Companies Economy Live April 6, 2025 0 Comments

NMDC faces governance scrutiny over loss-making Australian subsidiary amid fresh investment concerns

NMDC’s Australian subsidiary Legacy Iron Ore’s cash flows have faced scrutiny previously

State-owned NMDC – the country’s largest merchant iron ore miner – is in the midst of a governance storm. Questions are being raised over investments made in its loss-making Australian subsidiary, Legacy Iron Ore Ltd, and its ongoing diversification into gold and lithium projects. Complaints have been filed with the country’s anti-corruption authorities naming company top brass.

NMDC has over 92 per cent stake in the Australian entity – one of its first overseas acquisitions – with an estimated investment of ₹450 crore (or AUD 81.6 million) so far.

Legacy Iron Ore Ltd has struggled to deliver significant returns, with its projects remaining largely in the exploration phase rather than achieving profitable production.

Last verified numbers show that the Australian entity recorded a loss of AUD 9,591,740 in FY24 (vs profit of AUD 2,007,001 in Fy23). Legacy is listed on the ASX (Australian bourses).

NMDC has denied flouting any norms.

The company, responding to businessline’s queries, said, mining project(s) do not get cash positive in the initial period and takes time to stabilise. Mining ops at Legacy started “recently”, and “mine development and creation of infrastructure are capital intensive”.

“The gold project of Legacy is planned to be mined in two or more phases. As Legacy didn’t have the required infrastructure, the initial capex is higher,” the company said.

Audit concerns

Some concerns have been raised by Legacy’s auditors.

The independent auditor’s report for FY24 (last available) contains a “Disclaimer of Opinion,” significant because it indicates that the auditors could not form an opinion on the company’s financial report for the year ending March 31, 2024. (businessline has reviewed a copy of the audit report.)

The issue solely revolves around the Mt Celia cash-generating unit (a gold reserve owned by Legacy), which is valued at $16,842,271 in the balance sheet. This is a major chunk of the company’s assets. The auditors said they could not verify the “recoverable amount” of this asset— essentially, how much it’s worth based on future cash flows.

While Legacy has other projects like Mt Bevan (iron ore), Mt Celia is a key focus for its gold operations.

The auditors, HLB Mann Judd ABN, specifically mention that there was not enough evidence about the grade and recoveries, how much valuable material can be extracted and processed, for future production at Mt Celia. Without this, they can’t confirm if the asset’s value is realistic or if it needs adjustment.

“….We have been unable to obtain sufficient, appropriate audit evidence in relation to the recoverable amount of the Mt Celia cash generating unit, in particular with respect to the level of grade and recoveries to…. the extent of any future forecast positive cash flows arising from the Mt Celia project,” the auditors said.

Current updates

In March, Legacy reported gold mineralisation in 11 of 27 holes suggesting potential for resource expansion. The revised mineral resource estimate increased the gold grade by 27 per cent to 1.84 g/tonne across 4.3 million tonnes. “These developments suggest Mt Celia is producing and has growth potential, but the auditor’s concerns predate these updates,” an official said.

A second person in the know said, the audit issue centres on the “recoverable amount”— an accounting term for the higher of an asset’s fair value (what it could sell for) or its value in use (future cash flows discounted to today).

In response to queries from businessline, NMDC said: “Market capitalisation of Legacy is AUD 107.3 million. The value of NMDC shareholding – of 92.84 per cent – that is AUD 99.62 million; as against the investment made of AUD 81.6 million.”

Legacy’s cash flows have faced scrutiny previously. In October 2024, its shares were suspended by the ASX over funding concerns, prompting a $24.24 million entitlement offer to support projects like Mt Bevan and Mt Celia. A deal with Bain Resources was inked too.

Complaints

NMDC bought into Legacy in 2011 as a cornerstone investor and picked up a 50 per cent stake as part of a Share Subscription Agreement. The CPSE gradually increased its ownership over the years. And by 2014, the stake rose to 78.56 per cent. By 2019, its stake reached 91 per cent.

One of the anonymous complaints made to the Lokpal accuse a top official, categorically naming him, of “independently” approving investments (nearly ₹100 crore). The company claimed such “allegations were false and baseless”.

NMDC said: “Unanticipated cash calls of the subsidiaries and joint ventures are being done in accordance with the extant delegation of powers given by the NMDC Board”.

“The Board has noted the details of all such investments in subsidiaries from time to time,” it further added.

Steel Ministry, under which NMDC falls, is is yet to respond to queries.