Indian Mining Industry and Opportunity for Mining Equipment, Technology and Service Providers

Indian Mining Industry and opportunity for Mining Equipment, Technology and Service providers

Australian Trade and Investment Commission Jun 2019 Indian mining industry to continue to demonstrate strong growth

Mining sector is closely associated with economic development and in the case of India India remains an oasis of growth amongst slowing global outlook. as it shall post healthy growth in the future due to following factors 7.5% 7.7% Real GDP Growth (%) 6.1% Strong economic growth–Projected to be Make in India – Focus on increase in 5.5% fastest growing economy at-least till 2024 Manufacturing share to 25% by 2025

2.5% 2.2% 1.8% 1.7% 1.7% 1.6% 1.9% 1.6% New application areas such as electric Growing demand from end-use industries 0.5% 0.5% vehicles, renewables, defense etc. such as infrastructure, Automotive, Power

India China Brazil Europe Russia US Japan Technology Development in the sector Low per capita metal consumption 2020 2021 2022 2023 2024 increasing efficiencies and productivity creates tremendous potential Source: World economic outlook, April 2019, IMF

India is at an early stage in terms of per capita mineral consumption and has a significant potential to grow at accelerated growth than historical growth

Coal Iron & Steel Non-ferrous Metals (Al, Cu, Pb, Zn) Beach Sand Minerals

. Demand estimated to increase to 1.3- . Steel demand to grow at a high pace . Demand is expected to reach ~9 MT . High reserve share of beach sand 1.9BT by 2030 (Base case- 1.5 BT) and will reach 214-247 MT by 2030 in 2022 minerals (35%) presents high potential . Demand scenario is volatile due to . Iron ore demand is expected to reach . Individual demand will reach Al ~5MT, . Exploration covered only ~2,000 km of fast changing energy landscape ~430 MT by 2030 Cu ~1.3MT, Pb ~ 2MT, Zn~ 1MT coastal stretch, out of ~ 6000 km Opportunity Opportunity Opportunity Opportunity . Expansion or production enhancement . Detailed exploration . Technological advancement in . Scope of further exploration beneficiation projects . Inclination towards higher . Establishing Value addition industries . . Inclination towards advanced configuration machinery Upgrading technology in developing . New & efficient technologies configuration machinery quality downstream products Source: MoC, CIL, SCCL, KPMG Analysis Source: NSP 2017 Source: KPMG report: Non-Ferrous metals industry - Building Source: KPMG report: Mines and Minerals Development way the Future © 2017 KPMG India, an Indian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.. forward 2 India’s true mining and exploration potential is yet to be tapped

Currently, only 10% of the 8 lakh sq. km of potential resource bearing area in India Contribution of Mining Sector to GDP is low as compared to other mineral has been explored - Significant exploration potential to convert resources to reserves rich States

In Billion Tonnes In Million Tonnes 9.4% 9.0% 7.9% 7.6% 1.5 3.9 496 343 37 512 7.0% 6.9% 22 315 45 502 189 6.4% 5.4%

55% 70% 73% 71% 83% 76% 81% 2.4% 2.2% 86% 85% 97% 1.9% 100% 1.3% 45% 30% 27% 29% 14% 17% 24% 15% 19% 3% Copper Bauxite Iron ore Coal Lignite Manganese Chromite Zinc Silver Gold Nickel Reserves Remaining Reources Source: Indian Mineral Yearbook 2018, Note: Figures in circle are Total resources For many minerals, India’s global production share is low; although it has high reserve share - provides for significant potential in future • India is a mineral rich nation with significant mineral potential 18.36% 17.86% • Every 1% incremental growth in mining and quarrying sector results in 13.01% 9.72% • ~1.2–1.4% incremental growth in industrial production 6.15% 8.67% 8.00% 4.34% 3.86% 4.35% 2.07% 4.28% 0.33% • ~0.3% incremental growth in India’s GDP 3.81% 3.01% 0.08% 2.20% 1.28% 0.15% 0.06% • If India converts these resources into reserve and produce it Coal Zn Fe Bauxite Ag Chr Mn Pb Cu Diam economically, then it will contribute significantly to India’s GDP (Shipping Grade)

Reserve (% Share) Production in 2018 (% Share) Source: Development of Indian Mining Industry – The Way Forward – FICCI Mines & Metals Division (October 2013) Source: Indian Mineral Yearbook 2018, USGS, ICSG © 2017 KPMG India, an Indian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.. 3 The country to witness strong momentum with forthcoming auctions – post Mar’20

5 states account for 45% of the Value of Minerals Produced (excl. atomic mineral) in India Coal – Adequate capacity already allocated to fulfil anticipated demand

450 - 500 1520-1570 Rajasthan (12%) 64% • CIL is estimated to 33% 1000 68 16% remain the dominant • Minerals mined in Rajasthan sent to other states in raw form 20% 20% 100% 23% supplier • Tremendous scope for setting up of new mineral based 28% • More than 50% of industries for value addition 44% 52% mines/ projects face Jharkhand (7%) Coal capacity (in MT) CIL 1 BT plan SCCL Coal blocks Total production Medium-High • Owns ~40% of total mineral resources of India (including captive development risk • Thrust on using natural sources to generate revenue and Low risk Medium risk High risk blocks) Source: MoC, CIL, SCCL, KPMG Analysis employment • Ranked 4th in India in Ease of Doing Business Non–Coal minerals – Odisha to be at the front in forthcoming auction Madhya Pradesh (6%) • 104 Brownfield merchant mining leases to be auctioned in 2020, of • Pro-activeness of State Govt. in terms of geochemical which, 49 are working mines survey of resources, making land available,6% etc. • Ranked 7th in India in EoDB • 44 working mines are of Fe, Mn and Chromite which has a significant production share in India’s total production Odisha (11%) 29% 16% 50% • Vast natural resources and supportive and flexible administrative set up 55.2 • Increasingly investment-oriented Chhattisgarh (7%) 0.4 1.9 33 7 4 • Strong mining eco-system. 80% Industries are mining based • Surplus-Power state with Power being 20% cheaper than Iron ore & Iron ore - Mn Manganese Chromite National Avg. Working ML Production (in MT) th • Ranked 6 in India in Ease of Doing Business XX% All India production share Source:: Report of the Committee chaired by Dr. K. Rajeswara Rao, Addl. Secretary, M/O Mines to look into the Source:: Annual Report 2016-17, MoM issues related to seamless operationalization of the mining leases expiring on 31.03.2020 © 2017 KPMG India, an Indian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.. 4 Cost & tech. efficiency driving outsourcing model in mining industry

Exploration Mining

Mineral All Coal Non-coal minerals

1. Reconnaissance Type Commercial mining Captive mining Commercial mining Captive mining 2. Prospecting

Dominated by PSUs Mix of Pvt. and PSUs Mix of Pvt. Co. and PSUs

Private: JSPL Govt. & PSUs - GSI, CIL, SCCL, State Private: Vedanta Private: Hindalco Players PSU: NTPC, State MECL, AMD etc. Mining Co. PSU: NMDC PSU: Nalco Gencos

Mining Mining Mining Operating Model Nomination* MDO Others** MDO*** MDO MDO contracts contracts contracts

*Private companies get contract **Civil infra, logistics, washing, coal *** Mining contract opportunities on tender basis but limited supply chain management with Pvt sector but limited

. Introduction of Right of First Refusal for RP/PL holders and auctioning of composite RP cum PL cum ML in virgin areas . Encouraging the private sector to take up exploration by introducing appropriate incentives . Encouragement of merger and acquisition of mining entities. National Mineral . Creation of to boost private sector mining areas. Policy 2019 dedicated mineral corridors . Encouraging technology through appropriate incentives for mineral administration and curb illegal mining . Proposes to grant ‘industry’ status to mining with the objective of boosting financing of private sector. . Harmonize taxes, levies & royalty with world benchmarks to help private sector.

. The MMDR Act of 1957, witnessed amendments in 2015 for the promotion and development of the mining industry, that includes MMDR . Auctions for allocation of mining leases, longer lease duration and stringent provisions for illegal mining Amendment Act, . Provision of composite license i.e. prospecting license-cum-mining lease (PL-cum-ML) 2015 . District Mineral Foundation is set up by government which will work for the interest and benefit of mining affected person . Establishing a dedicated trust ‘NMET’ for collecting funds (2% of royalty from leaseholders) and use it for exploration purposes

. FDI of up to 100 per cent is permitted under the Automatic Route for mining and exploration of metal and non-metal ores but excluding Relaxed FDI norms titanium bearing minerals and its ores . In March 2018, the government allowed 100 per cent FDI in commercial coal mining to introduce private sector participation

. Low custom duty on the capital equipment used for minerals such as Nickel, tin, pig iron and unwrought Aluminum Investment . on prospecting, extraction and production of certain minerals during five years ending with the first year of Incentives One-tenth of the expenditure commercial production is allowed as a deduction from the total income (subject to the timelines provided in the law)

Source: Mining in India, Lexology

Segment Issue/ Challenge Development Opportunity/Benefit

EMS EA TSP Tech AP • Amended MMDR Act 1957 to establish NMET, Low exploration • Charges 2% of royalty from lease holder for utilisation in exploration focus • NMET Rules 2015 – To promote regional and detailed exploration • NMP 2019 (4.3) - Exploration of minerals having poor Reserve/ Resource

Lack of • NMP 2019 (4.4) - Encouraging private sector to take up exploration by financial/ providing appropriate incentives Exploration technical • NMET Rules 2015 (9)(j)- Organize capacity building programs to raise expertise technical capability

• NMP 2019 (4.1) - Use technologies such as seismic 2D/3D interpretative Low technology system for exploration by appropriate incentives adoption • NMP 2019 (5.1) - Digitizing resource inventory and tenement registry and integrate with GIS

• NMP 2019 (1) - High penetration of e-governance system and Illegal Mining administrating minerals in the supply chain with use of IT system and Value Mineral • Govt. of Orissa, AP and Gujarat have already adopted technologies such Leakage Administrati as GPS tracking, drone surveillance to curb illegal mining on and Managemen Inefficiency in t concession • NMP 2019 (5.2) - Establish Mining Tenement System to automate the management entire life cycle using state of the art IT system process

© 2017 KPMG India, an Indian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.. 7 EMS - Equipment manuf./ Suppliers EA – Exploration Agencies TSP – Technical service providers Tech – Technology providers AP: Ancillary service providers High Medium Low Key issues, development and opportunity for METS– (2/3)

Segment Issues/ Challenges Development Opportunity/Benefit

EMS Tech TSP Con AP • NMP 2019 (6.4)-Incentivising machinery & equipment which improve economics of mining, beneficiation, safety of persons working High operating cost • NMP 2019 (6.4)- Development of indigenous industry for manuf. of machinery, beneficiation equipment and Induction of new technology • Draft study group report has been prepared wherein royalty rates & dent rent and royalty of most of the minerals have been reduced

• MCDR 2017 (12)(4A) - Clear timelines are set to auction leases Large no. of leases expiring on 2020 to ensure uninterrupted supply of minerals expiring in 2020 & • Regular reviews are being carried out by Central Government to 2030 Mining and ensure timelines are met Processing

• NMP 2019 (3.1)- Auction blocks with pre-embedded statutory Procedural delays in clearances grant of concessions • States such as Andhra Pradesh are in process of launching Single desk portal for streamlining the process of grant of concessions

Limited • NMP 2019 - Consider appropriate fiscal measure to facilitate import mechanisation of automated equipment, machinery and mining robots etc.

© 2017 KPMG India, an Indian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.. 8 EMS - Equipment manufacturers/ Suppliers Tech – Technology Providers TSP – Technical service providers Con – Contractor/ MDO AP - Ancillary service providers High Medium Low Key issues, development and opportunity for METS– (3/3)

Segment Issues/ Challenges Development Opportunity/Benefit

EMS Tech TSP Con AP

• NMP 2019 (6.6)- Promotion of eco-friendly and efficient modes of Infrastructure and evacuation like slurry pipelines and close loop conveyors Logistics • NMP 2019 (6.6)- Creation of dedicated mineral corridors to boost private sector mining areas.

• NMP 2019 (6.8) - Promotion of small mineral deposits in a scientific Small mineral and efficient manner while safeguarding vital environmental and deposits ecological imperatives. Mining and Processing

• NMP 2019 (6.10)- Use of renewable sources of energy at mining Protection of sites will be encouraged through appropriate incentives. environment • MoM instituted ‘Star Rating’ system which gives rating to leases for their efforts in implementing of Sustainable Development Framework

• NMP 2019 (6.14)- DGMS to be further strengthened through Safety of mines & equipment in order to carry out the regulatory role for ensuring mine-workers miners’ health and mine safety effectively

© 2017 KPMG India, an Indian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.. 9 EMS - Equipment manufacturers/ Suppliers Tech – Technology Providers TSP – Technical service providers Con – Contractor/ MDO AP - Ancillary service providers KPMG India team has hands on experience of working in mining sector both in India and abroad and is well connected to the Sector

Experience in India and abroad Deeply connected to the sector

A coal mining company in India An iron ore mining company in India

A platinum mining company in South A large coal mining company in China Africa

© 2017 KPMG India, an Indian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.. 10 Value chain of the Bid-to-Build (B2B) cycle in mining is quite significant and KPMG can assist across all areas

Pre-Mining Land Acquisition & Engaging & Managing Mine construction and Human Resource Establishment of Bidding & Auction Clearances R&R of PAPs Mining Contractor operations Management Processes & Systems

Identification of blocks to Mining Plan Approval from Selection of Pre-development stage work Establishment of SOPs and Land acquisition or Purchase Manpower Planning bid for MoC Consultants by MDO Governance Protocols

Organization structure, job Partner identification & JV Operating model design for Implementation/ Roll-Out of ERP Environmental Clearance Identification of owner Mine development by MDO description, KRA/ KPIs and other IT/ Automation agreement/ MDO/ Contractors formulation Systems Bipartite Agreement between Draft Mine Planning (incl. Approvals from State Contracting strategies and Setting up of CHP/ Siding/ Compensation and incentive Land Owners and the Creation & establishment of costs, tax structuring etc. Pollution Control Board Bid process operational infrastructure planning Company shared service organization

Approvals for Ground Relocation Plan & Execution Start of mining operations/ Bidding strategy Award of Contract (s) Identification of operating, Establishment of basic ops – Water from CGWA Strategy box-cut management & statutory staff logistics contracts, maintenance & housekeeping Bid preparation & Payment Negotiation and services, regulatory Forest Clearance Contract Management & Monitoring compliance management etc. compilation settlement (land & R&R) Recruitment of land-losers and other personnel Submittal of Mine Independent project Mining Lease Creation of CSR strategy Periodic Reviews & Audits Planning Bid monitoring oversight Establishment of HR Operations - payments, time Establishment of sustainable DGMS Approvals management, skill development programs, CSR Operations registration of unions, performance management CCO Approval etc.

Other Approvals

© 2017 KPMG India, an Indian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.. 11 KPMG has successfully executed engagements across the value chain of the Bid- to-Build (B2B) cycle in mining along with strategic planning

Pre-Mining Engaging & Establishment of Strategy & Bidding and Mine construction Human Resource clearances, Land managing Mining processes & Planning Auction and operations Management acquisition, R&R Contractor systems • Coal India Ltd • Reliance Power • Hindalco • Mahan Coal • Reliance Power • Coal India Ltd. • Essel Mining • Reliance Energy • Tata Steel Industries, for four • Tubed Coal • Essel Mining • Essar • Reliance Power • MOIL • Tata Sponge coal blocks • GOCL • PTTI-SAR • Rio tinto • Shenhua • Tata Power • Tata Power • Gare Palma IV/4 • Sadbhav • Homeland Energy • Vedanta • Adani • L&T • GMR Energy • Gare Palma IV/5 Engineering • African Barrick • Hindalco • JSW • Adani Group • Hindalco • Kathautia • GMR Group Gold • OMC • Sesa Goa • AVB Group Industries • Dumri • Balasore Alloys • Anglo Coal • Thriveni • ICML • Sadbhav • Jharia Action Plan • APMDC • Shenhua Earthmovers Engineering (Ministry of Steel) • Shapoorji Pallonji • Konkola Copper • Newmont Mining • MSPL Limited • Vedanta • Tata Steel Mines • Sesa Goa • PTTI-SAR • L&T • Ministry of Coal • WBMDTCL • Adani Group • Rio Tinto • Dalmia • Ministry of Steel • PSPCL • MSPL Limited • Coal India Limited • Bharat • APMDC • OMC • SICAL Logistics • OMC • CESC • NTPC • Coal India • APMDC • Rashmi cement • NMDC • OMC • Hindalco • DGM Industries Chhattisgarh • DIMG, Jharkhand • DMG, AP

From volume to value: Cost Non ferrous metal industry Growth in a time of Mining Projects: Seeking optimization in the mining Building the Scarcity: Transactions in greater value - 2013 sector future(Insights/future Mining Sector potential/growth)

Brazil Country Mining Going for Gold: China as a Quarterly Commodity Future Trends in Mining Factsheet Global Mining Player Insight – Coal/ Iron Ore/ Industry Business Base Metals/ Precious Resilience Metals, etc. © 2017 KPMG India, an Indian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.. 13 Thank you

Contact: Niladri Bhattacharjee Partner and Lead - Metal and Mining [email protected] +91 9051061645 Annexures Factors influencing India’s mining industry potential

Evolving Falling Environmental Statutory Rising Regulations Global Auction clearances clearances Imports Prices

Low Manpower exploration Squeezed Commercial Mechanization Logistics focus profits mining availability Level

Mining Ease of doing method business

Segments Some Players Challenges Opportunities Ratings

Equipment 1. Caterpillar (Gainwell, GMMCO) 1. Regulatory challenges 1. HEMM market expected to touch $4-$5 billion Manufacturers/ 2. JCB 2. Challenges in logistics USD per annum in the next 3 years suppliers 3. Tata-Hitachi 3. Inventory management

Exploration agencies 1. Geological Survey of India 1. State governments admit they don’t have 1. Exploration agencies can assist GSI and 2. Mineral Exploration financial or technical competencies State Governments in prospecting and Corporation Limited required for G3 Level prospecting. preparing accurate geological reports.

Technical service 1. AMC 1. Planning experience for large 1. Contract with OEM & technical consultancies provider 2. Runge opportunities 3. DMT 2. Deeper experience in large HEMM deployment

Mine developers cum 1. Essel Mining 1. Lack of high capability and experience 1. Coal MDO market size – may reach between Operators 2. Adani Enterprises 2. Higher equipment configuration $6.15 – $9.23 billion USD pa in next 10 years 3. Thriveni Earthmovers 3. Tackling on-ground problems 2. Large no. of MDO contracts (total nearly $0.77 billion USD pa) expected to be finalized in FY 15-16

Ancillary service 1. Bridgestone 1. Limited suppliers for explosives 1. Develop in-house infrastructure to compete provider 2. Solar Industries accessories with global products 3. Kirloskar (Pumps) 2. Deep underground mine ventilation 2. Solutions for achieving higher utilization and 4. Metso (Material Handling) system productivity 3. Inventory management of high capacity HEMM tires

Low High