KOLKATA (miningweekly.com) - To bail out ailing iron-ore miner KIOCL Limited (formerly Kudremukh Iron Ore Company Limited) the Indian government is considering merging it with NMDC Limited, the country’s largest iron-ore miner.

KIOCL, which operated an iron-ore pelletisation plant and a blast furnace, had been under financial strain for the last three years as a result of a shortage of iron-ore supplies, falling sales and prices, as well as the closure of a blast furnace and the absence of any captive source of iron-ore.

According to an official in the Steel Ministry, which administered both the government-owned NMDC and KIOCL, a report prepared by global consultants PwC had recommended the merger of the two companies as a viable option.

The Ministry would initiate the merger process and prepare a roadmap for integration and synergies of operations between the two companies. This should happen without incident as both NMDC and KIOCL’s core operations involved mining iron-ore and value addition, the official added.

Once the Ministry initiated the process, the merger proposal would need to be placed before the board of directors of the respective companies and subsequently ratified by the government’s Cabinet of Ministers, he added.

It was pointed out that NMDC was implementing projects to ramp up iron-ore production to 50-million tonnes a year by 2018 from 30-million tonnes a year at present and that since the latter had limited capacity for value addition in the form of beneficiation and pelletisation, KIOCL’s operations and existing capacities would add value to the merged entity.

KIOCL, which suspended pellet exports in 2011, resumed its presence in the global market last month, shipping 48 000 t of high-grade pellets to China.

Even with the merger plan on the anvil, KIOCL had started working on striking up an alliance with NMDC as part of its Corporate Vision 2022, which saw it pursuing strategic diversification to survive the basic threats of a lack of iron-ore supplies.

It planned to establish a new business of operation and maintenance (O&M) and sign up with NMDC. The latter was setting up a beneficiation plant with capacity of 1.89-million tonnes a year and a pellet plant of 1.2-million tonnes a year at its mining site in Chhattisgarh, in central India, and was slated to go into production later this year. NMDC proposed to use unused slim from tailing dams for conversion into pellets.

KIOCL with its expertise was operating a beneficiation plant of 7.5-million tonnes a year and a pellet plant of 3.5-million tonnes a year and had proposed to NMDC that it undertake a three-year O&M contract for latter’s iron-ore value addition projects going on stream shortly.

Ministry officials said that a merger of NMDC and KIOCL would facilitate implementation and operation of these projects and ramp up capacities, subsequently, given NMDC’s strong balance sheet. The miner had reported a free cash reserve of $6.58-billion as on March 31, 2014.

KIOCL was founded in 1976 as an exclusive export-oriented iron-ore pellet production unit, mining 4.5-million tonnes a year of ore and producing 3.6-million tonnes of pellets for exclusive shipment to Iran. In 2006, India’s Supreme Court forced KIOCL to stop all mining activities in its hinterland of Kudremukh for violation of environment laws.