RESOURCING THE FUTURE
BY Team CW
The rapid pace of growth that the mining industry had been enjoying for over a decade was arrested in 2008–09, with the advent of global recession. World economic growth decelerated quickly, adversely affecting both developed and emerging economies. Circa 2018: A Supreme Court order forces mines in Goa to shut down operations. For more than 75 years, the mines have been the backbone of
Goa’s economy, and always maintained higher environmental standards than Australia and Brazil, both of which produce the largest quantity of iron ore in the world. This led to loss of exports and job opportunities saw a decline. What made it worse was that at a time when the government is talking about making India self-sufficient, India continued to import natural resources, thus making finished goods more expensive.
Mining is one of the core sectors that drive growth in an economy. It not only contributes to the GDP, but acts as a catalyst for the growth of other core industries like power, steel, cement, etc., which, in turn, are critical for the overall development of the economy. Every 1% increment in the growth rate of mining and quarrying results in 1.2-1.4% increment in the growth rate of industrial. Both the sectors are largely complementary and influence one another. In such a situation, it is imperative that the government promote mining while ensuring that all rules and regulations are adhered to.
A catalyst to success
For decades, mining in India has not achieved the optimal potential yet and the reserves to production ratios remain low. Over 80% of the mining in India is done in coal which has never been opened to commercial mining. Illegal mining, unsustainable mining activities, limited explorations, social and political land acquisition issues constrain the supply of the minerals.
Early this year, the Union Cabinet ushered in a new era for the country’s energy sector when it opened up coal mining to private sector firms. In one of the most ambitious coal reform, the Cabinet Committee on Economic Affairs approved the idea to auction of coal mines. At that time a government note said that methodology gives highest priority to transparency, ease of doing business and ensuring that natural resources are used for national development.
According to reports, India has more than 300 billion tonnes of coal reserves still untapped. The reform is expected to lead to greater energy security as a large part of India’s electricity is generated from thermal power plants.
It is no surprise that state-run mining firms are looking at large investments to spruce up production and become profitable. Nagpur-based Western Coalfields Limited (WCL) is investing around Rs 6,500 crore over five years to increase its coal production. The company hopes to cross 50 million tonne of coal production in the current financial year. “We will be starting 12 new projects, six each in Maharashtra and Madhya Pradesh,” said Rajiv Ranjan Mishra, CMD, WCL.
For Singrauli-based Northern Coalfields Ltd (NCL), a mining subsidiary of state-owned Coal India, 2018-19 is a landmark year, as its coal production is expected to breach the 100 million tonne mark, from 93mt in 2017-18. Only two out of seven mining subsidiaries — Sambalpur-based Mahanadi Coalfields and Bilaspur-based South Eastern Coalfields — have touched this milestone so far. NCL reported a 16% production growth to 24.6mt in the June quarter. The run-rate is expected to rise in the second half of the year. “We are confident of touching the 100mt production this year,” said PK Sinha, chairman, NCL.
Similarly, Vedanta-controlled Bharat Aluminium Company Limited (Balco) is planning to enhance its bauxite production to meet the raw material crises. The company had enhanced its aluminium production to 5,70,000 tonnes per annum in its Korba facility.
Large private companies are looking at sprucing up their mining output so as to accrue more raw material. Last month, JSW Steel announced that it has started iron ore mining at Tunga and Nandi mines in Karnataka and plans to produce 0.71mtpa this fiscal. The company expects statutory clearances for the remaining three mines in this fiscal for taking the overall iron ore production to 4.66mtpa. The mines, which are 35km away from its plant, were acquired through an auction in 2017. When fully operational, these mines would fulfil about 20% of the iron ore requirement in Karnataka. The company plans to undertake various cost reduction projects and increase production capacity by one million tonnes per annum (mtpa) to 13mtpa at its Vijayanagar plant in Karnataka with a cumulative investment of ₹7,500 crore in next two years.
It is already in the process of ramping up capacity of blast furnace-3 at Vijayanagar to improve hot metal supply. Subsequently, it plans to enhance capacity of the steel melting shop and allied facilities to use the additional hot metal. The company will also set up a 1.5mtpa coke oven plant at Vijayanagar to bridge the shortfall in coke availability. Vinod Nowal, deputy MD, JSW Steel, said the new capacity creation supports the company’s growth plans and improve operational efficiency.
South West Mining, owned by JSW group chairman and MD Sajjan Jindal, has won an iron ore mine in Jharkhand, auctioned last month. Situated in the state’s Bhangaon region, the mine has reserves of 40 million tonnes. “The annual production of the mine will be 2 million tonnes. It will take at least a year for the approvals to come in and production to start,” said Seshagiri Rao, joint MD and group CFO, JSW Steel. The steelmaker though won’t source iron ore from the acquired mine as the cost of transporting the resource from Jharkhand to the steel facility in Karnataka, would be high. JSW Steel has five mines on lease in Karnataka. The five mines collectively will have a capacity of nearly 5 million tonnes of iron ore a year.
As on June 18, the government has auctioned 41 mineral blocks valued at Rs 1.86 lakh crore. The resources promise Rs 1.48 lakh crore in revenue for the host states. The state governments will also get Rs 33,100 crore as royalty and contributions by lessees to District Mineral Funds (DMF) and National Mineral Exploration Trust.
Other resources that are at the top of the government’s mind is lithium and cobalt. Recently, the government has directed three state-owned mineral companies to team up for a new venture tasked with scouting and acquiring strategic mineral assets abroad. The joint venture partners are Nalco, Hindustan Copper and Mineral Exploration Corp. Ltd (MECL). This proposed joint venture is likely to be formalised along the lines of ONGC Videsh, which buys oil and gas assets abroad. The proposal is reportedly with the Niti Aayog, which will conduct due diligence before it can be formalised.
If the venture takes off, it will help the country build a strategic reserve of key minerals. For instance, India has no known sources of lithium and cobalt, two critical elements that go into batteries that not only power consumer electronics like mobile phones, laptops et al but also electric vehicles (EVs), the future of transport.
According to a Mckinsey report released last month, “the growing adoption of EVs and the need for EV batteries with higher energy densities will see the demand for lithium increase more than threefold between 2017 and 2025” while cobalt “will increase by 60% over the same period”. The forecast assumes that lithium-ion-battery technologies will be the prevalent battery technology for the foreseeable future. Incidentally, India is one of the largest importers of these batteries, importing nearly $150 million worth of them in 2017. Access to these two commodities is hence vital for India’s EV ambitions.