NMDC Ltd Management Discussions.

MANAGEMENT DISCUSSION & ANALYSIS REPORT FOR THE YEAR 2019-20

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 32 MT over the last 5 years. With iron-ore production of around 31.9 million tonnes in FY20, it contributed to around 18% 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 organization produces different variety of ore in terms of grade & size, to suit the requirement of its customers. Apart from sale of ore in the domestic market, NMDC also supplies ore to Japan & South Korea under the long-term agreements with the two countries.

NMDC plans to increase the production capacity from its three mining complexes from the existing 43 MTPA to 67 MTPA in the near future to meet the growing requirements of iron ore of the Indian Steel Sectors. 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 nomination basis by the Government of India.

The company immensely focusses on productivity improvement as well as cost optimization which results in high profitability for the organization. NMDC recorded a Profit (before tax) of 6,123 crores in FY20 and a net worth of Rs.27,534 crores (as on 31st March 2020). NMDC has a strong history of rewarding investors with an average dividend payment of around 625% in the last 5 years, which is the testimony to consistently create value to 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 24 MTPA. The third complex in Bellary (Karnataka), namely, Donimalai Iron Ore Complex produces 12 MTPA (from the two pits- Kumaraswamy & Donimalai). NMDC also has a 1.2 MTPA pellet plant at Donimalai. The present operations in Donimalai mine of NMDC in Karnataka is suspended due to imposition of additional premium of 80% of IBM sale price.

NMDC also operates the Diamond Mining Project, Panna (M.P.), which is the only mechanized diamond mine in Asia, with an annual production of around 28,450 carats (FY20).

1.3 Global Presence

• NMDC has a majority stake of 92.32% 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. Legacy iron ore has raised A$ 9.227 million through rights issued in Dec19. NMDCs equity in the company has increased to 92.32% after the rights issue, from an earlier stake of 78.56%.

• 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, produced around 1.78 MT of coal (Coking & Thermal) in FY20 (all-time high) compared to 1.32 MT production in FY19.

• NMDC holds 4 gold leases in Tanzania and is in the process of conducting detailed exploration & setting up of a pilot-scale processing plant for the same; First phase of the exploration has already been completed.

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 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 Ltd.

(NCL). For Deposit-13, MDO has already been appointed for the development of a greenfield mine for a capacity of 10 MTPA mine. For Deposit-4, Government has granted reservation in favour of NMDC-CMDC Limited on 30th September 2019; Further actions to be initiated post-issuance of LOI.

• NMDC is in the process of setting up a slurry pipeline 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.

• NMDC has developed an intermediate iron ore stockyard at Kumarmaranga in Chhattisgarh for uninterrupted supplies to customers.

• 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 emerged as preferred bidder for Chigargunta-Bisanatham gold block in the auction process conducted in July18, 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 process of appointing MDO for Tokisud North Coal Block.

• NMDC is in advanced stages of setting up a 3.0 MTPA greenfield Steel Plant at Nagarnar in Chhattisgarh, which is expected to operationalize in FY21. The commissioning of the integrated steel plant got delayed due to the pandemic. NMDC has also forayed in pellet-making through 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 17300 meters of core drilling in FY20, at existing mines. Apart, NMDC also doing 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. It 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, with advanced software like Surpac, Whittle & Mineshed.

1.6 Research & Development:

NMDC R&D centre is dedicated to undertake product and technology development projects related to ores, minerals and steel making to maintain its excellence in process performance. R&D centre has made significant contribution not only to NMDC operating projects but also to Indian industries and is recognized by Department of Scientific and Industrial Research (DSIR).

R&D centre undertakes works related to mineral processing, flow sheet development, mineralogical studies, material handling & storage, metallurgical studies of iron ore and coal, chemical analysis etc. It is a pioneer in the field of beneficiation and continuously working for development of dry beneficiation technology for different ores and minerals. It is endowed with state of art laboratory equipment to analyze different minerals, coals, metals and non-metals. For further details reference may be made to Annexure-II attached to the Directors Report.

2. Market Environment:

2.1 Economy:

2.1.1 Global:

• After a slow economic growth for the last two years, the World is facing a massive impact of the Covid-19 pandemic affecting the lives of people across the globe. To protect lives and allow the health care systems to cope, isolation and lockdown have been implemented in most countries to contain the spread of the virus leading to a severe impact on the economic activities. The pandemic has triggered the worst recession since the Great Depression that started in 1929. To reduce the impact on the economy, over 3/4th of the countries across the world have opened their economic activities despite an increase in the number of Covid-19 infections exponentially. Few countries have shown signs of recovery; however, the overall recovery from the pandemic is uncertain in the foreseeable future in the absence of a cure.

• Most of the analysts & organizations are projecting a negative growth in the World economy. As per IMF, Global growth is projected at - 4.9 percent in 2020, 1.9 percentage points below the April 2020 World Economic Outlook (WEO) forecast.

The COVID-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than forecasted. It is expected that more persistent social distancing into the second half of 2020 will further impact the supply potential. In 2021 global growth is projected at 5.4 percent. These projections imply a cumulative loss to the global economy, over two years (2020-21), of over $12 trillion due to the crisis.

• As countries reopen, the pick-up in activity is uneven. On one hand, pent-up demand is leading to a surge in spending in some sectors like retail, while, on the other hand, contact-intensive services sectors like hospitality, travel, and tourism remain depressed. The shortage of manpower in various labour-intensive sectors is further worsening the situation.

• On the positive side, the recovery is benefitting from Global fiscal support of over $10 trillion and monetary policy has eased dramatically through interest rate cuts, liquidity injections, and asset purchases.

In many countries, these measures have succeeded in supporting livelihoods and prevented large-scale bankruptcies. These exceptional supports have also driven a strong recovery in financial conditions including equity prices & currencies.

• In medium-term, public debt is projected to reach a peak of recorded history with respect to GDP, in both advanced and emerging markets as well as developing economies. Countries need sound fiscal frameworks for medium-term consolidation, through cutting back on wasteful spending, widening the tax base, minimizing tax avoidance, and greater progressivity of taxes in some countries.

• Nations need to ensure that their health care systems are adequately resourced. The international community must enormously step up its support of national initiatives, including financial assistance and funding for vaccine production. Policies need to be framed to increase demand and to incentivize the reallocation of resources to emerging sectors.

• Beyond the pandemic, policymakers must cooperate to resolve trade and technology tensions that endanger an eventual recovery from the COVID-19 pandemic. Furthermore, building on the record drop in greenhouse gas emissions during the pandemic, policymakers should, both, implement their climate change mitigation commitments and work together to scale up equitably designed carbon taxation or equivalent schemes.

Overview of World Economic Outlook Projections

Y-o-Y (% age change)

Region/Country

Projections

Difference from Apr20 projections

2018 2019 2020 2021 2020 2021
World 3.6 2.9 -4.9 5.4 -1.9 -0.4
Advanced Economies 2.2 1.7 -8.0 4.8 -1.9 0.3
US 2.9 2.3 -8.0 4.5 -2.1 -0.2
EU 1.9 1.3 -10.2 6.0 -2.7 1.3
UK 1.3 1.4 -10.2 6.3 -3.7 2.3
Canada 2.0 1.7 -8.4 4.9 -2.2 0.7
Emerging market & developing economies 4.5 3.7 -3.0 5.9 -2.0 -0.7
Russia 2.5 1.3 -6.6 4.1 -1.1 0.6
China 6.7 6.1 1.0 8.2 -0.2 -1.0
India 6.1 4.2 -4.5 6.0 -6.4 -1.4
Brazil 1.3 1.1 -9.1 3.6 -3.8 0.7
Source: IMF

2.1.2 India

India, one of the fastest growing economies in the world until 2017, started showing a negative trend in 2018 onwards. However, it managed to maintain second place in terms of yearly growth, after China. The immense market potential of the country, backed by robust democracy, strong partnerships & reforms by the Government like Self Reliant India, supporting higher growth, is expected to take India to be one of the largest economies in the next 1015 years.

As per the Central Statistics Office (CSO), the Indian economy is estimated to grow by 4.2% in FY 2019-20 while the recorded growth in the preceding financial year stood at 6.1%. The growth rate for GDP in Q3 & Q4 was only 4.1% & 3.1%, which brought down the overall growth for the year to below 5%. Indias foreign exchange reserves reached Rs 37.31 lakh crore (US$ 493.48 billion) in the week up to May 29, 2020, according to the data from RBI.

The Mining and Quarrying sector has shown a good sign of growth in 2019-20 with a growth rate of about 3.1 percent as against the previous years negative growth rate of -5.8 percent. The Index of Industrial Production of Mining registered a growth of 1.7 percent during 2019-20 as compared to 2.8 percent during 2018-19. However, the Index of Industrial Production of Metallic Minerals has a quantum jump with a growth of 14.3% in 2019-20 as compared to 2.4% in 2018-19.

India, being the third-largest start-up base in the world with around 8,900-9,300 start-ups has the potential to bounce back from such an unprecedented situation; According to a report of NASSCOM, in 2019, 1300 new start-ups got incorporated in the country. Another advantage that India has to overcome from the pandemic is the massive working population of the country. Indias labour force is expected to touch 160-170 million by 2020 based on the rate of population growth, increased labour force participation and higher education enrolment (ASSOCHAM).

With the rapid spread of COVID-19 pandemic manifesting into an economic and healthcare crisis globally, most of the countries across the globe are staring at negative growth in 2020. The pandemic outbreak has severely impacted India due to many extended lockdowns with varying degrees of restrictions, and stoppage of different industries & economic activities. FICCI in its Economic Outlook Survey has projected the countrys annual median GDP growth for FY2020-21 at (-) 4.5%, with a minimum and maximum growth estimate of (-) 6.4% and 1.5% respectively.

Although the Indian economy has started showing signs of getting back to normalcy with easing of restrictions, complete restoration of the supply chains is still uncertain; the complete revival of demand, the post-effects of the pandemic on the potential growth of the economy is still not certain. The measures announced by both the Reserve Bank of India and the Government focused predominantly on addressing supply-side constraints with limited support for the creation of demand.

The agriculture & allied sector seems to be the only sector with a silver lining which indicated median growth of 2.7 percent in FY2020-21, supported by a strong monsoon. The industry and services sector, on the other hand, is expected to contract by 11.4 percent and 2.8 percent, respectively during the financial year. Even though activities in sectors like consumer durables, FMCG are gaining traction, the majority of the companies are still operating at low capacity. Labour availability and feeble demand remain major issues for companies.

The growth momentum of the Indian economy is expected to rise with improvement in the health conditions post-emergence of a cure for the virus. This will be further supported by several other initiatives taken by the Government such as stimulus package of Rs 20 lakh crore, Pradhan Mantri Garib Kalyan Package, Agriculture Export Policy, the introduction of a policy to allow participation of private sector in Coal mining, priority to public health spending, ease in Foreign Trade Policy, Foreign Direct Investment (FDI) reforms, creation of smart cities, creating startups, infrastructure development etc. As per world economic outlook, growth in India is projected to bounce back up to 6 percent in 2021.

The thrust of the Government of India to enhance spending on infrastructure augurs well for the Steel industry and thereby, for the iron ore sector.

India is expected to be the third-largest consumer economy as its consumption may triple to US$ 4 trillion by 2025, owing to a shift in consumer behavior and expenditure pattern, according to a Boston Consulting Group (BCG) report. Further, it is estimated to surpass USA to become the second- largest economy in terms of purchasing power parity (PPP) by 2040 as per a report by M/s PwC.

2.1 Industry structure and developments Iron Ore Industry Outlook:

• Global: Steel & Iron Ore

• Uncertainties that arose due to Corona Virus spread had a devastating impact during Q1 & Q2 of CY2020 in many countries due to the halt of activities across various industries including iron & steel, risking steel demand. Consumptions side has declined significantly affecting the production & supply cycle. Spread of Covid-19 could not be contained to a significant level despite Government attempts globally.

• Global steel demand is forecasted to fall by around 8% year-on-year in 2020. Excluding China, the fall is forecasted to be around 16%. If the economy does not revive fast, global steel demand may sink further & crude steel production will not return to 2019 levels of output for two to three years.

• In China, Construction activity has shown some unexpected resilience after the coronavirus outbreak. The Chinese government is relying on financial stimulus into infrastructure projects to boost the economy following the downturn, to support the growth of 6.4% year-on-year in steel demand. Crude steel production is running unexpectedly hot in 2020, supported mainly by integrated steel players. Thereafter it is expected to fall following the steel demand retreat.

• In the US, traditional trade defenses could not protect producers from a domestic demand slide during 2020. A 25% fall in production in 2020, may take three years to recover to pre-covid levels. For the EU28, current year demand has been revised down by 33 MT, the second consecutive year of decline in demand. Recovery is expected in the coming years, however, it may take a considerable time to match 2018 volumes.

Top-5 iron ore producing countries (usable ore basis)

2018 2019e
Australia 900 930
Brazil 460 480
China 335 350
India 205 235
Russia 96 99
World Total (rounded) 2,460 2,500

Source: USGS

• 2020 is shaping up to be another extraordinary year for iron ore due to the gap in demand and supply of ore. The 62%

Fe benchmark index has averaged out above $90/t CFR in H1-2020, providing the iron ore majors with EBITDA margins above 65%.

Iron ore prices climbed high during June20 reaching a level of $ 105/ ton for 62% Fe. The high prices in H1-2020 are driven by strong Chinese demand and weak Brazilian supply.

Both the drivers will moderate in H2 2020, putting downward pressure on prices, with the 62% Fe index averaging $80/t CFR in H2 versus $90/t in H1.

• Seaborne supply and demand are expected to be more closely aligned from 2021 onwards, with prices gravitating towards long term forecast of $70/t CFR by 2030. A cyclic low price may be observed at $55/tonne for 62% Fe in 2023. The supply-demand scenario from Brazil & China will remain a governing factor in the medium term. In the longer term, key drivers for iron ore include Indias growth and net trade position; the interaction between scrap and hot metal, and the transition towards low carbon "green" steel.

• In 2019, Global iron ore production increased to 2.50 billion tonnes (usable ore basis), up from 2.46 billion tonnes in 2018. Australia remained the highest producer with an estimated production of 930 million tonnes in 2019 while India was a distant fourth with a production of around 235 MT in FY2019. The price of Iron ore was averaged at $93/t CFR in 2019 due to supply disruptions on account of dam collapse in Brazil and cyclone in Australia.

India:

• Indian crude steel production has observed significant lows in April 2020 post lockdown & revived significantly with strong economic support from the government. However, revival is not up to the level of the previous year with most of the private large integrated mills operating at about 80% of their production levels, while state-owned mills are still lagging behind. The secondary steel producers continue to struggle with capacity utilization at around 50 - 55%, due to low domestic demand, shortage of workforce, disruption in supply chain and liquidity related issues.

• Crude steel production for FY21 is projected to decline by 15% over FY20 to produce 95 Mt due to the Covid outbreak. However, a V-shaped recovery is expected in the next financial year to attain production of 110 Mt due to strong economic fundamentals.

• On account of the competitiveness of Indian steel in global markets and subdued domestic demand till Dec2020, steel exports are expected to remain dominant till Q3 of FY2020. The export share of Indian steel production has reached about 50 - 60%, in the previous months. The decline in the price of domestic finished steel coupled with the devaluation of Indian currency in the last few months is further supporting the exports. Domestic demand is expected to pick up by Dec2020 with support from the infrastructure sector as well as the automobile sector.

• It is unlikely that Indian iron ore production will reach the historic highs achieved in FY20 anytime soon. Integrated steel mills dependent on merchant miners are operating at sub-optimal levels, under subdued demand of steel post lockdown. The expiry of leases from March2020 has further curtailed down the capacity by about 80 MT (having production of about 60 MT) affecting the supply side. However, iron ore exports have remained steady for both agglomerated and non-agglomerated ore. Supreme Court of India has allowed movement of legally mined and royalty paid iron ore in Goa, within six months, from January 2020. Indian merchant pellet players are also focused on exports due to subdued domestic demand.

• Production of Iron Ore in India was about 245 MT in FY20 was 16.7% higher than that of FY19. Further, the export of ore from the country at approx. 25.1 MT during the year FY20 was 360% higher than that of preceding years export of 6.87 MT, due to the high demand of low-grade ore from China during the year.

• 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 FY31. In the short term, the domestic supply of ore is likely to be hampered due to subdued supply from Odisha & delay in the start of Auctioned Mines. However, with the start of these mines post-transfer to the new lessee, and with the support from the government for extending EC & FC for 2 years, the production of Iron ore is expected to pick up from Oct2020. Various analysis agencies across the globe have projected production of around 180-190 MT of iron ore in FY21, under the support of domestic demand and export of iron ore & pellets.

• NMDC is bullish on the growth prospects of Indias 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. 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:

• 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 for steel.

• Numerous foreign companies are setting up their facilities in India on account of various Government initiatives like Make in India and Digital India.

• Growth potential in steel-intensive sectors such as housing, infrastructure, automotive, rail & road, consumer durables in the coming years.

• Government envisages bringing Indias 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. NMDCs 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.

• Restrictions on steel imports in the country on account of measures being taken by Govt. of India such as antidumping duty, MIP etc.

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) NMDC entering into Coal with allocation of two Coal Blocks in Jharkhand (Tokisud North & Rohne).

iv) 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.

v) 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.

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

vii) 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.

viii) Acquisition of Strategic and critical mineral assets based on business potential and national interest.

b) Threats

i) Demand for Iron Ore may remain sluggish in the near future if the threat of COVID-19 will exist in the society & consumption of goods will not grow significantly.

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

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.

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

v) 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.

vi) 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.

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

viii) Disturbances due to Maoist activities in Bailadila region from where the majority of NMDCs production comes. At the same time, the location of Bailadila has a logistic disadvantage.

ix) Huge surplus steel capacity in most regions including China will continue to exert downward pressure on steel prices and thereby iron ore prices.

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 Auction. The premium offered by bidders during 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 its costing after paying a huge premium in the auction. On the one hand, domestic iron ore production is on the rise, with production increasing by over 27% in the last three financial years (Iron ore production in India including captive: FY20-245 MT; FY17-192 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 longterm. In the medium term, the impact of Corona will still be visible & demand will be sluggish under the effect of health issue & falling economy.

Production growth in FY20 was exceptionally high with over 16% growth due to extra production made by merchant players whose leases expired in March 2020. However, this trend may not be the same during FY21 due to low demand, excess stock position & delay in the start of auctioned mines. But production may back on track in FY22.

NMDCs 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.

4.0 Segment-wise or Product-wise performance

4.1 Physical Performance of NMDC

Details 2015-16 2016-17 2017-18 2018-19 2019-2020
Production:
Production of Iron Ore WMT (In lakh tonnes) 285.74 340.05 355.76 323.61 314.89
Production of Sponge Iron (tonnes) 6,614.26 5,474.11 NIL 2,475.37 NIL
Production of Diamonds (carats) 35,558.31 35,635.99 39,393.72 38,148.77 28,537.23
Production Pellets (in tonnes) - - 58,070 1,15,622.89 1,10,481.19
Sales:
Sale of Iron Ore (in lakh tonnes) 288.39 356.21 360.75 323.56 315.14
Sale of Diamonds (carats) 36,682.93 25,631.46 33,175.34 29,345.54 33,722.9
Sale of Sponge Iron (tonnes) 8,364.52 8,579.42 Nil 495.58 1,943.88
Sale of Pellets (tonnes) 42,948 1,12,010 85,793

4.2 Financial Performance of NMDC

(Rs. in Cr.)

Details 2015-16 2016-17 2017-18 2018-19 2019-2020
Sale of Iron Ore 6,327.93 8,708.90 11,490.93 11,997.98 11,569.00
Sale of Diamonds 52.61 41.91 35.17 38.86 34.29
Sale of Wind Power 6.30 7.48 6.50 5.51 5.39
Sale of Sponge Iron 13.14 13.13 0.00 0.94 4.39
Sales- Pellet 0.00 0.00 25.40 76.52 55.55
Sales - Others 57.29 58.22 56.91 32.86 30.59
Turnover 6,457.27 8,829.64 11,614.91 12,152.67 11,699.21
EBITDA 4,374.21 4,509.86 6,472.13 7,518.91 6,426.69
PBT 4,092.76 4,293.68 6,179.66 7,199.06 6,123.48
PAT 2,712.22 2,589.14 3,805.88 4,642.11 3,610.12
Dividend 4,361.19 1,313.02 1,676.86 1,690.14 1,619.72
Dividend as % of PAT 161% 51% 44% 36% 45%

5.0 Outlook for NMDC

NMDC proposes to augment its production capacity of iron ore to 67 million tonnes by 2021-22. It has also embarked on value addition projects by setting up a 1.2 MTPA pellet plant utilizing slimes in Karnataka and 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 Sep19, which will add further value to NMDC production & profit numbers. NMDC has also developed an intermediate stockpile at Kumarmaranga near Jagdalpur to ensure an uninterrupted supply of ore to the customers from highly affected Naxal area. To augment evacuation capacity, NMDC is supporting on Doubling of K-K line (Kirandul- Kothavalasa), Rowghat-Jagdalpur line, Slurry Pipeline, etc

To diversify further its business, NMDC is entering in coal production after the allocation of two coal block (Tokisud North & Rohne) in Jharkhand.

NMDC also participated in the auction of Gold mine & declared as preferred bidder for Chigugunta- Bisanatham Gold Block in A.P. in July, 2018.

NMDC also proposes to invest in strategic and critical raw materials that are required by our nation for long term supply security on one hand as well as add value to the company. In line with this strategy, NMDC has created the NMDC Global department and is revisiting its International

Strategy to venture into various identified minerals & geographies.

NMDC is committed to focusing on maintaining cost competitiveness in the global and domestic market in a scenario where prices are expected to remain subdued.

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.

6.0 Risks and Concerns

NMDC is exposed to sharp fluctuations in demand for its products and volatility in prices. Weaker commodity price outlook would continue to impact NMDC over the next few years till domestic markets recover.

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. With recent auction in before expiry of iron ore lease before March 2020, few more steel players have acquired mines causing a reduction in demand from merchant players. JSW has already started production from newly acquired mines & planned to increase it further in the near future. Arcelor Mittal-Nippon Steel, India is also looking to start its mines in Odisha by Oct-Dec2020. More auctions of iron ore mines are likely to come up in the near future for the end-users. This is likely to adversely impact the market for NMDC over the medium to long term.

Suspension of operation from Donimalai Mine from 03.11.2018 onwards, due to high premium (80%) demand while renewal of the lease, is also affecting the production of NMDC badly. Donimalai mine has a capacity of 7 MTPA. Donimalai matter is sub-judice in mining tribunal & NMDC is hopeful to get clarity on lease soon in favour of NMDC.

Reference may kindly be made to Directors Report on the following issues:-

(a) Granting extension of ML no.2396 in respect of Donimalai for 20 years from 04.11.2018 to 03.11.2038 as per the provision of the Mineral (Mining by Government Company) Rules, 2015

(b) Impact of the Honble Supreme Court of India Judgement with reference to the Writ Petition (Civil) No.114/2014 dated 02.08.2017.

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 16th June, 2020 which forms part of the Annual Report

8. Discussion on financial performance with respect to operational performance

During the year under review, the Companys revenue from operations decreased by 3.74% from Rs 12,153 crores to Rs 11,699 crores mainly on account of:

• Decrease in Iron ore Sales quantity by 2.60% from 323.56 Lakh Tonnes to 315.14 Lakh Tonnes.

• Realization was lower by 1% during this period from Rs 3,708/- per ton to Rs 3,671/- per tonne.

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, up- gradation/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.

On the other, training and skill up-gradation forms an important area where the first assessment is 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 imparted 3.61 days of training per employee in FY20.

NMDC also conducts special identification drive & training for high potential candidates. NMDC has also started culture-building initiative since the last two years by imparting specific training & through workshops on work culture & happiness. 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. Pay revision of workers w.e.f. 01.01.2017 has been also completed & implemented successfully in FY19.

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. About 29 executives have been recruited in FY20 under a new recruitment policy, apart from the hiring of 685 contract workforce at Nagarnar Steel Plant. All were provided on-the-job and off-the-job training in order to prepare them for taking up the challenges of working in NMDCs 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:

2015-16 : 5,773
2016-17 : 5,572
2017-18 : 5,382
2018-19 : 5,887
2019-20 : 5,739

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:

i) Debtors Turnover i) Ratio There is no significant change in the ratio
ii) Inventory Turnover There is no significant change in the ratio
Interest Coverage iii) Ratio There is no significant change in the ratio
iv) Current Ratio There is no significant change in the ratio
v) Debt Equity Ratio There is no significant change in the ratio
vi) Operating Profit vi) Margin (%) There is no significant change in the ratio
Net Profit Margin vii) (%) There is no significant change in the ratio
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)

2019-2020 2018-2019 (% of Change)
Net Worth (Rs. In crore) 27,534 25,952 (+) 6.1 %
PAT (Rs. in crore) 3,610 4,642 (-) 22.23 %
Return on Net Worth 13.11(%) 17.89(%)

Interim Dividend paid during the current year Rs.5.29 per share, total consideration of Rs.1952.66 crore (including DDT of Rs.332.94 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. NMDCs efforts in sustainability have been rewarded with a 5-star rating to its mechanized mines from the Indian Bureau of Mines.

NMDC is publishing 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 has also completed a study of Life Cycle Assessment of Iron Ore in FY20. This study will provide an opportunity to assess the impact on resources, energy and emissions, on iron ore production including overall carbon footprint for downstream industries. NMDC Ltd. has bagged Certificate of Merit in Challengers Category at Frost & Sullivan-TERI Sustainability 4.0 Awards, which was held on 12.06.2019 at Mumbai.

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

13. 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 19-20. 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 recommendations are being implemented to obtain a 5-star rating for all mines. 5 mines during the year 2019 received the 5-star rating 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 is 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 the 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 90 wells are being monitored at NMDC projects to monitor the 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 groundwater due to hydraulic loading by the existing check dams and check bunds. Limited usage of groundwater 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 the treatment of domestic wastewater.

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 1.3 Lakh saplings planted in the FY 2019-20 in and around the boundary of all the NMDC projects. Since the inception of Mining activities in Bailadila and Karnataka, more than 25 Lakh trees have been planted in and around leases of NMDC Limited. NMDC is actively contributing funds to the Government of Chhattisgarh flagship programme "Hariyar Chhattisgarh" for undertaking roadside tree plantation in the state of C.G by CGRVVN Limited.

14. 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 the 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 the 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 are also given to employees.

Severity Rate for the year 2019-20 is 15.48

(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 a full- fledged manner at all the projects, headed by Qualified Doctors trained in OHS at Central Labour Institute, Mumbai.

• Periodical Medical Examination under the 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.

15. Corporate Social Responsibility

• CSR is raison detre of NMDC and not just a part of business strategy. NMDCs CSR programmes are carried out in areas that 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 which 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 the 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 pitching in with its contributions to the PMCARES fund as well as assisting Govt. Authorities in the States, wherein it operates or has Units/ Establishments.