UNIQUE CHAL­LENGES FACED BY THE IN­DIAN MIN­ING IN­DUS­TRY

Financial Chronicle - - DIGITAL MINING FOR FUTURE -

IN­DIA’S do­mes­tic min­er­als sec­tor has been a sig­nif­i­cant par­tic­i­pant in the global min­ing in­dus­try. While for sev­eral min­er­als In­dia has among the largest re­source bases and pro­duc­tion, for some oth­ers it is emerg­ing as a de­mand driver of the global min­ing in­dus­try. As a re­sult of in­creas­ing in­te­gra­tion with global trade, the price discovery in the in­dus­try is more aligned with in­dus­try-wide trends, thus sub­ject­ing the sec­tor to global risks, op­por­tu­ni­ties and com­pet­i­tive pres­sures.

Thus, most of the driv­ers of dig­i­tal adop­tion also ap­ply to the In­dian min­ing sec­tor, for ex­am­ple, mine pro­duc­tiv­ity, cost op­ti­mi­sa­tion, safety and so­cial li­cence to op­er­ate. How­ever, the In­dian min­ing sec­tor is also ex­posed to sev­eral ad­di­tional chal­lenges and op­por­tu­ni­ties as fol­lows:

GROWTH MO­MEN­TUM

The In­dian min­er­als sec­tor lacks a strong growth mo­men­tum in key cat­e­gories. Over the past few years, min­eral pro­duc­tion has been im­pacted by mine clo­sures on ac­count of ju­di­cial/reg­u­la­tory af­fairs and lack of new mine al­lot­ments. De­spite a vast nat­u­ral re­serve base, the sec­tor ac­counted for only ~2.6 per cent of the GDP in FY16. In­dia has wit­nessed a fall in out­put of iron ore from its peak and con­tin­ues to im­port some high-value items such as gold and cop­per con­cen­trate. The coal sec­tor, how­ever, has achieved ac­cel­er­ated pro­duc­tion growth.

EX­PLO­RATION

The min­ing in­dus­try has a mas­sive un­ex­plored po­ten­tial largely due to low ex­plo­ration bud­gets and lim­ited par­tic­i­pa­tion of the pri­vate sec­tor in the past. The pres­ence of global min­ing ma­jors or ex­plo­ration com­mu­nity is low or de­clin­ing.

PRO­DUC­TIV­ITY

Pro­duc­tiv­ity re­mains a ma­jor con­cern with min­ers. Given that open cast mines are age­ing and ore grade is de­clin­ing, min­ers will need to aug­ment out­put from un­der­ground mines, ef­fi­ciently.

IN­FRA­STRUC­TURE

In­fra­struc­ture is a great value cre­ator for the min­ing in­dus­try. The In­dian min­ing in­dus­try has gen­er­ally strug­gled with con­strained in­fra­struc­ture avail­abil­ity, par­tic­u­larly roads/rail­ways and port con­nec­tiv­ity, which is a ma­jor im­ped­i­ment to ac­cess and de­vel­op­ment of min­ing ar­eas, and mines-to- mar­ket lo­gis­tics.

REG­U­LA­TIONS AND GOVER­NANCE

In­dia’s reg­u­la­tions and com­plex pro­ce­dural re­quire­ments for the min­ing sec­tor are not the great­est ex­am­ples of cer­tainty, clar­ity and ef­fi­ciency when bench­marked with global peers.

Sev­eral projects have been aban­doned due to de­lays in ac­quir­ing land and ob­tain­ing en­vi­ron­men­tal and for­est clear­ances. Rel­a­tively higher tax­a­tion lev­els have bur­dened the in­dus­try with a struc­ture that is not glob­ally com­pet­i­tive. De­spite the 100 per cent FDI route, the min­ing sec­tor has wit­nessed re­stricted FDI in­flows and en­gage­ment by global min­ing play­ers. On the other hand, fraud and cor­rup­tion chal­lenges con­tinue to plague the in­dus­try, though only few play­ers may be in­volved.

PRICE AND CUR­RENCY VO­LATIL­ITY

Like most com­mod­ity busi­nesses with a sig­nif­i­cant global trade flow, In­dian min­ers have to fol­low global price trends, which have been ex­tremely volatile. Such vo­latil­ity cre­ates im­mense stress on the cash flows and prof­itabil­ity of the play­ers. This is par­tic­u­larly rel­e­vant as prices of most min­er­als are ref­er­enced in US dol­lar terms while most costs are in In­dian ru­pee.

SCALE OF OP­ER­A­TIONS

The rel­a­tively smaller scale of min­ing ten­e­ments and op­er­a­tions in In­dia re­stricts min­ers’ abil­ity to bring in de­sired lev­els of in­vest­ment and de­ploy new tech­nol­ogy, in turn low­er­ing the ef­fi­ciency in op­er­a­tions and pro­duc­tiv­ity and also pos­ing chal­lenges in terms of pro­duc­tiv­ity, safety, sus­tain­abil­ity and gover­nance.

The gov­ern­ment, in­dus­try and stake­hold­ers are cog­nizant of these chal­lenges.

While such long-range steps progress at var­ied speeds and in­ten­sity, the in­dus­try needs to move ahead with ini­tia­tives that it can mean­while un­der­take to com­bat these chal­lenges. An ef­fi­cient way of ad­dress­ing these chal­lenges is em­ploy­ing smart dig­i­tal so­lu­tions.

UN­RE­ALISED SEC­TOR PO­TEN­TIAL

The ma­jor­ity of In­dia’s vast re­serves of key metal­lic and non-metal­lic min­er­als re­main un­ex­plored, sig­ni­fy­ing high po­ten­tial for growth. Con­strained by min­i­mal ex­plo­ration bud­gets, only 13 per cent of the 575,000 sq. km. area with ob­vi­ous ge­o­log­i­cal po­ten­tial has been ex­plored. Even where the re­source base is known, the ac­tual min­eral out­put for most min­er­als has been quite low. In­dia con­tin­ues to be a ma­jor im­porter of ther­mal coal de­spite abun­dant re­sources.

With In­dia’s workingage pop­u­la­tion set to in­crease by 220 mil­lion over the next 20 years, ur­ban­i­sa­tion and ris­ing in­comes will ac­cel­er­ate growth in con­struc­tion and man­u­fac­tur­ing in­dus­tries. In line with that, the thrust on in­fra­struc­ture in­vest­ment through the ‘Hous­ing for All’ by 2022 cam­paign, mod­erni­sa­tion of rail­ways and re­forms in the power and real es­tate sec­tors will lift the de­mand for min­er­als and met­als.

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