How mining achieved success in Gujarat

At a time when most of the public sector undertakings across India are reeling under various problems, Gujarat Mineral Development Corporation has proved to be a jewel in the crown of Gujarat.

Reasons for this success are many. The company was among the very first batch of government-owned enterprises to adopt divestment as a strategy for sustaining profitability and growth, rather than basking in the glory by exploiting sate monopoly. This move paid rich dividends and the company has become a veritable powerhouse and showpiece of Gujarat now.

The company's success formula is based on lignite, a commodity which has tremendous demand from tiny, small and medium enterprises – from roadside dhabas and laundrymen to textile and leather processing factories.

Reserves of lignite in India are estimated at 34 billion tonne. Of this, only 200 million tonne have been identified in Gujarat. This too is not located in one basin but at different locations. Leveraging its expertise and strengths in lignite mining, the professionally managed GMDC has turned the brown coal reserves of Gujarat into virtual brown goldmine.

GMDC's tale began in 1963 when the company established a crushing plant to produce graded sand. The silica sand from Surendranagar was of very high quality, fit for use in the manufacture of glass and sodium silicate, an additive used by foundries to moulding sand to produce high grade cast iron and steel castings.

From sand, the company forayed into the development of other minor and major mineral resources in Gujarat before becoming a significant player in the power sector. GMDC started production of lignite in 1970 in Kutch. Panandhro, a long-known seam of the brown coal, has been developed as a major mining centre. Current annual production from Panandhro seam is 6 million tonne. The company has opted for mining technology from TAKRAF of Germany, which is best known for entailing minimal damage to the environment and the reserves during extraction.

When the production exceeded market demands, the company started supplying lignite to Gujarat Electricity Board. Sale of lignite constituted 94 per cent of GMDC's topline in 2001-06.

The first major mineral processing undertaken by GMDC was with the setting up of a plant for beneficiation of fluorspar in 1968.

Calcium fluoride, known as fluorspar is an essential rare mineral for refining of steel, manufacture of aluminum alloys, hydrofluoric acid and fluxes. GMDC's mining and beneficiation activities for fluorspar are sited at Kadipani. This plant is the only indigenous source for the material and has a capacity of 500 tonne per year.

GMDC mines bauxite in Gadhsisa group of mines in Kutch and Bhatia mines in Jamnagar. The company has a rotary kiln calcination plant at Gadhshisha, with 50,000 tonne per year capacity.

GMDC has bigger plans for the future. RBG Minerals Industries Ltd -- a 25:75 JV between GMDC and Binani Industries formed in 2001 — proposes to set up a mineral benefaction plant to produce clean concentrates for extraction of lead, zinc and copper.

The plant is to come up at Ambaji and will supply the concentrates to nonferrous metal manufacturers for use in their smelters. When power reforms freed generation from the monopoly scope of state electricity boards, GMDC embarked upon a 2X125 MW lignite-based power project at Akrimota in Kutch district. The proximity of fuel and additive source make GMDC's power plant one of the most economical ones. Moreover, GMDC is expected to build another 500 MW power plant at Bhavnagar by 2011-12 as a joint venture with GIPCL. This plant will also be fuelled by lignite.

Apart from lignite-based power plants, GMDC is also foraying into coal-based power generation by forming JVs outside the state. The coal ministry has allotted one block each in Morga, Chhattisgarh and in Jayanagar, Jharkhand, to the company. GMDC's performance has been an example for even professionally managed big corporate house.

It has been recording financial performance at par with the best-managed private sector companies ever since the state government offloaded its 26 per cent share in the entity in October 1997.

The dilution was at Rs 130 per share, including a whopping premium of Rs 120.

Those who stayed invested when the scrip suffered a beating in the aftermath of 1998 nuclear blasts at Pokhran have heaped huge benefits.

The scrip has maintained its climbing spree since 2000 and has appreciated 30 times in 7 years.