at Hyderabad which is capable of taking up assignments in the fieldof ore beneficiation and mineral processing.

Weakness

• Geographically remote location of the projects acting as deterrent in attractingand retaining talent and also for reaching supplies and services.

• Delay in forest and environmental and other clearances affecting time schedulesfor opening and commissioning new mines and affecting our investment plans.

• Extreme foggy weather conditions causing stoppage of mining operations atBailadila complex during monsoon months.

• The Company has not diversified into other sector. As such, any adverse impacton the mining sector hits the profitability of the Company.

• As a mining Company, NMDC is subject to extensive regulations surroundinghealth, safety of the people and environment. However, regulatory standards and communityexpectations are constantly evolving and as a result the Company is exposed to increasedlitigation compliance cost and unforeseen environmental remediation expenses apart fromconstraints in operations.

1) Continue diversifying and expanding its mining activities and products:

The Company believes diversification and expansion of its mining activities andproducts fits well with its strategy of becoming an integrated producer of iron and steeland will enable it to better balance cyclical change in mineral prices and economic changeas well as to grow its business. The Company has applied for and has been granted miningleases for diamonds, limestone and magnesite. The Company also has acquired two coalblocks and is looking to diversify into other minerals including minerals used infertilizer.

2) Expand and establish its presence as an integrated producer of iron and steel:

The Company plans to expand and establish its presence as an integrated producer ofiron and steel through selective value addition projects. The Company has signed an MOUwith the state government of Chhattisgarh to develop a steel plant with a capacity of 3mtpa at Jagdalpur, and also has plans to develop a steel plant in Karnataka. Furthermore,the company expects to complete its acquisition of sponge Iron India Limited, a Companyinvolved in the production of Sponge Iron. In addition, the Company plans to develop twopellet plants at Donimalai and at Bacheli.

4) Augment resources, improve infrastructure and enhances technology through jointventures and commercial tie-ups - the Company seeks to augment its resources and reserves,improve its infrastructure and enhance its technology through joint ventures andcommercial tie-ups.

5) Financial powers for investment in new projects as a Navaratna Company.

Threats

• Disturbances due to Maoists activities in Bailadila area.

• Production is affected due to problem of evacuation arising out of blasting ofslurry pipeline connecting Bailadila and restriction in rail movement.

• Intense competition from private sector in securing fresh mining teases,resulting in denial of leases in many cases and litigation delaying actions. Inability tosecure additional reserves of iron ore that can be mined at competitive costs or cannotmine existing reserves at competitive costs, profitability and operating margins may beaffected.

• Entry of MNCs and other Indian private companies into iron ore mining.

• The industry being cyclic in nature, NMDC is exposed to sharp fluctuations indemand for its products.

• The Company faces risks in respect of high inventory of stocks and its disposal.

Financial Performance of NMDC

Physical Performance of NMDC

4. Outlook

NMDC proposes to augment its production of iron ore from the present level of 30million to 50 million tonnes by 2015. It also has chalked out plans for value addition bysetting up pelietization plants in Chhattisgarh and Karnataka utilizing the slimes and anintegrated steel plant in Chhattisgarh. NMDC is also planning to venture into coal miningand other minerals.

The world economy is recovering from the recession and the Company anticipates stronggrowth in all parameters.

5. Risks and concerns ^:

The major risk NMDC is facing is the Maoists' attacks on and around its project atBailadila on and off. Such attacks have made some impact on production' which has affectedthe movemenf of ore from the Bailadila sector. The company is in contact with theGovefnmefrt'ageneies for support and protection of its people and installations. Theinitiatives taken by the Government of Chhattisgarh and the Central Government areexpected to find a solution to the risk at the earliest.

The serious concern for NMDC in expanding its activities is the hurdle the Company isencountering in getting mining leases. All out efforts are being made to see that theCompany gets the required mining leases for its expansion.

The industry being cyclic in nature, NMDC is exposed to sharp fluctuations in demandfor its products. The Company also faces risks in respect of high inventory of stocks andits disposal.

6. Internal control systems and their adequacy

NMDC has put in place all the necessary internal controls and they are found tobe quite adequate.

7. Discussion on financial performance with respect to operational performance.

Details on financial performance with respect to operational performance are given indetail in the Directors' Report. However, for the year under review, the Company hasachieved production of 23.80 MT of Iron Ore. In respect of diamond, the Company achievedproduction of 16,529 carats. The Company has also recorded sale of wind power of Rs.6.57crore for the year under review. On the financial performance, the turnover of the Companyfor the year under review was Rs.6,239.09 crore. PBT for the year under review wasRs.5,207.32 crore. PAT for the year under review was Rs.3,447.26 crore respectively. Networth of the Company was Rs. 14,250.45 crore. The Company achieved excellent rating by MOUfor the financial year 2009-10.

8. Material developments in Human Resources / Industrial Relations front, includingnumber of people employed.

The employees of the Company have been dedicated and loyal to the Company. Though therehas been attrition in certain disciplines, the employees in general have remained with theCompany through thick and thin. On the part of the Management, it is ensuring all-roundcomfort levels to its employees, including the required training at all levels based onthe need.

It is worth highlighting that industrial relation has been cordial all along. Anydifference is sorted out through discussions at appropriate levels. The support of workmenneeds special mention.

The Company is planning various diversification projects viz. Steel Plant, PelletPlant, coal mining etc. Since inception, the employees of the Company are exposed only toIron Ore industry. The Company's diversification project needs people with specific skilland knowledge in other industries viz. up gradation of skills for operating equipment withlatest technology. In order to get people with requisite knowledge and skills, the Companyhas to train / retrain its existing manpower and also to go for fresh induction.

During the last five years, the number of people employed is as follows:

Ten Years Performance

@ Production figures as per Balance Sheet

$ Includes Expenditure on Feasibility studies from 1999-00 to 2003-04.

* Excludes Investments

(^A) During 2008-09, Equity share splitted from Rs.10/- per share to Rs.1/-per share and Bonus shares issued in the ratio of 1:2.

for the year 2009-10