Indian Mining Industry

India is endowed with significant mineral resources. India produces 89 minerals out of which 4 are fuel
minerals, 11 metallic, 52 non-metallic and 22 minor minerals. In India, 80% of mining is in coal and
the balance 20% is in various metals and other raw materials such as gold, copper, iron, lead, bauxite,
zinc and uranium. India with diverse and significant mineral resources is the leading producer of some
of the minerals.

The total value of mineral production was Rs. 568070 million in 2000-2001, of which the value of
minerals other than petroleum and natural gas was Rs. 306751 million. The metallic production is
accounted for by iron-ore, copper-ore, chromite and/or zinc concentrates, gold, manganese ore,
bauxite, lead concentrates. Amongst the non-metallic minerals, more than 90 percent of the aggregate
value is shared by limestone, magnesite, dolomite, barytes, kaolin, gypsum, apatite & phosphorite,
steatite and fluorite.

India is the world's largest producer of mica blocks and mica splittings. With the recent spurt in world
demand for chromite, India has stepped up its production to reach the third rank among the chromite
producers of the world. Besides, India ranks 3rd in production of coal & lignite and barytes, 4th in iron
ore, 6th in bauxite and manganese ore, 10 in aluminium and 11 th in crude steel in the World.

Over 1.1 million people are employed in the Indian mining industry. With over 2,326 private and 292
public operating mines in the country, minerals form 16 percent of India's exports.

Coal Mining

The majority of the energy requirement in India is met by coal, largely mined in the eastern and the
central regions of the country. In 2004-05, the total coal production in the country was around 350
million MT and majority of it catered to the core sectors of power, steel and cement. Inspite of various
policy initiatives to diversify the fuel mix, it is becoming increasingly evident that coal will continue to
play the major role in sustaining the growth momentum of India. Based on estimates, the
consumption of coal is projected to rise by nearly 40 percent over the next five years and almost to
double by 2020. However, in the recent past, the coal sector in the country has come under pressure
over its inability to meet demand (both planned and unplanned) of the user industries. By
Government's own estimates, coal production will lag behind demand by about 100 million MT as of
2012 and by 250 million MT by 2020.

Major players in coal mining

Name of Company Production

2004 (MMT)
CIL (Public Sector) 306
 SCCL (Public Sector) 34
Others 21
Total 361
Note: Excludes NLC production of lignite

Type-wise and Category-wise coal resources of India as on January 1, 2005 (in Million
Tonnes):

Type of Coal Proved Indicated Inferred Total

(A) Coking :-
-Prime Coking 4614 699 - 5313
-Medium Coking 11417 11765 1889 25071
-Semi-Coking 482 1003 222 1707
Sub-Total Coking 16513 13467 2111 32091
(B) Non-Coking*:- 76447 103623 35686 215756
Total (Coking & Non-Coking) 92960 117090 37797 247847

Metal Mining

India is rich in mineral resources with large reserves of primary metal ores like iron ore, bauxite,
chromium, manganese and titanium. India has –

 13 billion tonnes of iron ore reserves – 5th largest reserve base in the world
 2.3 billion tonnes of bauxite reserves – 4th largest reserve base in the world
 160 million tonnes of manganese reserves – 2nd largest reserve base in the world
 57 million tonnes of chromium reserves – 3rd largest reserve base in the world

Indian deposits of bauxite and iron ore are among the best in the world in terms of quality and
mineability

Life Indices: Some Important non-fuel Minerals

S. Mineral/Ore/Metal *Recoverable reserves estimated as on 1.4.2000 Life Index
No. ( Based on exploration/prospecting) (years)
. . Figure in million tonnes unless otherwise (m.tonnes)
specified
1 Bauxite 2462* 211
2 Copper metal (tonnes) 5297,000 80
3 Lead metal (tonnes)) 2381,000 45
4 Zinc metal (tonnes) 9707,000 45
5 Gold metal (tonnes) 68* Not Estimated
6 Iron ore 13460* 131
7 Chromite Ore 97 46
8 Magnesite 245* 542
9 Manganese Ore 167* 47
10 Limestone 75679* 254
11 Phosphorite (Rock Phosphate) 142 79
12 Sillimanite 516* Very large
II Garnet 52* 90
16 Kyanite ( tonnes) 2817000* 265
17 Dolomite 4387* 438
18 Diamond ( Thousand carats) 982* 19

CONTRIBUTION OF THE PUBLIC SECTOR

The public sector contributes over 85 percent of the total value of mineral production. However, it is
the avowed policy of the Government to withdraw from the non-strategic sectors and accordingly the
public sector undertakings are being privatised in a phased manner.

Public sector enterprises like the National Mineral Development Corporation, Kudremukh Iron Ore
company, Steel Authority of India Limited and Orissa Mining Corporation dominate the iron ore sector.

National Aluminium Company contributes about 35% bauxite mining and aluminium production.
Hindustan Copper Limited predominates the copper ore mining sector.

After cessation of economic operations in Bharat Gold Mines Limited since 2000, Hutti Gold Mines
Limited (a Government of Karnataka undertaking), is the only undertaking engaged in the mining of
gold. Rajasthan State Mines and Minerals Limited and Andhra Pradesh Mining Development
Corporation predominate the mining of rock phosphate and barytes respectively.

Coal Mining is predominantly a public sector activity - Coal India Ltd. (CIL) accounts for 85% of total
coal production

Role of the Government

The Mines and Minerals (Development and Regulation) Act, 1957, (MMDR) and the Mines Act, 1952,
together with the rules and regulations under them constitute the basic laws governing the mining
sector. Further, the Government has formulated the National Mineral Policy, which was revised in 1994
to permit private investment in exploration and exploitation of 13 specified minerals.

In 1999, the foreign investment policy has been further liberalized to promote Foreign Direct
Investment (FDI) in the mining sector:

* For exploration and mining of diamonds and precious stones, FDI upto 74 percent is permitted under
automatic route.

* For exploration and mining of gold and silver and minerals other than diamonds and precious stones,
FDI is allowed upto 100 percent under automatic route.

* For metallurgy and processing, FDI is permitted upto 100 percent under automatic route.

* Private Indian Companies setting up/operating power projects as well as coal and lignite mines for
captive consumption are allowed FDI upto 100 percent.

* 100 percent FDI is allowed for setting up coal processing plants subject to the condition that the
company shall not do coal mining and shall not sell washed coal or sized coal from its coal processing
plants in the open market and shall supply the washed or sized coal to those parties who are supplying
raw coal to coal processing plants for washing or sizing.

* For FDI proposals not meeting the above mentioned guidelines, approval will be given by the Foreign
Investment Promotion Board keeping in mind parameters such as project size, commitment of external
resources for funding project costs, the company's mining track record and financial strength, level of
technology and the India's Partner Equity holding

A SWOT Analysis of Indian Mining Industry

Strengths:

1. The government offers a wide range of concessions to investors in India, engaged in mining activity.
The main concessions include, inter alia:

* Mining in specified backward districts is eligible for a complete tax holiday for a period of 5 years
from commencement of production and a 30 percent tax holiday for 5 years thereafter.
* Environment protection equipment, pollution control equipment, energy saving equipment and
certain other equipment eligible for 100 percent depreciation.

* One tenth of the expenditure on prospecting or extracting or production of certain minerals during
five years ending with the first year of commercial production is allowed as a deduction from the total
income.

* Export profits from specified minerals and ores are eligible for certain concessions under the Income
tax Act.

* Minerals in their finished form exempt from excise duty.

* Low customs duty on capital equipment used for minerals; on nickel, tin, pig iron, unwrought
aluminium.

* Capital goods imported for mining under EPCG scheme qualify for concessional customs duty subject
to certain export obligation.

2. World's largest producer of mica; third largest producer of coal and lignite & barytes; ranks among
the top producers of iron ore, bauxite, manganese ore and aluminium.

3. Labours easily available

4. Low labour and conversion costs

5. Large quantity of high quality reserves

6. Exports iron-ore to China and Japan on a large scale

7. Strategic location : Proximity to the developed European markets and fast-developing Asian
markets for export of Steel, Aluminium

Weakness:

 Coal mining in India is associated with poor employee productivity. The output per miner per
annum in India varies from 150 to 2,650 tonnes compared to an average of around 12,000
tonnes in the U.S. and Australia; and
 Historically, opencast mining has been favored over underground mining. This has led to land
degradation, environmental pollution and reduced quality of coal as it tends to get mixed with
other matter;
 India has still not been able to develop a comprehensive solution to deal with the fly ash
generated at coal power stations through use of Indian coal. Clean coal technologies, such as
Integrated Gasification Combined Cycle, where the coal is converted to gas, are available, but
these are expensive and need modification to suit Indian coal specifications.
 Poor infrastructure facilities
 Mining technology is outdated
 Low innovation capabilities
 Labor force is highly un-skilled and inexperienced
 High rate of accidents
 Lack of R&D programs and training and development
 Most of the Indian mining companies do not have access to Indian capital market
 There is a lack of respect for the mining industry and it suffers from the incorrect perception
that ore deposits are depleted.
 There is limited access to capital, and mines are increasingly more costly to find, acquire,
develop and produce.
 There are long lead times on production decisions.
 The Indian mining industry suffers from an out-dated, unattractive approach to mining
education that is partly to blame for insufficient human resources.
  Improvement in operational efficiency of the mining companies - Mining companies are
in need of an organizational transformation to gradually align its operating costs to
international standards. Mining costs of Indian companies are at least 35 percent higher than
those of leading coal exporting countries such as Australia, Indonesia, and South Africa. To
match productivity, they will need to invest in new technologies, improve processes in planning
and execution of projects, and institutionalize a comprehensive risk management framework.
 Mining operations are not environment friendly. Least importance is given to environment
concerns.
 High rate of illegal mining

The Opportunities

India has an estimated 85 billion tonnes of mineral reserves remaining to be exploited. Besides coal,
oil and gas reserves, the mineral inventory in India includes 13,000 deposits/ prospects of 61 non-fuel
minerals. Expenditure outlay on mining is a meager sum when compared to other competing emerging
mining markets and the investment gap is most likely to be covered by the private sector. India
welcomes joint ventures between foreign and domestic partners to mobilise finances and technology
and secure access to global markets.

 Potential areas for exploration ventures include gold, diamond, copper, lead, zinc, nickel,
cobalt, molybdenum, lithium, tin, tungsten, silver, platinum group of metals and other rare
metals, chromite and manganese ore, and fertiliser minerals.
 The main opportunities in the mining sector (excluding coal and industrial minerals) are in the
development and production of surplus commodities such as iron ore and bauxite, mica,
potash, few low-grade ores, mining of small gold deposits, development of placer gold
resources located on the frontal belt of the Himalayas, mining known deposits of economic and
marginal categories such as base metals in Bihar and Rajasthan and exploitation of laterite for
nickels in Orissa, molybdenum in Tamil Nadu and tin in Haryana.
 Considerable potential exists for setting up manufacturing units for value added products.
 There exists considerable opportunities for future discoveries of sub-surface deposits with the
application of modern techniques.
 Current economic mining practices are generally limited to depths of 300 meters and 25
percent of the reserves of the country are beyond this depth
 Strengthening of logistics in coal distribution - In India, the logistics infrastructure such as
ports and railways are overburdened and costly and act as bottlenecks in development of free
market. Privatization of ports may bring the needed efficiencies and capacities. In addition,
capacity addition by the Indian Railways is necessary to increase freight capacity from the coal
producing regions to demand centers in the northern and central parts of the country. On the
Indian rail network, freight trains get a lower priority than passenger trains, a problem that
promotes delays and inefficiency. Special freight corridors would raise speeds, cut costs, and
increase the system's reliability.
 Focusing on technology for future - India's numerous technology research institutes are
working on energy related R&D. However, there is a possibility that they are operating in a
fragmented fashion. The Government may get improved recoveries on its investment by
concentrating on few important technology areas. To start with focus may be applied for tighter
emission standards and development of inexpensive clean-coal technologies viz. extraction of
methane from coal deposits.
 Estimated 82 billion tonnes of reserves of various metals yet to be tapped
 While India has 7.5% of the world's total bauxite deposits, aluminium production capacity is
only 3% of world capacity, indicating the scope and need for new capacities

Threats:

 Foreign Investment in the Mining Sector

During 1999, the Government had cleared 7 more proposals of leading international mining
companies for prospecting and exploration in the mineral sector to the tune of US$ 62.5
 million. 65 licenses have been issued till date for prospecting an area of around 90,142 sqkms
in the states of Rajasthan, Maharashtra, Gujarat, Bihar, Haryana and Madhya Pradesh.
Prospecting licenses have been granted in favour of Indian subsidiaries of well-known mining
companies. These include BHP Minerals, CRA Exploration supported by Rio Tinto (RTZ-CRA),
Phelps Dodge of USA, Metmin Finance and Holding supported by Metdist Group of Companies
UK, Meridien Minerals of Canada, RBW Mineral Industries supported by White Tiger Resources
of Australia, etc.

 Large integrated international metal manufacturers including POSCO, Mittal Steel and Alcan
have announced plans for expansion in India
 Mining companies and equipment suppliers are under the constant threat of being taken over
by foreign companies.
 A heavy tax burden discourages further investment.
 Politicians undervalue the industry's contributions to the economy.
 Stricter environment rules restricting mining activities

Karna Jalan
1st Semester
ICFAI Business School
Hyderabad