Concerted efforts from all stakeholders can accelerate growth of Indian mining: EY report
Emerging markets account for major inbound M&A transactions in metals and mining
Anjani Agrawal, Partner & India Leader – Metals and Mining, EY says, “Although the mining industry has borne the brunt of the global recession, emerging economies show strong potential for growth driven both by good quality resources and domestic demand, propelled by relatively higher economic growth. We feel that although Indian mining activity has been subdued in recent times, there is tremendous upside if supplemented with concerted efforts from all stakeholders.”
Indian mining industry: slow but high potential
The current slowdown has had an impact on demand for metals across all of the major consuming sectors. Despite the grim macro-economic conditions, demand for minerals, as well as for mining services, is robust in the country.
The development of mining equipment and technology for underground coal mining presents a great opportunity, as production from underground coal mines is limited to around 50 million tons.
The report states that some of the challenges specific to the Indian market are social license to operate, margin protection and productivity improvement, infrastructure access, fraud and corruption, sharing the benefits, capital project execution, competition for land usage and regulations.
Recommendations to stakeholders
According to the report, the stakeholders include central and state governments, planners, policy makers, mining industry, service and technology providers, employees and host communities. There is a need for all stakeholders agreeing on a formula for sharing of benefits for long-term value creation, it says.
Promoting transparency, establishing regulatory certainty, recalibrating exploration, promoting contract mining and other mining services in India, promoting capital risk markets in India, mining taxation reforms, building strategic alliances, developing special mining regions and SPVs and developing economic model for benefit-sharing are some initiatives that the report recommends to stakeholders for accelerated development of the sector in India.
Emerging economies: growth engine for the sector
The emerging economies have accounted for most of the growth in the global production of minerals such as iron ore, nickel, aluminum, copper and steel. Exploration spend has been increasing in emerging economies with a major share been cornered by Africa and Latin America. Growth in exploration expenditure (from 40% to 60% in the last decade) suggests that emerging markets remain the focus of mining companies for new finds and also indicates the trend of future production.
Emerging markets have accounted for a significant portion of inbound M&A deals in mining and metals sector. Also, these markets hold almost all of the minerals reserves of platinum group metals (PGMs) (98%) and tin (95%).
“There are a number of factors resulting in the shift of mining to the emerging markets. Commodity demand and price boom, liberalization of mineral policies, advancement in technology and other mining reforms have contributed significantly to the emerging markets becoming the growth drivers for the global metals and mining sector”, added Anjani.
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