India's Largest Iron Ore Producer NMDC Is Sitting on a Big Cash Hoard

Economic Times reported that just days after the state auditor faulted it for not having a specific strategy to acquire mines abroad, India's largest iron ore producer NMDC, which is sitting on a big cash hoard, it is not in any rush to buy foreign mineral assets.

Mr CS Verma CMD of NMDC said that the miner is happy with interest earned from cash deposits of more than 20,000 crore. The government had raised 6,000 crore through a follow on offer by divesting a 10% stake earlier this month.

For the year to March 2012, the iron ore producer earned interest of nearly 2,000 crore on deposits of 20,264 crore. But NMDC's iron ore production has fallen to 25.16 million tonnes in 2010-11 from 32 million tonnes in 2007-08.

The Comptroller and Auditor General in a recent report said that "Company has been making efforts to acquire mines abroad but no specific strategy has been formulated. The company needs to work out its strategy on reserve accretion and acquisition of new mining areas in India and abroad to enhance its production while maintaining operations on a longer term."

Mr Verma said that “He cannot give a timeline for overseas acquisitions. It is not buying a vegetable in the market. We cannot be a desperate bidder or acquirer of assets. We are custodians of the government money and every penny that we spend on overseas acquisitions has to yield results."

He said that NMDC has been actively looking at acquiring mineral assets in the overseas markets, both independently and in alliance with several government owned entities. The iron ore giant has already short listed 8 to 10 assets which are in different stages of due diligence.

He added that "For the sake acquisition, we don't want to do any. The large acquisitions don't happen overnight. They are highly time-consuming. The success rate is also not very high."

On criticism that NMDC was missing out on higher returns, he further added that "The cash is not lying idle. It is earning interest. Having money does not mean that we can dump it."