NMDC Ltd Management Discussions.

1. NMDC: An overview

1.1 Introduction

NMDC Limited, operating in the Mining and Mineral sector since November 1958, is one of the highest profit-making ‘Navratna’ public sector companies under the Ministry of Steel. NMDC has extensive experience in the exploration of a variety of minerals including iron ore, copper, rock phosphate, limestone, dolomite, gypsum, bentonite, magnesite, diamond, tin, tungsten, graphite, beach sands etc. NMDC Ltd is the largest iron ore mining company in India, with an average annual production of over 33 MT over the last 5 years. With iron-ore production of around 34.15 million tonnes in FY’21, it contributed to around 29% of domestic production (excluding captive iron ore production). At an average of 64% Fe, NMDC sells one of the best grade Iron ore globally. The company has tailored its iron products like DR CLO, Iron ore lumps, Iron ore Fines, Sized ore, Low-grade fines to suit the requirement of Integrate steel Plants, Sponge Plants and Pellet Plants. Apart from the sale of ore in the domestic market, NMDC also supplies ore to Japan & South Korea under long-term agreements with the two countries.

NMDC has added 3 MTPA capacity in FY’21 & has plans to increase the production capacity from its three mining complexes from the existing 46 MTPA to 67 MTPA in the near future to meet the growing requirements of iron ore of the Indian Steel Sectors. In the long term NMDC is actively pursuing an Iron Ore Production ramp-up plan to further increase its iron ore production capacity to 100 MTPA by FY’30 from its existing mines and further to 100 MTPA from the acquisition of new mines through the reservation route. The Company is also focused to diversify from the existing business of exploration and mining. NMDC has invested in the construction of a 3 MTPA integrated steel plant in Jagdalpur (Chhattisgarh) and a 1.2 MTPA pellet plant in Donimalai (Karnataka). NMDC has also ventured into the mining of coal through the allocation of two coal blocks in Jharkhand on a nomination basis by the Government of India. NMDC is planning to start Tokisud North Coal Mine in Jharkhand in FY’22. The company immensely focuses on productivity improvement as well as cost optimization which results in high profitability for the organization.

NMDC has made the highest ever revenue of 15370 crores, with a growth of 31% over last year. NMDC recorded a Profit (before tax) of 8901 crores in FY’21 and a net worth of 29,756 crores (as of 31st March 2021). NMDC has a strong history of rewarding investors with an average dividend payment of around 560 % in the last 5 years, which is testimony to consistently create value for its stakeholders.

NMDC continues to pursue policies and programmes to deliver long-term value to all its stakeholders. NMDC has also invested substantially in the socio-economic development of the local communities, especially near its mining projects.

1.2 Operating Projects

NMDC operates three highly-mechanised iron ore mine complexes in the states of Chhattisgarh and Karnataka. Two of the complexes are located in Dantewada (Chhattisgarh) namely Kirandul Complex and Bacheli Complex, that produce around 26 MTPA. The third complex in Bellary (Karnataka), namely, Donimalai Iron Ore Complex produces 14 MTPA (from the two pits- Kumaraswamy & Donimalai). NMDC also has a 1.2 MTPA pellet plant at Donimalai.

NMDC also operates the Diamond Mining Project, Panna (M.P.), which is the only mechanized diamond mine in Asia.

1.3 Global Presence

NMDC has a majority stake of 90.05% in Legacy Iron Ore Limited, an ASX listed entity based in Perth, Australia which has iron ore (magnetite), gold, nickel, base metal and tungsten interests (21 tenements) in Western Australia.

International Coal Ventures Limited (ICVL), a joint venture company of SAIL, NMDC and RINL, acquired a coking / thermal coal mine in Mozambique in 2014 and took over the operation. NMDC holds a 26% stake in ICVL.

Benga Mine, one of the operational assets of ICVL, has produced about 1.38 MT tons in FY’21 (Both low ash & high ash) compared to 1.78 MT production in FY’20. Mining was hampered for ~3.5 months due to Covid lockdown.

NMDC has closed its operations (exploration works) at gold leases in Tanzania due to unsatisfactory results.

1.4 Growth plan

NMDC has made a comprehensive plan to enhance iron ore production capacity to 67 MTPA to meet the growing requirements of iron ore of the Indian Steel sector. The strategy focuses on growth largely through brownfield expansion of existing mines and improving the evacuation infrastructure.

NMDC is also actively pursuing an Iron Ore Production ramp-up plan to further increase its iron ore production capacity to 100 MTPA by FY’30 from its existing mines and further to 100 MTPA from the acquisition of new mines through the reservation route.

NMDC also envisages expanding through the development of Deposit-13 & Deposit-4

(greenfield projects), under a Joint Venture company of NMDC Limited and Chhattisgarh Mineral Development Corporation (NCL).

NMDC is in the process of setting up a slurry pipeline, along with associated beneficiation plant & pellet plant, in phases for economical transportation of iron ore to locations from where the pellets /ore can be supplied to the industry. Land acquisition for the slurry pipeline is in an advanced stage.

Efforts to increase evacuation capacity through doubling of Kirandul-Kothavalasa (KK) line is also in full swing and few completed sections have been opened for traffic. Out of 150 km of planned doubling of railway line, 72% work has already been completed.

NMDC has developed an intermediate iron ore stockyard at Kumarmaranga in Chhattisgarh for uninterrupted supplies to customers. This stockpile will be opeartionalised soon.

NMDC is pursuing the allocation of new iron ore deposits both through participation in auction and reservation through government dispensation route (section 17A(2A) of the revised MMDR Act, 2015) for further expansion in capacity.

NMDC had emerged as a preferred bidder for Chigargunta-Bisanatham gold block, Andhra Pradesh in the auction process conducted in July’18, for which activities will be initiated post-issuance of LOI.

Ministry of Coal has allocated two Coal Blocks namely Tokisud North Coal block & Rohne Coal Block on 17th March 2020 for commercial sale & captive purpose. NMDC is in final stage of appointing MDO for Tokisud North Coal Block and planned to start its operations in FY’22.

NMDC is in the advanced stages of setting up a 3.0 MTPA greenfield Steel Plant at Nagarnar in Chhattisgarh, which is expected to operationalize in FY’22. The commissioning of the integrated steel plant got delayed due to the pandemic. NMDC has also forayed into pellet-making through the setting up of a 1.2 MTPA pellet plant at Donimalai. Another 2 MTPA pellet plant is in the process of being set up at Nagarnar, Chattisgarh.

1.5 Exploration & Reserve Estimation:

NMDC has a dedicated exploration wing at Raipur, fully equipped to undertake the exploration of minerals. NMDC has conducted more than 17,712 meters of core drilling in FY’21, at existing mines. NMDC is also conducting exploration in different blocks of iron ore, manganese, gold & diamond in M.P., Maharastra, Jharkhand etc under NMET & MOU route. Besides, it has also established a well-equipped Centre for Geostatistics and has a remote sensing lab at Corporate Office, Hyderabad. NMDC has full-fledged mine planning wings at Corporate office as well as at project sites for orebody modeling, reserve estimation, pit design & scheduling, with advanced software like Surpac, Whittle & Mineshed.

1.6 Research & Development:

NMDC operates a state-of-the-art Research & Development (R&D) Centre at Hyderabad, which has been declared as a "Centre of Excellence" by the United Nations Industrial Development Organisation (UNIDO). The R&D Centre undertakes different projects to mitigate the operational challenges of different units of NMDC and provide solutions in terms of improvement in the system or change in technology, to achieve a continual enhancement in its processes & operations. The Centre provides solutions to external agencies as well. NMDC holds 21 patents for its innovations at R&D centre. Recently, 04 Nov’2020, NMDC has launched NICE (NMDC Innovationa & Incubation Centre) in collaboration with i-TIC foundation, IIT, Hyderabad.

2. Industry Structure and Developments Market Environment:

2.1 Economy:

2.1.1 Global:

World has faced unprecidented impact of the Covid-19 pandemic affecting the lives of people across the globe, triggering the worst recession since the Great Depression with a negative global growth of -3.2% in 2020. Following last year’s collapse, the global economy is experiencing an exceptionally strong but uneven recovery. While advanced economies are rebounding, many of the world’s poorest countries are being left behind, and much remains to be done to reverse the pandemic’s staggering human and economic costs.

Global growth is set to reach 6 percent in 2021—its strongest post-recession pace in 80 yrs—in part underpinned by steady but highly unequal vaccine access. Advanced economies growth prospects have improved by 0.5%, while downward revision for emerging market and developing economies, significantly for emerging Asia. For 2022, projected global growth is 4.9%.

Advance economies has vaccinated their population at a faster pace compared to emerging market economies creating divide in two regions & uneven recovery. Divergences in policy support are a second source of the deepening divide. Advance economies have continued sizable fiscal support in 2021 for pandemic related measures and more fiscal support is anticipated in 2022, especially in USA & EU.

On the other hand, in emerging market and developing economies most fiscal measures expired in 2020.

Constrained demand and supply chain bottlenecks are putting upward pressure on prices leading to high inflation. However, this temporary inflation is expected to subside to pre-pandemic ranges in advance economies in 2022. But inflation is expected to remain elevated into 2022 in some emerging market and developing economies, with continued food price pressures and currency depreciations—creating yet another divide.

One important avenue to bolster trade is to reduce the costs of cross-border trading. These costs currently double the price of traded goods over domestic goods and far exceed the costs of tariffs alone. Measures to lower trade costs include simplifying burdensome border procedures, improving transport infrastructure and governance, enabling greater competition in shipping, logistics, and wholesale and retail trade, lowering trade barriers, and ensuring greater transparency and predictability of trade policy.

The global outlook remains highly uncertain, with major risks around the path of the pandemic and the possibility of financial stress amid large debt loads. Further, recovery is uncertain unless Covid will be beated by vaccine at global level.

Overview of World Economic Outlook Projections

Region/Country Y-o-Y (% age change) Projections Difference from Apr’20 projections
2019 2020 2021 2022 2021 2022
World 2.8 -3.2 6.0 4.9 0.0 0.5
Advanced Economies 1.6 -4.6 5.6 4.4 0.5 0.8
US 2.2 -3.5 7.0 4.9 0.6 1.4
EU 1.8 -6.0 4.7 4.4 0.3 0.5
UK 1.4 -9.8 7.0 4.8 1.7 -0.3
Canada 1.9 -5.3 6.3 4.5 1.3 -0.2
Emerging market & developing economies 3.7 -2.1 6.3 5.2 -0.4 0.2
Russia 2.0 -3.0 4.4 3.1 0.6 -0.7
China 6.0 2.3 8.1 5.7 -0.3 0.1
India 4.0 -7.3 9.5 8.5 -3.0 1.6
Brazil 1.4 -4.1 5.3 1.9 1.6 -0.7

Source: IMF

2.1.2 India

India has emerged as the fastest-growing major economy in the world and is expected to be one of the top three economic powers in the world over the next 10-15 years, backed by its robust democracy and strong partnerships. India has the fourth-largest unicorn base in the world with over 21 unicorns collectively valued at US$ 73.2 billion, as per the Hurun Global Unicorn List. By 2025, India is expected to have ~100 unicorns and will create ~1.1 million direct jobs according to the Nasscom-Zinnov report ‘Indian Tech Start-up’.

However, the impact of Covid pandemic & measures taken by the Government to contain the spread of the Covid-19 pandemic have had a denting impact on economic activities & has derailed the normal growth trend for India in FY’21. As per the Central Statistics Office (CSO), the Indian economy (real GDP at constant 2011-12 price) is estimated to 135.13 lakh crore in 2020-21, as against the First Revised Estimate of GDP for the year 2019-20 of 145.69 lakh crore. The growth in GDP during 2020-21 is estimated at -7.3 percent as compared to 4.0 percent in 2019-20. GDP at Constant (2011-12) Prices in Q4 of 2020-21 is estimated at 38.96 lakh crore, as against 38.33 lakh crore in Q4 of 2019-20, showing a growth of 1.6 percent.

The ‘Mining and Quarrying’ sector was also not very promising & has shown a fall of -8.5% in FY’21 against previous years’ negative growth of -2.5%, in terms of GVA numbers. The Index of Industrial Production (IIP) of Mining registered a fall of -7.8% percent during 2020-21 as compared to 1.6% growth during 2019-20. Similarly, the Index of Industrial Production of Metallic Minerals has observed a sharp fall of -15.8% in 2020-21 as compared to a growth of 13.9% in 2018-19. However, Q4 2021 has observed a sharp recovery and IIP of Mining & Metallic Minerals shown a growth of -0.1% & 3.6% respectively. The economy was gradually turning towards recovery until the deadly COVID-19 second wave hit India in April’21 & has delayed India’s recovery. Although substantial spending by the government, private investments, goods exports & improving business sentiments provided the biggest boost to growth in Q4 of FY’21, the worrying trend is a fall in consumption spending, mostly due to health and financial anxieties. With more COVID-19 variants emerging across the world and certain mutations suggesting variants of concern, which is driving the sluggish consumer spending, the country needs effective policies to address the risks & gain consumer confidence and thereby, boost spending.

Some of the recent initiatives taken by the Government which can boost the economy are:

In June 2021, RBI Governor, Mr. Shaktikanta Das announced the policy repo rate unchanged at 4%. He also announced 15,000 crore (US$ 2.05 billion) liquidity support to contact-intensive sectors such as tourism and hospitality.

In May 2021, the Government of India (GoI) and European Investment Bank (EIB) signed the finance contract for the second tranche of EUR 150 million (US$ 182.30 million) for the Pune Metro Rail project.

According to an official source, as of June 2021, 29 companies have registered under the 12,195 crore (US$ 1.64 billion) production linked incentive scheme for the telecom sector.

For the implementation of the Agriculture Export Policy, Government approved an outlay 2.068 billion (US$ 29.59 million) for 2019, aimed at doubling farmers income by 2022.

The country is also progressing towards huge infrastructure investments in the coming years. Addressing the nation from the Red Fort, Hon’ble Prime Minister Shri Narendra Modi has announced -- Gati Shakti Project, an ambitious project for infrastructure building worth 100 lakh crore – which will take the country towards accelerated progress in the next 25 years. Further, India is expected to attract an investment of around US$ 100 billion in developing the oil and gas infrastructure during 2019-23. India is focusing on renewable sources to generate energy. It is planning to achieve 40% of its energy from non-fossil sources by 2030, which is currently 30% and has plans to increase its renewable energy capacity to 175 gigawatts (GW) by 2022. In line with this, in May 2021, India, along with the UK, jointly launched a ‘Roadmap 2030’ to collaborate and combat climate change by 2030.

As indicated by provisional estimates released by the National Statistical Office (NSO), India posted a V-shaped recovery in the second half of FY21. As per the Reserve Bank of India’s (RBI) estimates, India’s real GDP growth is projected at 9.5% in FY22; which includes the growth of 18.5% in Q1, 7.9% in Q2, 7.2% in Q3 and 6.6% growth in the Q4.

Initiatives being taken by the government to increase the spending on infrastructure development with a plan to increase public health spending to 2.5% of the GDP by 2025 will boost the Indian economy as well as the iron & steel sector in the near future and outlook for the iron ore sector is positive & strong in near future.

2.2 Iron Ore Industry Outlook: Global: Steel & Iron Ore

After a turmoil in the first half of 2020 in the iron & steel industry across the globe under the impact of Covid-19 & strict lockdowns, the industry has shown a sharp recovery by the initiatives taken by governments in different countries to curve the growth of Covid-19 & support the economy by increasing the spendings, especially in infrastructure. Construction activity in China has shown some unexpected resilience mainly due to financial stimulus into infrastructure projects by Government to boost the economy & in turn steel demand. Steel use in China expanded while it contracted in the rest of the world and 2020 ended with only a minor contraction in world steel demand.

Total world crude steel production was 1877.5 MT in 2020 with a marginal growth from last years production of 1874.4 MT. China contributed to 1064.8 MT in 2020 with a growth of about 7% from 995.4 MT in 2019. However, the rest of the world has seen a fall in production of crude steel by 7.5% reaching to 812.7 MT in 2020.

With the increase in demand for steel from developed economies post-pandemic & continuous increase in demand from China, steel prices have increased significantly in Q1 2021-22 and leading to an increase in demand for iron ore. Although the supply of iron ore from Brazil has improved, trade tensions between China & Australia have added up to the red-hot prices of iron ore. Iron ore prices for the benchmark 62% index were hovering around $215-220/t during June-July’21.

Iron ore prices have seen a sharp correction in the last 1 month with the price falling from the level of $220/ t to $136/t (from July end to Aug end) for benchmark 62% Fe index. The fall in prices is mainly due to high Brazilian shipments coupled with steel production cuts in China under environmental restrictions. However, prices of steel have not seen any major correction in the recent past due to an increase in demand from developed nations after recovery from Covid as well as demand for steel for increased infrastructure spending by various governments.

In the EU, flash flooding, particularly in Germany, has resulted in steel companies being unable to fulfill orders. Damage at mills appears minor, but transport and distribution links have been impacted. This supply disruption has provided support to steel prices in the near term. US end-user steel demand fundamentals remain robust and will remain strong in short term. The current production level is still lagging demand, which leaves room for further upside in steel production and imports in H2. If the demand & prices of steel will not cool down in near future, it will provide buoyant support to iron ore demand & prices.

Climate change will equally influence the iron & steel industry. Apart from China, the decarbonization of the European steel industry is gaining pace. ArcelorMittal announced that it plans for its Spanish Sestao

EAF to use ~50% fossil-free H-DRI and become zero carbon emissions by 2025 at this location. The industry is also focused on substantially improve efficiency, maximizing scrap use and developing breakthrough technologies to curb down carbon emission.

Global crude steel production is forecasted to increase by around 6% year-on-year to reach about 1990 MT in 2021, despite production cuts in China under the impact of environmental sustainability. Steel demand & production will remain buoyant in 2022 & will observe marginal growth over 2021. However, the production of crude steel & hot metal will follow a negative trend in long term under the impact of environmental concerns. Chinese crude steel production is expected to increase by 4.9% in 2021 & 0.3 % in 2022.

Even if Chinese steel demand remains subdued, lackluster seaborne iron ore supply is likely to keep iron ore prices at elevated levels over the next few months. It is projected that prices for iron ore will stabilize between $120-140/t for the rest of the year due to a bearish outlook from the property and infrastructure sectors. Prices will fall further in the coming years with the increase in supply from new capacity addition and prices will float around $ 80-90/t in long term.

Pandemic has accelerated some key trends, which will bring about shifts in steel demand. The iron & steel industry will see exciting opportunities from rapid developments through digitization and automation, infrastructure initiatives, reorganization of urban centers and energy transformation.

India:

Indian crude steel & iron ore production had observed a significant fall in Q1 FY’21 due to surge in covid & imposed lockdown by Government. Apart from the impact of Covid-19, iron ore production capacity was also affected by the delay in the start of auctioned mine post expiry of leases in March-2020, most of which could not start production till Q2 FY’21. However, it has revived significantly with strong economic support from the government & strong demand for iron ore & steel in the international market, especially in China. Domestic iron ore production in Q4 of FY’21 has reached the level of production of 66 MT, same as Q4 FY’20, due to increase in production of existing mines & start of production from auctioned mines, supported by various majors taken by the government to meet the domestic iron ore demand.

Production of Iron Ore in India was about 203 MT in FY’21, which was 16.5%% lower than that of FY’20. Further, the export of ore from the country has increased exponentially & reached approx. 46.4 MT during the year FY’21, which was 85% higher than that of the preceding year’s export of 25.13 MT, mainly due to the high demand for low-grade ore from China during the year.

Indian steel demand from the construction and automotive sectors saw an uptick amid the relaxation of lockdowns in several regions in the recent past. However, overall steel demand remained stable in June’21 with lower manufacturing steel demand being the spoilsport. Steel production grew by 3% in June against May on the back of soaring exports, but export momentum will slow down in the coming months. Crude steel production for FY’22 is projected to increase by 10-15% over FY’21 (103 MT) to reach the level of 115-120 MT due to strong domestic demand for infrastructure development initiatives by the government, further supported by international demand.

The Government of Odisha has initiated the auction of eight more iron ore blocks in the current year with total estimated reserves of 800Mt. Leases of two working mines in Odisha, namely Koira of Essel Mining and Thakurani-B of Sarada Mines Pvt. Ltd., with a total production capacity of about 10Mtpa will expire in August 2021 & will also be put up for auction after the expiry of leases. Additionally, Chhattisgarh state is planning to auction eight iron ore blocks during the year, estimated reserves of which are yet to be published.

Indian exports have been remarkably strong Jan-June, 2021, backed by high seaborne prices, improving domestic supply and subdued domestic demand – particularly in Q1 FY’22. Also, major steel mills have been better placed for export options compared to secondary steel producers. Seaborne prices will support low-grade ore being exported from India for the rest of the year. High-grade export volumes are expected to fall in 2021. It is expected that India will export about 40-45 MT of iron ore in 2021

Domestic demand is expected to be firm for the rest of the year, subject to the pandemic remaining under control. India’s iron ore supply position has eased considerably after ramping up production of the mines auctioned last year; & no major supply constraints are expected in near future to meet the domestic demand. New mines being auctioned in Odisha will further add up the capacity apart from the expansion plan of existing miners.

Indian iron ore production is likely to grow in line with domestic steel production, which is envisaged to reach 300 MTPA of crude steel capacity by FY’31. NMDC is bullish on the growth prospects of India’s steel industry with its competitive advantages and the impetus being given by the government to the steel sector. Growth in domestic steel demand in all key sectors, such as infrastructure, housing, automobile, etc. is envisaged to support domestic demand. Further, the impetus of government in new-age technologies will add up to the infrastructure requirements & in turn increased the demand for steel & iron ore. At the same time, global demand in the near future will also support the domestic players. Further, the increase in demand for high-grade ore and the price of iron ore in the international market is expected to support NMDC in improving its performance in terms of quantity as well as EBITDA margins.

3. NMDC – Opportunities & Threats

a) Opportunities

i) Envisaged growth in domestic steel production on account of the factors mentioned below would lead to higher demand for Iron Ore in the country:

Government impetus on increasing spending on developing instructure fore various sectors will support the demand of steel & iron ore. Growth potential in steel-intensive sectors such as housing, infrastructure, automotive, rail & road, consumer durables in the coming years.

High demand for Steel & Iron ore in the international market, especially from China.

Government initiatives for Self-Reliant

India creating new avenues & set-up of new industries leading to demand in steel

Numerous foreign companies are setting up their facilities in India on account of various Government initiatives like Make in India and Digital India. This will further add up with the government initiatives for 100% FDI.

The government envisages bringing

India’s GDP to US$ 5 trillion by FY25 and achieve upper-middle income status on the back of digitization, globalization, favorable demographics, and reforms that will create demand for steel in the domestic market.

Increase in demand for high-grade ore worldwide considering environmental concerns. NMDC’s iron ore is one of the best grades of ore in the world.

Continuous thrust by the government to use domestically manufactured iron and steel products in government procurement.

Further capacity addition by steel players in near future, along with planned commissioning of NMDC’s steel plant in Nagarnar.

The re-start of Donimalai has further added the 7 MT production capacity apart from the 3 MT capacity addition at Kirandul.

ii) Prices of iron ore in the international market will remain under upward pressure in the near term, which will increase the demand for domestic ore.

iii) Allocation of Rs. 50,000 Crore for developing coal evacuation infrastructure, under Self Reliant India initiative by Government will help in both Steel & Coal Business of NMDC

iv) NMDC, being one of the agencies nominated to undertake exploration activities is investing to intensify exploration for mapping of minerals across the country, which could open new avenues for the company to grow.

v) The introduction of a seamless composite exploration-cum-mining-cum-production regime will help in catering to new mines under reservation/ auction.

vi) Development of market-driven pricing i.e. pricing index could be a win-win situation for mining companies and end consumers and will streamline the calculation methodology leading to reducing the financial burden on leaseholders.

b) Threats

i) Demand for Iron Ore may fall in the international market in long term due to the initiatives taken by various countries to cut steel production to reduce the carbon footprint.

ii) New iron ore leases being being auctioned will add up the capacity of production leading to increase in supply of iron ore and increase the competition in the market. Further, capacity expansion by various captive & non-captive players will further increase the iron ore supply.

iii) Removal of distinction between captive and non-captive mines will allow the sale of surplus unused minerals in the market by captive miners will create pressure on the supply-demand scenario of the market. Government has also allowed the captive steel players to sale upto 50% of their iron ore, after meeting their own requirement will further add up to the competition.

iv) Backward integration by Steelmakers into iron ore mining after the start of auctioned mines will affect the demand from the customers of the Company.

v) Entry of new private payers in Iron ore & Coal Sector, under new policies of the government, will increase the competition for NMDC & reduce the demand of NMDC ore in the market.

vi) Government has imposed a premium of 22.5% for all the iron ore mines, except Kumarswamy, renewed in recent past will impact the EBITDA margin of the company.

vii) Indian iron ore industry will continue to be uncompetitive on a global level due to higher rates of royalty and other levies such as DMF, NMET, Export duty etc. as well as significantly higher logistic costs.

viii) Increasing regulatory pressure on environment, health & safety and sustainability.

ix) Threat of non-renewal of Donimalai iron ore leases or renewal with a high premium will affect the balance sheet of NMDC.

x) Disturbances due to Maoist activities in Bailadila region from where the majority of NMDC’s production comes. At the same time, the location of Bailadila has a logistic disadvantage. It would be pertinent to note that the iron ore mining industry in India is expected to witness enhanced competition over the next few years due to new mines coming in operations after next trench of auction. We have also observed that few players have surrendered the auctioned mines or could not start, probably due to high premium quoted in auction in 2019-20. The premium offered by bidders during next trench of auction will play an important role to decide the market dynamics. It will be relevant to keep a watch that how a merchant player will manage it’s costing after paying a huge premium in the auction.

On the one hand, domestic iron ore production is on the rise, with expection to increase of production this year upto 245-255 MT. On the other, with domestic steelmakers acquiring mines through auction as the option to integrate backward, the market for merchant miners may be affected adversely in the medium to long-term. In the medium term, the impact of Corona will still be visible & demand will be sluggish under the effect of health issue & falling economy. NMDC’s business would continue to be affected by developments impacting the demand-supply scenario & price fluctuations of iron ore in both the global and domestic markets.

4. Segment-wise or Product-wise performance 4.1 Physical Performance of NMDC

Details 2016-17 2017-18 2018-19 2019-2020 2020-2021
Production:
Production of Iron Ore WMT (In lakh tonnes) 340.05 355.76 323.61 314.89 341.50
Production of Sponge Iron (tonnes)* 5,474.11 NIL 2,475.37 NIL NIL
Production of Diamonds (carats) 35,635.99 39,393.72 38,148.77 28,537.23 13,681.01
Production Pellets (in tonnes) 58,070 1,15,622.89 1,10,481.19 83,751.32
Sales:
Sale of Iron Ore (in lakh tonnes) 356.21 360.75 323.56 315.14 332.52
Sale of Diamonds (carats) 25,631.46 33,175.34 29,345.54 33,722.90 22,248.84
Sale of Sponge Iron (tonnes) 8,579.42 Nil 495.58 1,943.88 NIL
Sale of Pellets (tonnes) 42,948 1,12,010 85,793 92,773

4.2 Financial Performance of NMDC ( in Cr.)

Details 2016-17 2017-18 2018-19 2019-2020 2020-21
Sale of Iron Ore 8,708.90 11,490.93 11,997.98 11,569.00 15,233.70
Sale of Diamonds 41.91 35.17 38.86 34.29 21.10
Sale of Wind Power 7.48 6.50 5.51 5.39 5.17
Sale of Sponge Iron 13.13 0.00 0.94 4.39 NIL
Sales- Pellet 0.00 25.40 76.52 55.55 73.50
Sales – Others 58.22 56.91 32.86 30.59 36.59
Turnover 8,829.64 11,614.91 12,152.67 11,699.21 15,370.06
EBITDA 4,509.86 6,472.13 7,518.91 6,426.69 9,146.27
PBT 4,293.68 6,179.66 7,199.06 6,123.48 8,901.10
PAT 2,589.14 3,805.88 4,642.11 3,610.12 6,253.05
Dividend 1,313.02 1,676.86 1,690.14 1,619.72 2,274.15
Dividend as % of PAT 51% 44% 36% 45% 36%

5. Outlook for NMDC

NMDC proposes to augment its production capacity of iron ore to 67 million tonnes by FY’25. It has also embarked on value addition projects by setting up a 1.2 MTPA pellet plant utilizing slimes in Karnataka and a 3.0 MTPA integrated steel plant in Chhattisgarh. NMDC-CMDC Limited (NCL), a JV company of NMDC Limited & CMDC Limited, will also start production from Dep-13 through MDO in the near future. Dep-4 has been also allocated to NMDC in Sep’19, which will add further value to NMDC production & profit numbers. NMDC has also developed an intermediate stockpile at Kumarmaranga near Jagdlapur to ensure an uninterrupted supply of ore to the customers. To augment evacuation capacity, NMDC is supporting on Doubling of K-K line (Kirandul- Kotvatsala), Rowghat-Jagdalpur line, Slurry Pipeline, etc

To diversify further its business, NMDC is planning to start one of the Coal Mine, namely Tokisud North, Jharkhand in FY’22. NMDC will also start actions to operationalize the other allocated Coal Block, Rohne, in the next 2-3 years. NMDC also participated in the auction of the Gold mine & declared as preferred bidder for Chigugunta-Bisanatham Gold Block in A.P. NMDC will take action to start the gold mine after LOI will be issued by the state government. NMDC has recently prepared its Internationalisation Strategy to venture into various identified minerals & geographies & will continue to look for opportunistic assets based on the recommendation & strategy in the formulated report. NMDC is committed to focusing on maintaining cost competitiveness in the global and domestic markets in a scenario where prices are expected to remain subdued. Further, NMDC is taking various initiatives towards automation & digitization of its operation to further improve its cost competitiveness. Along with robust strategic planning to support its growth agenda, NMDC continues to enhance organizational capabilities and other enablers to achieve its short-term and long-term objectives.

6. Risks and Concerns

NMDC is exposed to sharp fluctuations in demand for its products and volatility in prices. Falling prices of iron ore, specially in international market will support the import by the steel players & exert pressure on domestic supply & prices.

Introduction of Auction rule has increased risks for NMDC as its major customers have acquired captive mines in mineral-rich states, mainly JSW & AM-NS. Both JSW & AM-NS has already started production from newly acquired mines & planned to increase it further in the near future. New tranches of auction is likely to add further capacity of iron ore to steel players as well as other merchant players in near futyre. This is likely to adversely impact the market for NMDC over the medium to long term. Kumarswamy mine is due for extension of lease in Oct’22, which will again impact the EBITDA of the company. One of the major risks that NMDC is facing is the disturbances due to Maoist activities in Bailadila region. The Company is in contact with the Government agencies at all levels for support and protection of its employees and installations. Although NMDC is entering in to Coal Mining, the opening of the Coal sector for Commercial mining will increase the competition for NMDC in the short to medium term.

Timely enhancement of evacuation capacity in line with production plans also remains a potential risk. This could impact production and inventory levels for NMDC.

7. Internal control systems and their adequacy

Necessary disclosure in respect of Internal Control Systems and their adequacy has been made in Annexure-C to the Independent Auditors’ Report dated 22nd June, 2021 which forms part of the Annual Report.

8. Discussion on financial performance with respect to operational performance

During the year under review, the Company’s revenue from operations increased by 31.38% from 11,699 crores to 15,370 crores mainly on account of:

Increase in Iron ore Sales quantity by 5.52 % from 315.14 Lakh Tons to 332.52 Lakh Tons.

Realization was higher by 24.79% during this period from 3,671/- per ton to 4,581/- per ton.

Details on financial performance with respect to operational performance are given in detail in the Directors Report.

9. Material developments in Human Resources/ Industrial Relations front, including number of people employed.

The human capital of NMDC has been its key driving factor and its greatest asset. The company has made concerted efforts in keeping the workforce highly engaged and motivated. On one hand, continuous improvement is made to improve the quality of life at the townships with investments in parks, community halls, upgradation/construction of new quarters, clubs, gymnasium, facilities for different sports such as tennis, badminton, table-tennis, cricket, etc. NMDC has also taken revisions in various welfare measures & advance from time to time. It also focuses on various types of insurances beneficial to the employees. To give a further support to retired employees, NMDC has launched medical insurance facility for wider coverage of hospitals. During Covid time, NMDC has taken various initiative to give the health & safety of the employees utmost priority. Apart from supporting the employees in various sanitaisation & health measures, Ex-Gratia of Rs 15 Lakhs for deceased employees’ family has been also started, which is over and above the existing facility of payment of last Basic + DA every month for family of deceased employees.

On the other hand, training and skill up-gradation forms an important area where assessment is first made to understand employee needs and concerns and then, appropriate training programmes are organized throughout the year. Even during Covid time, NMDC continued its training programmes through Web-based learning initiatives. To enhance the training further, NMDC has initiated the process of purchasing 100 comprehensive world-class

E-Learning Licenses through M/s Udemy. NMDC has further associated with reputed institutes like IIM, IIT and ISB for imparting training.

NMDC has also started happiness building initiative by imparting specific training in line with IKIGAI, on happy worlplace. As a result of the all-round measures being taken by the company, attrition from NMDC has been marginal, despite remote locations of the NMDC mines.

It is worth highlighting that industrial relations have been cordial all along during the year. Any difference is sorted out through bipartite discussions at appropriate fora. The cooperation and support of workmen represented by All India NMDC Workers Federation (AINMDCWF) in this regard are praiseworthy. Keeping in view the various diversification projects viz. Steel Plant and Pellet Plant, & expansion of existing projects, the company has taken initiative to train /retrain its existing manpower and also to go for fresh induction. Further, about 10 executives have been recruited in Finance in FY’21. All were provided on-the-job and off-the-job training in order to prepare them for taking up the challenges of working in NMDC’s production projects, upcoming Steel Plant as well as any new venture that Company may like to take up. The further recruitment process is in progress for upcoming projects.

During the last five years, the number of people on rolls as on 31st March is as follows:

2016-17 : 5,572
2017-18 : 5,382
2018-19 : 5,887
2019-20 : 5,739
2020-21 : 5,569

10. Details of significant changes in Key Financial Ratios:

Details of significant changes (i.e. changes in 25% or more as compared to the immediately previous financial year in key financial ratios:

Debtors Turnover There is no significant
i) Ratio change in the ratio
ii) Inventory Turnover There is no significant change in the ratio 232 22.63 crore as interest upto
iii) Interest Coverage Ratio March.2021on 5years NCDs issued for 523.80 crore in Aug.2020 with coupon rate of @ 7.3% P.A.
iv) Current Ratio There is no significant change in the ratio 0.02
v) Debt Equity Ratio 5 years NCDs issued for 523.80 crore in Aug.2020 with coupon rate of @ 7.3% P.A
vi) Operating Profit Margin (%) There is no significant change in the ratio Current year 40.68% (P.Y. 30.86%),
vii) Net Profit Margin (%) Increase in Iron Ore Price by 25% Current Year 21.01 % (P.Y 13.11%)
vi1ii) Return on Net Worth (%) Increase in PAT BY 73.21%
Or Sector Specific equivalent ratios as applicable NIL

11. Details of any change in Return on Net Worth as compared to the immediately previous financial year along with a detailed explanation thereof (For Standalone Basis)

2020-2021 2019-2020 (% of Change)
Net Worth ( In crore) 29,756 27,534 (+) 8.07 %
PAT ( in crore) 6,253 3,610 (+) 73.21 %
Return on Net Worth 21.01(%) 13.11(%)

Interim Dividend paid during the current year 7.76 per share, total consideration of 2,274.15 crore.

12. Sustainability

NMDC has invested in ‘Sustainability’ right since its inception. It is on this account that NMDC has been able to create a favorable business environment in the areas it operates and has got a social license to operate in one of the remote & highly sensitive areas. NMDC has developed a strong local understanding of community concerns and local sensitivities. NMDC takes numerous steps to protect & enrich the environment. NMDC’s efforts in sustainability have been rewarded with a 5-star rating to its mechanized mines from the Indian Bureau of Mines.

NMDC is publishing its Sustainability Report as per the Global Reporting Initiative (GRI) Standards, capturing initiatives taken by NMDC over the years in Economic, Environmental and Social aspects.

NMDC Ltd. has shortlisted as a Finalist for ASRA (Asia Sustainability Reporting Awards) -Singapore.

The four major pillars of Sustainability on which NMDC focuses on are environment, health, safety, & society.

12.1 Environment:

The environmental monitoring studies are conducted through recognized laboratories of MoEFCC/ CPCB, covering all environmental parameters. Based on the results of monitoring studies, it is concluded that all environmental parameters are well within the limits during FY 20-21. A total of six Continuous Ambient Air Quality Monitoring Stations (CAAQMS) have been installed at Bacheli project (2 nos), Kirandul project (2 nos) and Donimalai Project (2 nos) for recording of Ambient air quality parameters such as PM10, PM2.5, SO2, NOx and CO in real time.

Every year Carbon Footprint studies are being conducted for disclosure of Greenhouse Gas Emissions in Carbon Disclosure Project (CDP). Water audit was conducted at all the production projects for evaluation of water consumption. The recommendations of the audit are being implemented by replacing the worn out and leaking pumps. Apart from this regular maintenance of water appurtenances is being done.

Sustainable Mining Initiative audit is being done at all Iron Ore Mining projects of NMDC and recommendation are being implemented to obtain 5-star rating for all mines given by IBM, Ministry of Mines, GoI.

The R&R works suggested by M/s Indian Council of Forest Research and Education (ICFRE, Dehradun) in the Environmental Management and Reclamation & Rehabilitation Plan for Kirandul Complex, Chhattisgarh and in Donimalai Complex, Karnataka are under implementation stage.

R&D works in the field of air, water, solid waste etc. are being undertaken by engaging institutes of repute such as ISM Dhanbad, NIT Raipur and VNIT Nagpur.

Water Audit is conducted at regular intervals at all projects of NMDC and recommendations of audit are being implemented to conserve water and to improve the efficiency of motors / pumps, arrest leakages, etc.

The environmental pollution control works are undertaken such as de-silting of check dams / check bunds, tailing dams, construction of buttress walls at toe of waste dumps and geo-coir matting for stabilization of waste rock dumps.

About 96 no.s wells are being monitored at NMDC projects to monitor underground water level, which also covers the quality analysis in all 4-seasons of the year. Studies are revealed that there has been an increasing trend in the ground water due to hydraulic loading by the existing check dams and check bunds. Limited usage of ground water and continuous recharge has also helped in the process.

NMDC has set-up Sewage Treatment Plant (STP) with advanced treatment technology (Sequential Batch Reactor) at Bacheli (2 MLD) for treatment of domestic waste water. STP works are in progress at Kirandul (3 MLD) & Donimalai (3 MLD) townships. The treated water will be reused for green belt development.

A total of 20,000 saplings planted in the FY 2020-21 in and around the boundary of all the NMDC projects. Since inception of Mining activities in Bailadila and Karnataka, more than 25.20 Lakh trees have been planted in and around leases of NMDC Limited. NMDC is actively contributing funds to Government of Chhattisgarh flagship programme "Hariyar Chhattisgarh" for undertaking roadside tree plantation in the state of C.G by CGRVVN Limited.

12.2 Health & Safety

Health & Safety continue to be our priority with employees & contractual workmen at our projects adhering to the SOPs & safety norms. NMDC appreciate that safety is a journey & is committed to continually improve its performance and set high standards.

In each mining project of NMDC sufficient number of Workmen Inspectors are nominated/appointed for Mining operations, Mechanical and Electrical installations as per statutory requirements for carrying safety inspections. Mine Level Tripartite Safety Committee Meetings have been conducted in each of the operating mines. This meeting is conducted once in a year at project level with senior officials, Union Representatives and DGMS Officials in which Safety Performance and its appraisal are made and the recommendations are implemented.

Corporate Level Tripartite Safety Committee Meetings are being held regularly once in a year at Head Office and the recommendations are implemented. Safety Committees have been constituted in every operating mine and pit safety meetings are held every month discussing the safety matters and corrective actions related to work atmosphere. In order to ensure that safety systems are up to date & also comply with the latest safety regulations, a cross-project internal safety audit has been started in NMDC. Safety Management system has been implemented in all our mines. Risk Assessment studies are being conducted regularly.

NMDC provides extensive safety training programmes to inculcate safety habits & mindset at work to its employees. Behavioral-based safety training is also given to the employees.

The severity Rate for the year 2020–21 is 3.69 (Severity Rate = Mandays lost per 100000 Mandays worked).

OHS Activities:

Occupational Health Services have been provided with adequate manpower and infrastructure and are functioning in full-fledged manner at all the projects, headed by Qualified Doctors trained in OHS at Central Labour Institute, Mumbai.

Periodical Medical Examination under statute is carried out regularly in all the projects.

NMDC strives to ensure that workers are not exposed to occupational hazards that negatively affect their health. NMDC also has well equipped hospitals with capable medical teams available 24/7 to support the health & well being of the workers & the surrounding community.

12.3 Corporate Social Responsibility

CSR is raison dtre of NMDC and not just a part of business strategy. NMDC’s CSR programmes are carried out in areas which are remote, backward and face serious law and order problems due to left-wing extremism. The area is among the most backward regions of India and inhabited predominantly by Scheduled Tribes and Scheduled caste population who are poor, underprivileged, deprived, suffer malnutrition and devoid of support for their socio-economic needs. It is only because of its strong focus on social responsibility programmes aiming at enhancing the quality of life of the local communities that NMDC has been successfully mining in these areas.

NMDC is the model PSE in the field of CSR and its model of stakeholder consultation mechanism for implementation of its CSR has been recommended by Department of Public Enterprises, Government of India for emulation by all other CPSEs.

The Company is investing substantially in promoting education, development of physical infrastructure, providing healthcare services & clean drinking water along with imparting technical skill sets aimed at enhancing employability & income generation etc. among other initiatives primarily in surrounding areas of its operations.

Apart from the above, NMDC has been at the forefront of CPSEs contributing to the fight against COVID-19 pandemic by assisting Govt.

Authorities in the States, wherein it operates or has Units/Establishments.

Detailed disclosure on CSR forms part of the Annual Report.