OMDC to restart operations from its third-biggest mine

Orissa Minerals Development Company (OMDC), a miner under the Ministry of Steel and a subsidiary of Rashtriya Ispat Nigam Ltd, may usher in some lease of hope and visibility on its operations for its shareholders.

The company has invited bids from contractors to mine and transport iron ore from its Kolha-Roida mine, which is spread across an area of 255 hectares and is the third biggest mine in its portfolio in terms of area covered

With the invitation of bids, analysts said, it seems that the company has finally got all the approvals in place and its legal dispute with its previous contractor is also settled.

OMDC chairman Satish Chandra had told the company’s annual general meeting in September that the company’s performance got severe beating due to non-performance of Narayani & Sons, the agency appointed to mine iron ore in Kolha-Roida.

The company was incapacitated by the Cuttack high court order, which directed OMDC not to take any action against Narayani & Sons, till the disposal of case filed by Narayani & Sons, he had said.

Though, it is not clear whether the case has been disposed of in OMDC’s favour or not, an analyst said, “Without the legal battle over, the company could not go ahead with the tendering process for a new set of contractors. Since it is going, it implies that it has the green signal now.”

B Dutta, general manager - commercial, OMDC, refused to speak.
But analysts say the opening of the mine is a good signal for the mining company which was producing minimal iron ore and manganese ore for the last few years and had been earning revenues mainly through sale of inventories.

“This gives a lot of visibility on the numbers the company will likely be targeting in the next fiscal since it is soon reaching a stage where it is getting market-linked prices for iron ore which was earlier not the case,” said another analyst.
OMDC has total iron-ore reserves of 206 million tonnes. OMDC, which sells most of its stock through e-auction, got a price of Rs4,741 per tonne of for a 60-61% Fe grade iron ore in January whereas it had got a price of Rs2,100 per tonne for the same grade of iron ore in November.

This means that the company is earning around $100 per tonne for iron ore which is near to an average of $110 that NMDC earned in the second quarter, said the analyst.

According to the OMDC tender, the contractors, who will be appointed for a period of five years, will have a target to achieve 1.3 million tonne per annum (mtpa) of iron ore in the first year.

Thereafter, in the second year, they will be have to reach 1.8 mtpa, then 2.5 mtpa for the third year and finally 3 mtpa for the two years after that.

“This will essentially take the company to its targeted volume of 3 mtpa from Kolha-Roida in five years,” said the analyst.

The tender document, however, does not talk about manganese ore production from Kolha-Roida for which the company had a target of 0.24 million tonnes in five years.

The company is seeking contractors with expertise in composite mine work relating to “development, raising, sorting, crushing and screening, sizing, stacking and transportation and loading into railway wagons.”

The approximate value of the work is Rs150 crore and the tenders will be opened on March 14, 2011.

“We can expect that the work on the mine will start somewhere early next fiscal and hence cash flows will begin soon,” the analyst said and added that with 1.3 mtpa of production, at $100 per tonne of rate, the company is expected to clock a profit of close to Rs300 crore in the first year.

It posted a profit after tax of `74 crore for the fiscal ended March 2010.