Blow to NMDC as Karnataka revokes Donimalai mine lease

State government also decides to auction the block

Public sector mining major NMDC on Tuesday said that the Karnataka Government had withdrawn the approval extending the mining lease of Donimalai mines granted to the company.

Further, the State government had decided to auction the said block, NMDC said in a regulatory filing to the stock exchange, on a day when its shares declined 11.49% to close at ₹90.15 apiece.

“Government of Karnataka vide its letter No. Cl 78 MMM 2016 dated 17.08.2019 has… withdrawn the approval accorded… to extend the mining lease period of NMDC Ltd… at Donimalai and auction the said block,” the filing said.

The company said it had filed a revision application against the order of the State government with the Union Ministry of Mines and the hearing had been fixed on August 21. The company has also requested the State government to withdraw its letter dated August 17 or keep it in abeyance.

The development comes a little over a month after NMDC got an order from the High Court of Karnataka against the State government’s proposal to levy a higher premium on the average sale price of iron ore.

The High Court order had paved the way for the company to resume operations at Donimalai iron ore mine, which it had temporarily suspended in November last year.

When the company announced the results for the quarter ended June, Chairman-cum-Managing Director N. Baijendra Kumar had said the company was able to create new benchmarks, both in physical and financial performances, in spite of the closure of Donimalai mine in Karnataka and challenges at Bailadila Complex in Chhattisgarh.

According to analysts, pressure is bound to build up on NMDC with the State government putting the block for e-auction.

Possible contenders

The possible contenders for the mine can be either merchant miners or steel producers. Further, Kumaraswamy mines is also due for renewal in October 2022. NMDC has four mines in Chhattisgarh, which are due for renewal in March.

Emkay Global said the development casts a question mark on the business model of all public sector mining companies.