Emerging economies and India’s mining industry

  • Share

The mining industry had borne the brunt of the global recession.

However, higher economic growth, good quality resources and growing domestic demand has induced the shifting of mining activity to emerging economies. Our report provides an insight into India’s mining industry and how our professionals can address a wide spectrum of issues, such as:

  • Strategy
  • Regulatory and tax policy
  • Risk management
  • Mergers and acquisitions
  • Process improvement
  • Human capital
  • Financial modelling
  • Capital raising
India currently produces around 89 minerals under different groups, with fuel minerals, metallic minerals, non-metallic minerals, atomic minerals and minor minerals.

Global mining overview

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.

Some of the significant factors governing the global mining industry during this period include:

  • Volatile and uncertain scenario
  • Financial institutions and markets losing credibility
  • Diminishing confidence of counterparties
  • Effective stagnation of the interbank market
  • Heavy economic slowdown
  • Cost inflation
  • Capital raising and investments

Emerging economies: the future growth engine

Emerging markets have played a significant role in the global mining and metals sector, particularly since the last decade. Emerging countries have stepped in to incrementally meet the growing global demand for minerals and in the process gained increasing market share in global minerals trade.

  1. Exploration trends: Emerging economies’ share of exploration expenditure has increased from around 40% at the beginning of the decade to around 60% in recent years.
  2. Major mining markets:
    • In 2012, Latin America was the most popular global exploration spending destination, accounting for a 25% share, mostly targeted toward gold exploration.
    • Africa’s share of global exploration spending rose to 17%, making it the second-most preferred destination for exploration in 2012.
    • Among other emerging market economies, China and Russia, along with Mongolia, Kazakhstan, Finland and Turkey, accounted for the fourth-largest budget share.
  3. M&A trends: Emerging markets have accounted for a significant portion of inbound M&A deals in mining and metals targeting assets in emerging economies rising during 2007–2012.
  4. Significant mineral reserves: Emerging economies hold almost all of the minerals reserves of platinum group metals (PGMs) (98%) and tin (95%).

Why the shift of mining activity to emerging economies?

Various factors have contributed to the growth of the mining sector in emerging markets, such as:

  • Commodity demand and price boom
  • Liberalization of mineral policies
  • Technological advancement
  • Mining reforms
  • Increased privatization

Mining in India

India currently produces around 89 minerals under different groups, with fuel minerals, metallic minerals, non-metallic minerals, atomic minerals and minor minerals. The country has immense potential for mining resources and reserves and is currently among the top 10 global producers of many minerals.

India’s global position in mineral production

Mineral

Global rank

Coal

3

Chromite

3

Iron ore

4

Bauxite

6

Manganese Ore

5

Source: Annual report FY13, Ministry of mines, Government of India

After growing at more than 8% for many years, the Indian economy registered a GDP growth of 5% in FY13, the lowest in almost a decade. The on-going slowdown has had an impact on demand for metals across all of the major consuming sectors. In line with the overall trend, the index of mineral production for FY13 is estimated to be 121.91 as compared to 128.45 for FY12, registering a negative growth.

Impact of currency depreciation

  • The Rupee’s depreciation is on balance and is positive for the Indian mining sector. Most of the mining companies in India are net exporters and would experience a positive impact on bottom lines.
  • The ban on iron-ore mining in Karnataka and Goa resulted in a current account deficit, making it imperative for the government to curb imports and promote exports.
  • Hikes in export duty, and restriction on mining and blanket bans have prevented the government from earning forex revenue on exports.

Challenges in India’s mining sector

Social license to operate

Sharing the benefits

Margin protection and productivity improvement

Capital project execution

Infrastructure access

Competition for land usage

Fraud & Corruption

Regulations

Future of the mining industry in India

  • Despite the slowdown, India is still the second-fastest growing economy, after China.
  • Demand for minerals, as well as for mining services, is robust in the country.
  • Mining in India is becoming more structured, and companies have started outsourcing part of the project to mining service companies.
  • The largest mining company in India, i.e., Coal India Limited (CIL), plans to invest around INR254 billion during the Twelfth FYP (2012–17).
  • Contract mining could prove to be a solution to the on-going current coal deficit in country.
  • As the industry focuses on adapting international levels of technology, there exists untapped potential in the Indian mining equipment sector.