NMDC set to revive 2-year-old pact with Rio Tinto

NMDC Ltd, India’s biggest iron ore miner, plans to breathe life into a memorandum of understanding (MoU) it had signed with Rio Tinto, Australia’s biggest miner, two years ago and on which there has been no movement on the ground so far.

“We are planning to re-evaluate the contract that we signed. We are having a meeting with the Rio Tinto officials this month-end where we will decide how to take the MoU forward,” NMDC chairman and managing director Rana Som said last week.

The two companies had signed the agreement on August 18, 2008, after months of discussion, to work jointly on iron ore assets in India and overseas.

“Opportunities in other minerals will also be booked for under the MoU,” NMDC had said in a press release issued at that time.

It was a very ambitious MoU, wherein the companies had decided to float a joint venture company that would scout for acquiring mining assets in India and overseas for the purpose of exploration, development and exploitation.

Also, they had planned to develop low-grade iron ore projects with suitable beneficiation processes as well.

According to a recent media report, NMDC is looking at acquiring an iron ore mine in Australia in consortium with Rio Tinto, though there is no word yet on its location, size or cost.

Analysts are bullish on NMDC and positive about an active joint venture with Rio Tinto, but would rather not take a call on the likely upside yet.

“Rio Tinto is obviously a very big company with lots of expertise and NMDC can gain a lot from an association with it, but for that the MoU has to take off the ground first,” said an analyst with a leading domestic brokerage house who did not wish to be named.
So far, companies like Rio Tinto have looked at China as their major demand centre.

“With China set to become one of the largest steel consumers, Australian iron-ore miners like BHP Billiton and Rio Tinto have gained significantly because of their close proximity to the Chinese mainland, which has become one of the largest iron-ore markets in the world today,” Vikas Agarwala of brokerage firm Microsec said in an October 5 report.

However, with China cutting down production from its energy guzzling plants, India becomes an unavoidable focus area, with an enviable growth rate in the steel industry.

According to Agarwala of Microsec, the government has projected steel capacity in the county to grow to 124.06 million tonne (mt) by 2011-12 and nearly 293 mt by 2020. This would mean an iron ore demand of close to 400 mt by the same year.

This may be the reason Rio Tinto is keen to re-evaluate contracts it had signed with companies in India.

“Besides NMDC, Rio Tinto is in the process of re-evaluating its contract with Orissa Mining Corporation (OMC) too,” said a source close to the company.

An email sent to Rio Tinto’s Australia office, however, remained unanswered.

Currently, Rio Tinto does not have much exposure in India except for diamond mining rights in Chattarpur region of Madhya Pradesh where it plans to invest close to Rs400 crore over the next three years.