Impact of COVID-19 on the Mining Sector in India

Impact of COVID-19 on the mining sector in India

May 2020

home.kpmg/in/COVID-19 Table of contents

Foreword 1 1 Contribution of the mining sector to the economy 3 1.1 Mining sector – key contributor to the Indian economy 3 1.2 State-wise contribution to mineral production value 4 1.3 Contribution of coal 5 1.4 Indian mining sector’s contribution to GDP has been low over the years 5 1.5 However, the mining sector witnessed significant strides in last couple of years 6 2 Emerging realities during the pandemic 7 2.1 Governments, both Central and States, supported continuation of mining activities during lockdown period 7 2.2 Mining operations impacted, despite Government exemption 9 2.3 Global trade of minerals also impacted 10 3 Impact of COVID-19 on mining sector 11 3.1 Impact on Indian mining companies 11 3.2 Lower mineral revenues to impact government exchequer 11 3.2.1 Estimation of impact on government exchequer 12 3.3 Impact on already allotted/auctioned mineral/coal blocks 14 3.3.1 Mineral auction regime in India – Story so far 14 3.3.2 Operationalisation of the auctioned mineral blocks will get delayed 15 3.3.3 Recently concluded Odisha mineral auctions 15 3.3.4 Falling demand, weak company financials may also delay fresh auction of coal and other Mineral blocks, and dampen price bids 17 3.4 Impact on Mine-Developer cum Operators (MDOs)/Mine Operators (MOs) 17 3.4.1 Due payments to MDOs/MOs 17 3.4.2 Difficulty in operating the mines 18 3.4.3 Mining operations going back to normalcy may take a bit more time 18 3.4.4 Likely revaluation of operating plans 18 3.4.5 Likely scenario going forward for Mine Owners/MDOs 18 3.5 Business continuity related challenges to mining companies 19 All rights reserved a Swiss entity. (“KPMG International”), of independent member firms affiliated with KPMG International Cooperative and a member firm of the KPMG network Partnership © 2020 KPMG, an Indian Registered

II 4 COVID-19: Impact on coal and key minerals 21 4.1 Manufacturing and construction sectors are demand drivers 21 4.1.1 Manufacturing sector 21 4.1.2 Construction sector 22 4.2 Impact on coal and other key minerals 23 4.2.1 Non-coking coal 24 4.2.2 Iron ore 27 4.2.3 Bauxite 29 4.2.4 Limestone 31

4.2.5 Chromite ore 32 © 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved 4.2.6 Manganese ore 33 4.3 Impact on minor minerals 34 4.3.1 Weak construction activity, subdued global trade to limit demand for minor minerals 34 5 Way forward – looking ahead and looking up 35 5.1 Suggestions for Central and State governments 35 5.2 Suggestions for mining companies 39 Foreword Response. Recovery. Resilience The Novel Coronavirus (COVID-19) pandemic concerned, especially the Governments and the has had severe health and economic impact in business community, in order to boost demand almost all countries. In the immediate aftermath, and at the same time, to ensure that there is no India and several other nations have prioritized supply disruption. citizen health over economic activity to contain the Considering the multi-dimensional challenges spread. that COVID-19 has posed to the mining and The mining sector in India was poised for robust metals sectors in India, it is important to devise a growth in FY21, on the back of rising demand turnaround strategy for the short-term, medium- from end-use sectors and fresh investments term and long-term. announced by the mining companies. However, A. RESPONSE phase – Short-term (next 3 the spread of COVID-19, right at the beginning of months or till the time the pandemic is the financial year, has led to disruptions across contained): This phase will require the industries. Mining Sector fuels the economic stakeholders to remain patient, and at the wheels as a primary input and is a key contributor same be time extremely agile with smart to power, manufacturing, construction and real actions to prevent the extent of damage estate sectors. Even though in most states to the ‘fundamentals’ of the sector. If the mining was allowed even during the lockdown ‘fundamentals’ are guarded well and kept the effects have nonetheless been felt and may intact with right policy directives from continue in the near term as the lockdown is the Central and State Governments, the extended. Demand in the end-use industries like subsequent path to recovery and achieving power, steel, cement, aluminium, etc. has come aggressive growth over a five year period down. Simultaneously transport and logistics are should be eminently possible. affected, limiting offtake of minerals from the mines. B. RECOVERY phase – Medium-term (next 6 months to 1 year): Mid-term actions should The consequential effects of reduction in activity be targeted with aim for ‘recovery’ and in the mining sector have been several. setting realistic growth ambitions for FY22. • Government exchequers are expected to get During this phase, Governments must focus affected as collection against statutory levies on setting the house in order through some and taxes are lower due to lower volume of long-standing Policy changes like identification mineral production of alternate options for mineral resource distribution and rationalisation of the tax • Government’s plan to auction new coal and structure, which is currently considered to be mineral blocks is likely to get delayed very high in India (60-65 per cent, as compared • MDOs/MOs are expected to face significant to global average of 40-45 per cent). On the other challenges, and hand, companies can focus on optimizing their operating costs with adoption of digitalisation and • Lastly but not the least COVID-19 has already technology enablement and focusing on value affected the entire business eco-system addition by diversifying into the larger part of the especially the marginal stakeholders like mine-to-mill value chain. small vendors/contractors, contract labourers, downstream and ancillary businesses, etc. C. RESILIENCE phase – Long-term (next 1-2 years): Long-term actions must be targeted towards Overall, de-growth in the Mining sector is broader business and economic goals. Focus on unavoidable in Q1, and perhaps also in Q2. The creating downstream and ancillary ecosystem economic activities are likely to gather momentum of business with the backward and forward again only in H2 of FY21. In order to address the interlinkages with other industry segments will overall impact of COVID-19 on mining sector, have to be driven by individual State governments specific actions are needed to be carried out by all All rights reserved a Swiss entity. (“KPMG International”), of independent member firms affiliated with KPMG International Cooperative and a member firm of the KPMG network Partnership © 2020 KPMG, an Indian Registered

1 with end objective of industrial promotion in the state. For example, providing “Infrastructure” status to the mining sector will open up plethora of opportunities for the sector for the next level of growth. Arranging finances in particular will become much easier with the Infrastructure status. The kind of traction Transport and Logistics sector has been able to generate after getting the Infrastructure status is there for everyone to see. Mining needs such kind of shake-up, which is long due. Another aspect could be to drive indigenous R&D in this sector, which will help in © 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved unlocking lot of value. Government has already recognised mining as a key sector for employment, revenue generation and value addition during these unprecedented times. The reforms announced by Honorable Finance Minister during the fourth tranche of the special economic package are welcome move. The Coal Blocks Auction (Amendment) Rules, 2020 has also been notified on 18 May 2020. More such notifications and details may be awaited. The progression path of COVID-19 is yet to be fully determined. However, it is clear as soon as containment is reasonably achieved, economic activity has to restart.Mining activity is at the very start of the chain, generating primary inputs for other industries and also contributing hugely to central and state government coffers. The mining sector, being farthest removed from the ultimate consumer, will get demand signals last of all value chain participants. This may create working capital issues if not wrong asset deployment decisions. It is, therefore, important to put in the right set of measures and utilize the recovery from COVID-19 to step up economic activity and build a resilient mining sector that is ready for future challenges.

Anish De Niladri Bhattacharjee Partner and National Head Partner and Head Energy & Natural Resources Mining & Metals KPMG in India KPMG in India

Impact of COVID-19 on the mining sector in India 2 © 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved 3 cnm.Mnn/etato ftemnrl s mentionedbelow: (excluding atomicandfuelmineralslike coal)are development. The highlightsoftheminingsector economy. Mining/extraction ofthemineralsis steel, cement,power, etc.thatdrive theIndian intotheoverall strategyofthenation’s economic for someofthekey industrialsectors–suchas guidedby thenationalgoalsandisintegrated major andminor. Someoftheseareraw materials India isendowed withaplethoraofminerals,both 1.1 Miningsector –key contributor to theIndianeconomy like coal) like Mineral-wise breakupoftotalmineralproduction value (FY19) (excluding fuelandatomicminerals Figure 1-2. Mineral-wise break ofthetotal mineral production value (FY19) Figure 1-1. Key highlightsoftheminingsector minerals (FY19): 88 produced Minerals Minor 1 the economy mining sector to Contribution of the 44% Reporting mines ieas(Y9: oGA(Y9: employment: toGVA (FY19): minerals (FY19): - excl. minor INR1,24,020 cr 1,405 Total Total – production value INR1,24,020 cr Mineral (FY19): 56% minerals Contribution Major 2.7% employment: 23 lakh Direct Manganese Chromite Limestone 3% 5% Bauxite 2.3 crore Indirect 2% minerals* Other major 12% 1

15% INR70,025 crINR70,025 Total majorTotal minerals – minerals *Includes Zinc,CopperandLead 63% Iron oreIron © 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved 44 2% 14% 77% 9,636 9,636 2

Bauxite

. 9% 89% Odisha Odisha Rajasthan PradeshAndhra Chhattisgarh Karnataka Remaining States 3 10,445 10,445 Chhattisgarh Karnataka Impact of COVID-19 on the mining sector in India Impact of COVID-19 Manganese states, which contribute about 66 per cent of total states, which contribute about 66 per contribution. top 5 major minerals to contribution of the The are (FY19E) the top 5 mineral-producing states mentioned below: production in the country in FY19. Next in order Next FY19. in the country in production Andhra by per cent), followed (17.27 Rajasthan was per cent) (8.62 per cent), Chhattisgarh (8.49 Pradesh per cent). and Karnataka (8.37 9% AP 1,069 1,069 17% 17% Chromite 24% 24% 9% 9% 8% 8% Limestone 9% 2,195 2,195 Rajasthan 8% 8% 34% 34% Iron ore 1% 1% 84% 29,196 29,196 Odisha Value represent mineral production value in INR crore from the state in FY19E in FY19E represent mineral production value in INR crore from the state Value Figure 1-4. Contribution of key minerals to the top 5 mineral producing states states producing 5 mineral the top to minerals of key Contribution 1-4. Figure To assess the impact of the COVID-19 pandemic on the impact of the COVID-19 assess To its impact on analysed have we the mining sector, to about the top 5 major minerals that contribute of production from major 85 per cent of total value also assessed the impact have we minerals. Further, 5 of top of this pandemic on the mineral revenues (excluding fuel and atomic minerals like coal) minerals like fuel and atomic (excluding FY19 value, production mineral to contribution State-wise Figure 1-3. State-wise contribution to value of mineral production in India (FY19) in India (FY19) production of mineral value to contribution State-wise 1-3. Figure 1.2 State-wise contribution to mineral production value value production mineral to contribution State-wise 1.2 of total value 66 per cent for 5 states account Top in India. Bulk of the mineral of mineral produced is confined to 5 major states. production in India per cent, in leading position with 23.66 Odisha was mineral of of estimated value in terms of percentage © 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved 5 in attractingforeign investments (refer Figure2-6). June 2015, Indiawas ranked 83outof136 countries Attracting Foreign Investment” by Milken Institute in another reporttitled“GlobalOpportunity Index – 10 countriesinInvestment Attractiveness Index. In infrastructure –Indiawas ranked amongstthebottom exploration investment, taxationlevels andqualityof attractiveness, effects ofgovernment policieson Attractiveness Index driven by factors like geological 2016, whichrankscountriesonoverall Mining the internationallyreputedFraser AnnualSurvey of mineralreserves inthecountry. According to much below itspotential,consideringtheabundance Mining contributiontotheGrossValue Added (GVA) is 1.4 Indianminingsector’s contribution to GDPhasbeenlow over theyears 2 also amajorproducerofcoal.In2018, Indiaranked Apart fromtheabove mentionedminerals,Indiais 1.3 Contribution ofcoal coal offtake inthecountry. Estimatedvalue ofcoal almost 90percentofthetotalcoalproductionand Figure 1-5. Miningcontribution to GVA-Trend Figure 1-6. GlobalOpportunity IndexRanking2015, Milken Institute nd Mining sector contribution to GDP in % inworld coalproduction.

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D cent) duringthesameperiod. cent) vis-à-visIndia’s GDPgrowth (approx. 6.7per slower comparative sectoralgrowth (approx. 2.7per 3.9 percentinFY09to2.7FY19) dueto declined significantlyintermsofpercentage(from contribution ofminingsectortoIndia’s GVA has Also, ifwe observe thetrendinprecedingdecade, and Telangana (14 percent). Odisha (14 percent),Madhya Pradesh (14 percent) Jharkhand (22percent),Chhattisgarh(18 percent), The majorstatesaccountingfor coalproduction are products (especiallysteel),etc. fierce competitionfromChinaonmultipleend-use opening upofnew mines,hightaxes andduties, and Karnataka),risingcostsofproduction,delay in Supreme Court’s decisiontobanmininginGoa operational uncertainties(for instance,theHon’ble to thissubduedgrowth aremanifold – for example, offtake inFY19 crore. was approx. INR1,00,000

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13 Mineral Laws Mineral Laws (Amendment) Mineral (Auction) Amendment Minerals Concession (Amendment) 2020 12

14 • • • Impact of COVID-19 on the mining sector in India Impact of COVID-19 FDI Relaxation National Policy Mineral 2019

• • Odisha Mining Corporation Limited (OMC): Limited Corporation Odisha Mining OMC, the largest state public sector mining OMC, the largest growth in India, had also envisaged company cent in FY21 to ramp-up of more than 50 per had also iron ore. They production of 20 MT Joda mines in Odisha’s new planned to start 5 region JSW: MT – 17.5 FY21 Sales target INR32,000 infusion – Approx FY20/FY21 Capital plant of new expansions/ capacity crore in various to plant, steel manufacturing power Captive Pellet, expansions product downstream Tata Steel: Steel: Tata to increase the plan – In the process Capex 8 MT by capacity of its Kalinganagar plant to infusing INR23,500 which is estimated to crore, 2022. by be operationalized

3. • 4. • • some growth poised for was the mining sector Thus, from end- in FY21, on the back of rising demand mining companies. by use sectors and investments right at the the spread of COVID-19, However, has led to disruptions year, beginning of the financial The across industries and mining is no exception. chain the entire mining value pandemic has affected Q2 a dent over poised to make Q1 and is already for emerging 2020. The till June if it continues as well its impact on realities of the pandemic, along with in the subsequent are analysed the mining sector, sections. 5. • Mineral (Auction) Amendment Rules 2017

• 8 9 National Mineral Exploration Policy 2016 2016

• 10 MMDR Amendment Mineral Rules Auction FY21 Output target – 48 MT (>50 per cent y-o-y cent y-o-y FY21 Output target – 48 MT (>50 per increase) target – INR2,300 crore to outlay FY21 Capex pipeline and to raise production, add a slurry coal blocks new two develop FY21 Output target – 710 MT (>18 per cent y-o-y per cent y-o-y MT (>18 FY21 Output target – 710 increase) target of INR9,500 crore outlay FY21 Capex Coal India Limited (CIL): Coal India Limited

2015 2015

• • • • • 2. NMDC Limited: • India’s mining sector has made good strides in mining sector has made good strides India’s since the amendment recent times, especially prior In fact, 2015. in January to the MMDR Act pandemic and the COVID-19 to the outbreak of Sector Public various its associated disruptions, mining companies and private Undertakings (PSUs) expansion plans and had charted out significant as mines as well both existing for outlay, capex in pursuit of enhanced mines, opening of new Some of expansions. share and geographic market to enter into these companies also announced plans chain (e.g. other businesses in the mineral value transportation pipelines for of slurry construction plants of fines, establishment of ore beneficiation of the expansion and pellet plants, etc.). A snapshot mining companies are various up by plans taken below. provided 1. However, the mining sector witnessed significant strides in last couple of years years of in last couple strides significant witnessed sector the mining However, 1.5 and at the both at the Centre Governments, The etc. Odisha, Chhattisgarh, Karnataka, States like key in of measures especially introduced a slew have much-needed to provide years the past couple of sector. to the mining impetus Figure 1-7. Steps undertaken by government government by undertaken Steps 1-7. Figure © 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved 7 ones through rail/air/ports. materials, equipment etc.includingimported related activities like supply/movement ofraw cement etc., plants duringlockdown and other of operationssteel,aluminium, copper, measures thatwould ensurecontinuity operations andalliedactivities andtofacilitate Requested Statestoallow themining Secretary, MinistryofMines production, supplyanddistributionofcoal. operators toensurenodisruption in Extension ofsupporttoCILandnon-CIL Secretary, MinistryofCoal subsidiaries.. mining industryfor suppliestoCILandits and movement ofexplosives usedincoal relaxation fromlockdown for production Requested JharkhandStatetogrant Additional Secretary, MinistryofCoal issued by thegovernment/ government entities The chronologicalsequenceofvarious guidelines activities during lockdown period 2.1 Governments, bothCentral andStates, supported continuationofmining Start ofNationwide Lockdown pandemic during the Emerging realities 2

26-Mar 25-Mar 24-Mar 23-Mar 2020 2020 2020 2020

mentioned below: in thepublicdomain,relatedtominingsector, are incidental tominingoperationstheexceptions transportation, supplyofexplosives andactivities Included coalandmineralproduction, Ministry ofHomeAffairs materials for steelmaking. iron orepelletplantsetc,whichsupplyraw manganese, chromite,spongeiron,ferroalloys, coking coal,thermallimestone,dolomite, on theoperationofsteelPlants,minesironore, Requested statesnottoimposeany restrictions Secretary, MinistryofSteel exceptions. and activitiesincidentaltominingoperationsthe production, transportation,supplyofexplosives State Government and includedcoalandmineral require continuousprocess,postpermissionfrom Granted exception to productionunits,which Ministry ofHomeAffairs Start ofNationwide Lockdown

1 © 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved 8 Impact of COVID-19 on the mining sector in India Impact of COVID-19 Ministry of Shipping remission of certain Directed all major ports for users and PPR concessionaires charges to Port to period and extended during lockdown of some charges, deferment 30.06.2020 for related charges to Indian Coastal vessels vessel and issued certain relaxations to PPP projects all penal consequences permitting them to waive on case to case basis Ministry of Home Affairs Ministry of Home Affairs of the inter - state movement Centre facilitates in the stranded people including Migrant workers country Director General of Shipping, Ministry of Shipping of Shipping, Ministry of Shipping General Director on cargo related penalties of performance Waiver cargo for of non-containerized owners/consignees due to 14-Apr-2020 the period from 22-Mar-2020 reasons of cargo caused by in evacuation to delay attributable to lockdown Ministry of Home Affairs of obtaining permission the provision Removed continuous for from the State Government production units General Manager, All Zonal Railways Railways All Zonal Manager, General against that the charges Issued instructions stacking, stabling etc., wharfage, demurrage, from 22- the period considering by will not arise and Majeure under Force to 14-Apr-20 Mar-20 till dispensation the above extended subsequently 03-May-20 2020 2020 2020 2020 2020 2020 2020 2020 2020 21-Apr 21-Apr 15-Apr 15-Apr 29-Apr 29-Apr 31-Mar 31-Mar 10-Apr 10-Apr 19-Apr 19-Apr 22-Apr 22-Apr 28-Mar 27-Mar 27-Mar Ministry of Mines to MoEF &CC and Chief Secretaries of Letter support and to consider all states to extend of upfront payment annualizing the payment of lease execution that is needed for Ministry of Home Affairs Ministry of Home Affairs of labour outside the State/ No movement are currently from where they Union Territory located Ministry of Corporate Affairs (MCA) (MCA) Affairs Ministry of Corporate to CSR spending inclusions – Contributions the PM CARES fund, SDMA and ex-gratia fighting COVID-19 made to workers payment declaration a Board supported by Secretary, Ministry of Mines Ministry Secretary, 30 per cent of the states to utilize Instructed Mineral Fund) balance DMF (District to COVID-19 related expenditure funds for 2.2 Mining operations impacted, despite Government exemption Except for Rajasthan, all major mineral producing However, it was observed that mining activity has states allowed mining operations during the been severely impacted on account of the COVID-19 lockdown period until 15-Apr-2020. After 15-Apr- pandemic. Highlights of state-wise mineral 2020, the states including Rajasthan allowed mining production of Odisha2, Rajasthan3, Andhra Pradesh4 , operations with certain conditions. Chhattisgarh5 and Karnataka6 over last few weeks is highlighted below:

Figure 2-1. State-wise mining scenario during lockdown

Rajasthan Production of lignite, iron ore, limestone, lead, zinc, copper stopped Chhattisgarh Transportation: 10% MCL offtake: 20%

Odisha All production: 60% Raw material Transportation: 50% MCL offtake: 6%

Andhra Pradesh Karnataka Limestone, manganese, NMDC sales: 50% barytes, granite, road metal, silica sand production stopped All rights reserved a Swiss entity. (“KPMG International”), of independent member firms affiliated with KPMG International Cooperative and a member firm of the KPMG network Partnership © 2020 KPMG, an Indian Registered

9 Mining activities have been dampened primarily of power generation, measures taken by the because of the following: central and state governments appear to have been successful in ensuring adequate coal supplies for 1. Restrictions imposed on the free movement of power generators, so far. public and transport vehicles However, it may be noted that while coal production 2. Lack of demand did not get significantly affected the demand for 3. Non-availability of labour coal has been affected because overall electricity demand has fallen, especially industrial consumption A key exception to the above is the coal sector, coming down significantly, and states have reduced which continued to witness growth in production offtake of coal resulting in mine mouth pile up. (refer Section 4.2.1.3). Given the essential nature

2.3 Global trade of minerals also impacted However, various operational constraints have • Kakinada port: Kakinada port has also declared affected the normal functioning of the ports, with force majeure on incoming shipments9 several ports halting cargo operations. • Krishnapatnam port: The port has declared force

• Paradip port: The traffic handled at Paradip port majeure and has joined other ports in declaring © 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved has reduced from 13.51 per cent in Dec-2019 closure as a result of Coronavirus.10 y-o-y growth to 4.59 per cent in Mar-2020. In Apr- Port operations being halted or ports running at low 2020, in terms of operation snapshot (in MT), the capacity, coupled with rising turnaround time at the Paradip port has witnessed a y-o-y drop of 10.47 ports, have resulted in inter-state transfer of minerals per cent in Apr-2020 (up to 21-Apr-2020) when via sea route. compared to similar period in Apr-20197 Thus, the lockdown measures introduced by the • Haldia port: Port operations in Haldia were various governments to combat the COVID-19 suspended after an employee tested COVID-19 pandemic have impacted the supply chain for import positive on 04-Apr-2020 - the general cargo berth as well as export of mineral commodities. was now under control of CISF8 In case of imports, the impact is likely to be limited • Mormugao port: The port of Mormugao in Goa to only a few commodities, such as coking coal state and many smaller ports along India's west imports by steel sectors, copper concentrate coast have been shut for several days until further imports, etc. since India is primarily reliant on notice9 domestic supplies for most of the other minerals. • Gangavaram port: This port near Visakhapatnam In the next chapter, we delve into and analyse some (Vizag) has declared force majeure on all incoming of the major areas of impacts due to COVID-19 in shipments and told its customers that it would be the domestic mining sector. severely affected by lockdowns in Andhra Pradesh and Telangana states8 `

10 © 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved 11 Note: *As on31-Mar-2020 minerals might alsobehit. coal. Needlesstosay, thedemandfor several other production of, and royalties andtaxes from,thermal coal firedpower generation,thereby hittingthe activities intheindustrialsector islikely toimpact limestone. Similarly, slowdown inmanufacturing thereby affecting theproduction ofironoreand in theconsumptionofsteelandcementFY21, construction activitiesislikely toleadareduction scenario attheend-useconsumptionside,reduced mining sectorfor thegovernments. Consideringthe production fromminesisfall inrevenues from As animmediateconsequenceofthissubdued utilisation, orclosingdown operations temporarily. miners torun eitheratsignificantlylower capacity consumption andsupplychainissueshasforced the as aresultofnation-widelockdown, decreased producing statesinIndia.However, falling demand Net StateValue Added (NSVA) inthetopmineral- The miningsectorisasignificantcontributortothe 3.2 Lower mineral revenues to impactgovernment exchequer capitalisation.Vedanta andNMDCfeature inthetop 282billionhadbeenwipedoutfromtheirmarket approx. USD1trillion. across theglobehadacombinedmarket value of At theendof2019, thetop50miningcompanies 3.1 ImpactonIndianminingcompanies Table 1. ImpactofCOVID onminingcompanies as theCOVID-19 pandemicsweeps theworld, USD Coal IndiaLimited Company name NMDC Limited mining sector COVID-19 on Impact of 3 Vedanta 1 Atrtremnh no22, 10 worst affected companiesalready. Afterthreemonthsinto2020, market capitalisation YTD %change in (Q1, CY 2020) 60.6%  38.1%  41.6%  2 Market capitalisation (in billionUSD)* 1 3 11. 3.2 3.2 in top 50mining Global position companies* 48 49 17 3.2.1 Estimation of impact on government exchequer In order to understand the magnitude of this impact, we have tried to quantify the likely impact of COVID-19 disruption to the state exchequer.

Illustration: Calculation of revenue per month to Odisha’s state exchequer (in INR crore)3

Figure 3-1. Monthly collection from 5 MTPA Figure 3-2. Monthly collection from 1 MTPA iron ore mine chromite ore mine

Case 1: Iron ore mine of capacity 5 MTPA Case 2: Chromite ore mine of capacity 1 MTPA Monthly Dispatch approx 0.42 MT Monthly Dispatch approx 0.084 MT 35 25 30 6 22 30 9 20 25 3 2 20 15 1 17 2 13 15 10 10 5 5 0 0 Royalty DMF GST on Corporate Total Royalty DMF GST on Corporate Total Sale-State Tax-State Sale-StateTax-State

Considering the above illustrative cases, we calculate the potential losses to the state exchequer in the event of an extended lockdown till June 2020.

Table 2. Loss estimation for Odisha's state exchequer4

Lockdown period April 2020 May 2020 June 2020 Operation level – iron ore @40% capacity5 @50% capacity @50% capacity Operation level – @30% capacity @50% capacity @50% capacity chromite ore Reduction in Monthly iron 6.0 MT5 5.0 MT 5.0 MT ore dispatch Reduction in Monthly 0.2 MT 0.15 MT 0.15 MT chromite ore dispatch Total loss to state exchequer (from iron ore INR480 cr INR400 cr INR400 cr and chromite ore) Total loss to exchequer(from all minerals, excluding coal) INR510 cr7 INR420 cr INR420 cr – extrapolating basis % contribution to state revenue Cumulative losses INR510 cr INR930 cr INR1,350 cr © 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved 13 Figure 3-3.ImpactofCOVID ontop 5mineral producing states -Hitongovernment exchequer ue22 n/rmre eadde o mrv Pradesh andKarnataka.As perourestimates,thetop till then. richstatesinIndia–Rajasthan, Chhattisgarh,Andhra June 2020and/ormarket demanddoesnotimprove COVID-19 onthemineralrevenues for other4mineral crore,ifeitherthelockdown1,400 getsextended till Similarly, we have assessedthepotentialimpactof to that OdishastatecouldpotentiallyloseINR1,300 So, basisthehigh-level estimates,itisfair toassume mineral sales(excluding coal)inthese5states. crore. –2,000 estimatedtobe aroundINR1,800 such as NMET, CGST and Corporate tax – due to fall in Karnataka) the Central government is also expected INR4,500 – 5,000 crore.Andtheoverall –5,000 lossthat INR4,500 crore to loseINR1,000-1,500 The overall lossesincurred by allthestate Karnataka) theCentralgovernment isalsoexpected Rajasthan, Chhattisgarh,AndhraPradesh and Correspondingly, justfromthese5states(Odisha, depending uponthestate.The losstocentralexchequer rangesfromINR40to50crore. For 1MTreduceddomestic coalofftake, thelosstostateexchequers rangesfromINR20to40crore Illustration: Loss onaccountoflower coalofftake Figure 3-4.ImpactofCOVID ontop coalproducing states -Hitongovernment exchequer 1,500 INR Crore 1,100 1,300

INR Crore 100 120 -100 100 300 500 700 900 20 40 60 80 0 hrhn Chtigr Odisha Chhattisgarh Jharkhand 1,300-1,400 51% 49% 100 Odisha 9 Loss toCentralexchequer –a t hr ftxs thecentralgovernment would befacing inFY21is –asitsshareoftaxes aata Chtigr A Karnataka AP Chhattisgarh Rajasthan 500-550 38% 62% 68 Royalty 450-500 governments combined isestimatedtobearound of around INR3,000-3,500 crore of aroundINR3,000-3,500 5 mineralproducingstatesarelikely toseeanimpact value addition,miningrelatedservices,etc. generated fromexplosives, OTR tyres,bulklogistics, This excludes lossesonaccountoflower revenue in offtake ofminerals. 31% 69% DMF 65 Loss toStateexchequer SGST 300-350 48% 52% MP 83 Corporate Taxstateshare 8 in all,duetodecline 11 . Telangana 400-450 40% 60% 83 10 © 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved 14

12 40 MT Scenario 3 Scenario INR1,761 cr INR1,255 cr INR3,000 cr However, at the However,

15 Impact of COVID-19 on the mining sector in India Impact of COVID-19 16 30 MT in the form of Basic Customs Duty, Customs Duty, of Basic in the form

INR941 cr 14 Scenario 2 Scenario INR1,320 cr INR2,250 cr 13 31-Mar-2020 or 31-Mar-2030 respectively, the leases the leases respectively, or 31-Mar-2030 31-Mar-2020 or up to 31-Mar-2020 validity will be deemed to have also have we Therefore, respectively. 31-Mar-2030, FY20, year of mine auctions in the witnessed a rush auction as many to in full force as the states worked mines as possible, to ensure operational non-captive steel, cement, continuity of supplies to end-users like instance, Odisha stainless steel, aluminium, etc. For successfully completed the auction process of 23 operating iron ore, chromite and manganese ore mining leases in FY20 out of 25 operating leases that got expired. Customs Cess, GST Compensation cess and IGST. cess and IGST. Compensation Customs Cess, GST 50 to 60 MT reduction in imports in Assuming the central government that FY21, it is expected will lose INR4,000 to 4,800 crore. same time it may also be noted that this is likely to also be noted that this is likely same time it may average result in 3.5 to 4.2 billion USD (assuming in 70 per tonne) savings Coal as USD CIF price for Forex. INR80 crore 20 MT INR880 cr INR627 cr Scenario 1 Scenario INR1,500 cr basis) exchequer exchequer Total losses Total Total loss to state Total Lockdown period period Lockdown Total loss to central Total in FY21 (on an annual in FY21 (on an annual Reduction in coal dispatch coal in Reduction Impact on already allotted/auctioned mineral/coal blocks mineral/coal allotted/auctioned 3.3 Impact on already so far in India – Story auction regime 3.3.1 Mineral and (Development Mines and Minerals The mandated that 2015 Act, Amendment Regulation) only on the basis mineral concession will be granted the Coal Mines bidding. Similarly, of competitive allocation of for provides 2015 Act, (Special Provisions) bidding Coal mines through transparent competitive process. that provides MM(D&R) Amendment Act The been leases will be deemed to have all existing non-captive(i.e. For a period of 50 years. granted for on or before mines, expiring commercial) and captive Considering the above illustrative case, we estimate the potential losses under the following 3 scenarios. 3 following losses under the the potential estimate case, we illustrative the above Considering So, basis the high-level estimates, the central and So, basis the high-level could potentially lose INR1,500 state government to 3,000 demand from crore on account of weak end-use segments. is likely central exchequer that the It is expected coal imports in to additionally get hit due to lower of imported non-coking 1 tonne every For FY21. approx receives coal, the central government Table 3. Potential loss estimation due to low coal offtake coal low to loss estimation due Potential 3. Table © 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved 15 Table 4.Auctioned majormineral blocks,covering bothMLandCL(excludes coal) 40 coalblockshave beenauctioned. Till date,sincetheintroductionofMMDR(AmendmentAct) 2015 inJanuary 2015, 97MajorMineralblocksand • • • blocks willget delayed 3.3.2 Operationalisation oftheauctionedmineral

blocks oftype-CinKarnataka have beenableto of the23Operationalmines ofOdisha),only5 auctioned sofar (i.e.apartfromtherecent auction is noteworthy thatoutof74 non-coalblocks more timetooperationalize. Inthisregard,it as greenfieldminesusuallytake substantially brownfield minesthanthegreenfield The impact willbefelt comparatively morefor operationalisation oftheseblocks government levels, whichwillfurtherdelay the well asdelays inprocessingthe applicationsatthe activities duetoCOVID-19 relatedrestrictionsas to getextended, given delays incompletionoffield clearances andtooperationalize themineislikely However, thetimetaken for obtainingstatutory governments (MDPA) enteredwiththerespective state Mine Development and Production Agreement meet thedevelopment timelinesprescribedinthe environment clearance,forest clearance,etc.to clearances, suchasapproval ofminingplan, currently intheprocessofobtainingstatutory New allotteesofgreenfieldmineralblocksare Chhattisgarh Maharashtra Jharkhand Karnataka Rajasthan Gujarat Odisha Total MP AP State 12 3 2 21 2 7 6 3 5 97 2 5 5 3 4 6 3 27 42 18 1 1 2 3 1 1 ------8 - - - 4 - 4 - - Iron/Iron and Mn 3 ------Limestone - 6 ------Chromite

- - - Bauxite 12-Mar-2020) as “The Mineral Laws (Amendment)Act, 2020”on on 10-Jan-2020 (andlaterpassedby theParliament The Mineral Laws (Amendment)Ordinance,2020 from thesemines,Centralgovernment hasbrought owner tonew allotteeandtocontinuetheproduction the smoothtransitionoftheseleasesfrompriorlease of Intents(LoIs) toallpreferred bidders.To facilitate 2020. Stategovernment hasalsoissuedtheLetters mining leases,whichwere about toexpire on31-Mar process ofironore,chromiteoreandmanganese Odisha hadsuccessfullycompletedtheauction 3.3.3 RecentlyconcludedOdishamineral auctions • clearances for another2years.

development. raising the required funding for the purpose of mine be thecasethatallotteesface difficultyin as theirstretchedfinancialsituation. Itmay also some timeduetoweak market scenarioaswell the allotteesareunwilling todevelop theminefor clearances, we may still witnessascenariowhere Even iftimeextension isprovided for allstatutory across Indiahave reached theproductionstageyet. commence production. 2 1 1 Gold 3 ------19

toextend thevalidity ofallStatutory Copper 3 1 2 2 - Graphite 18 Nogreen-fieldmines 17 2 - - - Mn 2 - - Diamond 30 13 18 8 8 7 5 5 3 Total - 1. Current situation post COVID-19: 3. Going forward: The outbreak of COVID-19 and the subsequent 1. Delay in restarting mines: The consequential announcement of lockdown across the country delay in paperwork required to resume these have thwarted the pitch for seamless continuity mines is bound to delay the recommencement of in operations at these auctioned mines. Post the mines. lockdown, only Captive mines in Odisha (Tata Steel, 2. Relaxation of MDPA conditions: Mine SAIL and some other small mines) continued their Development and Production Agreement (MDPA) operations while rest of merchant miners brought stipulates that the new lessee will have to down their production levels or lowered their maintain at least 80 per cent of dispatches of the prices. average over last two years (on pro-rata basis). 2. Some measures already undertaken by the However, in view of sharp decline in demand for Governments to ease the supply from the minerals due to COVID-19, it is imperative that auctioned mines by new lessees: the government provides some relaxation with respect to this requirement. a. Government of Odisha has provided clarification on existing situation 3. Challenging 6-month time period beyond 31-Mar-2020: The Minerals Concession – The government has clarified that no further © 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved (Amendment) Rules, 2020 explicitly mentions excavation will be allowed beyond 31-Mar- that the new lessee will have the right to operate 2020 by the old lessee20 the mine after the execution of the lease deed. – However, previous lessee will be allowed to However, the previous lessee will be allowed dispatch the already excavated minerals – i.e. to dispatch the already excavated minerals till prior to the expiry of the mining lease and 30-Sep-2020. Hence, there is likely an overlap of lying in the leasehold area – beyond 31-Mar- the post lease deed execution period for the new 2020 for a period of 6 months (i.e. till 30-Sep- lessee and the period for which previous lessee 2020) as per the provisions of Rule 12(1) (gg) is allowed to dispatch the already excavated ore of MC Rules, 2016. from a particular mine. The state government is required to put in suitable mechanisms in place b. Government of Odisha has also started to ensure this does not lead to conflicts and legal facilitating issue of Vesting order to the new issues between the previous and new lessees. allottees 4. Extension of validity of licences: As mentioned – Odisha government has asked for realisation earlier, “The Mineral Laws (Amendment) Act, of NPV (Net Present Value) @INR7.5 lakh per 2020”, states that the successful bidder of the hectare for forest area falling within the mining expiring mining leases (selected through auction) lease.21 NPV collection is a precondition to will be deemed to have acquired all valid rights, issue Vesting order under Mineral Concession approvals, clearances, licences and the like (Amendment) Rules, 2020 for enabling restart vested with the previous lessee for a period of of the mine by the new lessee. two years. Given the delay for completion of c. Ministry of Mines under government of India field activities as well as delays in processing has advised all states for annualisation of auction of applications at the government levels, it is dues expected that the validity of various licences may – The Ministry of Mines has suggested to the get extended by another 6 months. states that upfront payment (including NPV for forest area, wherever applicable) and stamp duty for the auctioned mines be annualized in view of the COVID-19 pandemic22 – This is likely to ease some pressure on the new lessees to phase out their payments to the government, which are prerequisites for obtaining the mining lease.

Impact of COVID-19 on the mining sector in India 16 © 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved 17 • Mineral blocks,anddampenprice bids may alsodelay fresh auctionofcoalandother 3.3.4 Falling demand,weak company financials • • •

about 80coalblocksfor thepurpose. sale by MarchFY20.Sofar MoChasidentified the auctionfor thefirstroundofblockscoal for Ministry ofCoal(MoC)was expected to launch auctions inFY21. and manganeseblocksinOdishaarelinedupfor blocks for auction–for example, 9greenfieldiron are intheprocessofreadyingmultiplemineral Apart fromcoalblocks,somestategovernments CMDPA. auctioned/allotted withstringenttimelinesinthe As many coalblocksaspossibleshouldbe and competitiveness ofIndianmanufacturing. auctions. Rather itistimetoensuresurvival at improving value realisation fromcoalblock this isnotthetimefor theGovernment tolook less aggressiveness inbidpremiums.However, If auctionstake placeinFY21,itislikely tosee further delay theexpected coalblockauctions. are facing duetotheCovid-19 relatedissues,may the severe financial pressures thatthecompanies auctioned sofar. Allthesefactors, coupledwith as well asoperationalisationofthecoalblocks subsidiaries –SECL,MCLandCCL)SCCL, strong expansion plansofCIL(especiallyatthree earlier expected tofurtherincrease,aidedby the as atCILmines.Domesticcoalavailability was increase incoalstocksatpower plants aswell March onwards. Also,therehasbeenasharp consumption hasreducedsignificantlyfrom plants have beenshutdown. Even thepower Post outbreakofCOVID-19, many end-use tranches. proposed theauctionoftheseblocksinmultiple – – bidders, scenario andstressedfinancialpositionofpotential during inFY21, Also, incasemineralblockauctionsareconducted Power, Automobile, etc. steel, and bearishoutlookofmajorsectorse.g. also getdelayed due to weak market sentiments

compared totheauctionsconductedinFY20. The “auction premium”islikely tobelower earlier, and participation thanwhathasbeenwitnessed The auctions arelikely towitnesslesser

considering thesubdueddemand 24 The auctionoftheseblocksmay 23 MoChad bills fromconsumers,considering therequirement instructed nottotake coercive actionstorecover aggravated asstateelectricitydepartmentshave been the power generatingcompanieshasbeenfurther dues fromdistributioncompanies(DISCOMs)to For instance,inthepower sector, payment of cashflow issues theminershave startedto face. payments by MDOs/MOs from theallotteesdueto minerals, whichwillhave animpactonthereceiptof to significantlyimpactthedemand for coaland key from theearth.The COVID-19 pandemicisexpected of totalvolume oforesandoverburden excavated contractors istothetune of around60to70percent for theproduction.Currently, thedependenceon (MOs) orMine-Developer-cum-Operators (MDOs), contractors, whowork aseitherMineoperators Indian miningsectorisheavily dependentonprivate 3.4.1 Duepayments to MDOs/MOs Operators (MDOs)/MineOperators (MOs) 3.4 ImpactonMine-Developer cum © 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved 18 Impact of COVID-19 on the mining sector in India Impact of COVID-19 Mining operations going back to normalcy normalcy back to going operations 3.4.3 Mining time a bit more take may in India given activity labour intensive Mining is a fairly heavily and is therefore size the small equipment of manpower/labourer availability dependent on the number of labourers on ground. Also, substantial in loading and transportation of ores. are involved such With back, many mine operations being scaled to their native gone back have migrant workforce to be lockdown the for waiting places or are just back the operations Hence, in order to scale over. again, the see surge in demand as we to normalcy, workers of qualified of adequate number availability miners. constraint for will remain a key plans of operating revaluation 3.4.4 Likely issues of facing With parties and vendors many piling sources drying up, operating expenses revenue or concerns (already existing as liquidity up as well that mine owners/MDOs/ imminent), it is expected their operating plans re-evaluate likely MOs would operations. and accordingly re-adjust their future and subsequent reevaluation Some of the areas for of cost implementation will be along the lines of supply chain optimisation measures, realignment risk mitigation steps and potential and workforce, and M&As. partnership strategies through JVs Mine for forward going scenario 3.4.5 Likely Owners/MDOs it was In the recent iron ore auctions in Odisha, prior allottees had participated that many observed of them could only few in the auctions. However, did not we bidders. Also, emerge as preferred emerging as players MDO/MO traditional witness any bidders. preferred and sentiments in general market In light of weak expect blocks, we of auction of new delay the likely their Business to be revisiting each of these players the right plans at this point of time and ideating for to with clear strategic initiatives forward strategic way term. them in the near to medium by be undertaken evaluate to like would they Some of the exercises assessment; ii) Internal capability are - i) Market assessment; iii) Shortlisting of potential upcoming and iv) Change in Operating model opportunities; for long-term area into new and/or Diversification sustainability. 25 of uninterrupted supply of power in homes and other supply of power of uninterrupted establishments: to occur in other sectors, Similar constraints are likely payments be witnessing delayed where lessees may to impact their ability to is likely from customers. This including the to their vendors timely payments make MDOs/MOs. the mines 3.4.2 Difficulty in operating Although mineral production, their transportation, to mining and activities incidental supply of explosives period, during the lockdown operations are allowed items, which the sector is still dependent on various basis. are procured on a cash-and-carry for per industry sources, it is becoming difficult As their mining to procure spare parts for MDOs/MOs not being of such parts are machineries as movement that HEMM spare is a common view There allowed. “Essential under mentioned specifically be must parts Goods”. 3.5 Business continuity related challenges Example: Before lockdown i.e. 25-Mar-2020, to mining companies daily number of trips that the ore transportation trucks were making in four major mining Circles Mining, being the labor-intensive sector, contributes (Joda, Koira, Keonjhar, Jajpur) in Odisha was in significantly to employment generation, both the range of 15,000 to 23,000, and that reduced direct and indirect. It impacts local and regional drastically post lockdown to 1,500-6,000.26 economies in and around the mine. Considering the This sharp reduction has led to loss of work for interdependency of the local community and larger number of drivers and helpers and made them regional ecosystem with mining, COVID-19 has vulnerable to loss of employment in the short- already created major disruptions and is likely to lead term. At the same time, truck owners will also to significant economic, environmental and social find it increasingly difficult to payout their dues impacts. Some of the immediate potential impacts to the lenders/banks. are highlighted below: i. Impact on Sustainable Development Goals (SDGs): iii. Impact on Supply Chain:Diminishing levels of SDG targets will be unsettled and thus also impact economic activities in the short run will lead to the overall sustainable development of mining the readjustment of supply chain and workforce. sector. SDGs that have been impacted negatively It is expected that this will put the companies at are SDG 8 (Decent Work and Economic Growth), risk of re-activating the original supply chain links SDG 9 (Industry, Innovation and Infrastructure), once various economic activities gain the lost SDG 1 (No Poverty) and SDG 2 (Zero Hunger) momentum back. and positive impacted SDGs are SDG13 (Climate iv. CSR and Peripheral Development (PD): For most Action), SDG 14 (Life Below Water) and SDG 15 companies, expenditure towards CSR and PD (Life On Land). However, sustainable development will most likely be deprioritized supported by depends on both biodiversity conservation and the fact that the contribution towards COVID-19 human development and it is be possible to (Contributions to the PM CARES fund, SDMA achieve if both co-exist. and ex-gratia payment made to workers fighting ii. Disturbance in Local Business Ecosystems: It COVID-19 supported by a Board declaration) will is expected that the local businesses including now be considered under CSR head. This might MSME, small contractors and vendors, skilled/ lead to local community issues, as the expectations semi-skilled/unskilled workers who work on will continue to be there, and is safe to assume contractual arrangements are likely to see reduced that expectations will be higher when the direct or indirect engagement, leading to reduced stakeholders will look up to the anchor mine/plant economic activities in primary, secondary and to support them to stand firmly back on their feet tertiary levels in local business ecosystem, again. especially severe at the downstream and ancillary levels where most are MSMEs. All rights reserved a Swiss entity. (“KPMG International”), of independent member firms affiliated with KPMG International Cooperative and a member firm of the KPMG network Partnership © 2020 KPMG, an Indian Registered

19 To summarize, the entire mining sector has witnessed value erosion, Government exchequers are expected to get hit badly especially when they need higher revenues to spend on health and family welfare and new infrastructure creation, Government’s plan to auction new coal and mineral blocks is likely to get delayed, MDOs/MOs are expected to face significant challenges, and lastly but not the least COVID-19 has already affected

the entire business eco-system © 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved especially the marginal stakeholders like small vendors/contractors, contract labourers, downstream and ancillary businesses, etc. From the overall sector level impacts, let us now dive deeper to understand the specific impacts on few of the major minerals from the lens of end-use industry segments where these minerals are consumed.

Impact of COVID-19 on the mining sector in India 20 © 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved 21 manufacturing plantsremainedshut since would have declined sharplyasseveral industriesand data isyet tobepublished,itisestimated thatIIP were shutdown. Whiletheindustrialoutput activities thatwere nottermedas‘essential’ On accountofthelockdown allmanufacturing down inMarch 2020andthetrend continues 4.1.1.2 Post lockdown: Industrial activitycame Index ofIndustrialProduction-Growth Figure 4-1. Growth inIndexofIndustrial Production healthy rateof4.5percentinFeb-2020 the Index ofIndustrialProduction (IIP)grew ata The manufacturing sectoroutput, asmeasuredby propelled by miningandpower sector growth in theupswing,pickinguptowards Feb 2020, 4.1.1.1 Before lockdown: Industrial activitywas 4.1.1 Manufacturing sector 4.1 Manufacturing andconstruction sectors are demanddrivers et(. e eti e-9 swl seetiiy insurancecosts,higherownership costs,liquidity crisisintheNBFCsector, etc. generation, whichincreasedby 8.1percent(1.3 per topricehikes inpassengervehicles/two wheeler segmentsduetonew safety norms,higher cent (2.2perinFeb-19) aswell aselectricity aided by theminingsector, whichsurgedby 10 per to thesamemonthayear ago.This growth was cent inFeb-19). Apr-19 3.2% otl Cumulative Monthly 4 minerals on coal andkey COVID-19: Impact a-9 u-9 Jul-19 Jun-19 May-19 4.5% 1.3% 4.9% 1 u-9 e-9 c-9 o-9 e-9 a-0 Feb-20 Jan-20 Dec-19 Nov-19 Oct-19 Sep-19 Aug-19

-1.4% oprd Auto sectorhaswitnessedadeclineprimarilydue compared

-4.6% lockdown. their own notifications on staggeredreleasefrom have similarly followed suitand have comeupwith allowed w.e.f. from20-Apr-2020. Several states commercial establishments, industries)have been different sectors(includingconstruction, private and 15-Apr-2020) whereselectadditionalactivitiesacross as theMHAhascomeout withanotification(dated 25-Mar-2020. We expect slightrespitegoingforward investment climateand subduedconsumerdemand. April-Feb FY20period. thiswas mainlyduetoweak growth inoutputlimitedto0.9percentthe growth remainedsubduedinFY20,withoverall However, itmustbenotedthat,overall industrial in therural market. sector alsoslidduringtheperiodduetocontraction -6.6% 2.1% 3

0.1% 2 Growth intheFMCG 2.1% 4.5% © 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved 22 4 Impact of COVID-19 on the mining sector in India Impact of COVID-19 Capex outlay of INR1.61 lakh crore in of INR1.61 outlay Capex Budget 2020-21 project is Corridor Dedicated Freight major for great opportunity be a to expected players construction rail neer plants commisioned in H2 4 new FY20 and additional 4 rail neer plants are to be commisioned in FY21 which will augment revenue Nearly 50 per cent of the budgetary Nearly 50 per cent of the budgetary Mantri allocations are made to Pradhan and Accelerated (PMSY) Yojana Sinchayi Programme (AIBP) Benefit Irrigation on- projects indicate healthy 99 fast-tracked ground progress Before lockdown: Construction sector was was sector Construction lockdown: Before

Railways Railways • • • Irrigation Irrigation • • and seasonal factors such as the upcoming monsoon. upcoming monsoon. such as the factors and seasonal the industry and our interactions with as per Thus, is expected growth industrial related estimation, only in second half (Q3/Q4) of come back to normalcy then. under control by comes FY21 if COVID-19 sector Construction 4.1.2 4.1.2.1 pace at a steady grow poised to sub sector is composed of several construction The the majority. account for sectors of which buildings Roads and highways budget increased by budget increased by and highways Roads per cent increase in the Union Budget 10.6 2021 spend on national Expected construction trillion projects: INR17 highway Share of Hybrid Annuity Model (HAM) in in FY 20 is about 30 NHAI projects awarded per cent and subsequently NHAI will have to spend about 40 per cent in FY21 Residential segment: expected to increase expected segment: Residential driven by affordable housing the Pradhan housing the Pradhan affordable by driven scheme (PMAY) Yojana Mantri Awas have works Building and construction 250 allied on approx multiplier effect industries and of educational institutions Construction growth drive to healthcare facilities

Roads • • • • Buildings & Contruction Buildings & Contruction • • Going forward: Industrial growth to remain remain to growth Industrial Going forward: 4.1.1.3 washout, a remains in FY21 – April subdued May from start to is expected while activity subdued throughout remain to but expected monsoons up has been extended lockdown nationwide The that April 2020 will which means to 03-May-2020, and in terms of Industrial growth be a washout activity is expected Manufacturing economic activity. that all it is feared 2020, however, to pick up in May optimal below plants will operate well manufacturing shortage, manpower to financial crunch, owing levels © 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved 23 Table 5.ImpactofCOVID-19 onconstruction sector that willensurelabourersreturn totheir of manpower thewages arealsonotanincentive on manuallabourers.Given thelow level ofskill lack ofautomationandtheresultantdependence A noteworthy pointoftheconstruction sectoristhe lockdown. economic slowdown inthemonthspreceding attributed totheoutbreakofCOVID-19 aswell asan The Construction slowdown inFY20canbe H2 FY21onwards monsoons, construction demandto pickupfrom slowdown dueto lockdown andensuing Post lockdown: H1FY21to witness 4.1.2.2 4 3 2 1 Buildings and construction Irrigation Railways Sector Roads Likely Impact Moderate Severe Low Low • • • • • • • • • once normalcyisretained Expenditure inpublictransportationexpected topickup expenditure Expected growth inDedicatedFreight Corridor transportation ofessentialgoods continue tocarry cargoandremainthelifeline in Public transportationstopped-However, freighttrains social welfare as government willdivert allocationstoHealthcareand Funding willreduceintheinitialphaseoflockdown India’s heavyrelianceontheagriculture sector first halfofApril2020given itsessentialnature and Not expected toexperience funding-basedissuespost projects) tobelimitedbecausefinanceconstraints Spending fromgovernment end(for EPCorHAM recovery likely tobeginfromH2FY21 De-growth expected in H1FY21duetoprojectdelays; reduce houseaffordability stun thePMAY spendinginFY21,whichwillfurther However, financialimplicationsofCOVID -19 likely to countered by government spendingunderPMAY Decline inexpenditure posttheGST andRERAnorms sub-sectors aresummarized below. The potentialimpactonCOVID19 oneachofthe resurgence inH2FY21,especiallyQ4FY21. construction sectorinH1ofFY21followed by some we predictthattherewillbede-growth for the return to normalcyinQ2ofFY21. thiscontext With Lastly, themonsoonisexpected toaffect the welfare theconstruction spendswilldeclineq-o-q. of fundstosectorssuchashealthcareandsocial of lockdown willbeacute.Further, withdiversion labourers theshortageofmanpower post lifting the announcementof3months’ pay tomigrant jobs oncethelockdown islifted.Moreover, with Remarks © 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved 24

10-Apr 10-Apr 2019 10-Apr

2019

8-Apr 8-Apr

post lockdown post lockdown

6 6-Apr 6-Apr 2020 of India’s total of India’s 5

2020

4-Apr 4-Apr

28%

2-Apr 2-Apr

36%

Impact of COVID-19 on the mining sector in India Impact of COVID-19

31-Mar

29-Mar 29-Mar

date. Furthermore, given the must-run status for for status the must-run given date. Furthermore, the majority in the country, based power renewable coal-based by of the demand decline is being borne as much as from coal fell generation plants. Power same period. 35 per cent to 40 per cent during the power demand. Power consumption has seen a demand. Power power drop of 25 per cent to 30 per cent direct impact and hence similar slowdown effects in effects slowdown and hence similar direct impact and mining sector. the metals that it is expected post the lockdown, However, on to put special thrust is going the government spur economic activity spending to infrastructure all will push for Government across the states. sponsored projects such as national and state Yojana) Mantri Awas (Pradhan MNREGA, PMAY under NHAI/ construction road house construction, projects more. These cities and AMRUT State PWD, onwards. to gather pace from H2 FY21 are expected carry section where we into the next delve now We into keeping wise analysis out a detailed mineral context. consideration the above per cent nearly 50 account for

27-Mar

25-Mar

23-Mar

21-Mar

19-Mar

17-Mar 17-Mar - - 500 500 1,000 4,500 3,500 3,000 2,500 2,000 1,500 4,000 Daily energy consumption (MU) - India level Daily energy consumption (MU) - India level Daily energy consumption (MU) - India 4,500 4,000 2,000 1,500 1,000 3,500 3,000 2,500 Figure 4-2. Daily energy consumption (MU) - India level (MU) - India level consumption energy 4-2. Daily Figure Figure 4-3. Daily energy consumption (MU) -India level consumption (MU) -India level energy 4-3. Daily Figure Impact on coal and other key minerals minerals 4.2 Impact on coal and other key 4.2.1 Non-coking coal energy seeing a decline in sector Power 4.2.1.1 consumption dented post been severely consumption has Power – primarily owing announcement the lockdown capacities of at lower to the shutdown/operation which the industrial and commercial consumers, Based on the above estimates it may be concluded be estimates it may above on the Based is sector in the construction expenditure that total in buildings and in FY21, especially to reduce likely compared to when to a larger extent in roadways has created lockdown The railways. and irrigation in this players the major capital issues for working need to intervene may industry and the government loan moratorium and additional with interest waivers to counter companies estate and irrigation real for further exacerbation. industries are and construction manufacturing The as iron minerals such several for end user industries amongst others. Withore, limestone, bauxite the expect in these industries, we slowdown expected © 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved 25 Table 6.Y-o-Y growth incoalproduction 1. slipped ondemandwoes 4.2.1.3 Despite themeasures, theofftake ofcoalhas Extensionofthefacility ofUsanceLetter ofCreditfor all 5. Extensionofvalidity periodfor liftingofcoalunderall 4. Extensionoftimelimitfor payment ofcoal,booked by 3. Reduction ofmark-upover thenotifiedprice for purpose 2. 1. boost thedemandofcoal- Subsequently, aslew ofmeasureshasbeenannouncedto lockdown situation –asmentionedinSection2.1. and othercriticalsectorsareunaffected duetothecurrent that criticalcoalsuppliesaremaintainedsopower “Essential service” anddirectedallconcernedtoensure Central government hasdeclared‘Coalsupplies’ asan critical coalsuppliesduring lockdown 4.2.1.2 MinistryofCoal(MoC)ensuring maintenance of

production inthemonthofMarch2020. operations, CILandSCCLexhibited strongcoal Given theinitialfocus oncotenuityofthecoal to avail creditinpurchaseofcoal. coal consumersofCIL–This willenabletheconsumers non- regulatedsectoraswell been doneaway withtillclosureoflockdown periodto forfeiture ofearnestmoney deposit.Now, thisclausehas ordered quantityofcoalwithinastipulatedtimeattracted auctions withoutany penalty–Earlier, failure toliftthe 21-April-2020) its customers,by two moreweeks (i.e.07-Apr-2020 till of basepriceine-auctionstonon-regulatedsector(NRS) than theupperlimitoffuelsupplyagreement(FSA) be levied onthepower consumers,ifCILsuppliesmore for CILlinkageconsumers– Noperformance incentive to Permission toliftquantitiesbeyond contractedquantity Company TOTAL SCCL CIL 9 79.19 85.11 (MT) 2019 5.92 Mar 10 84.36 90.83 2020 (MT) 6.47 Mar 11 6.53% 6.72% 9.29% Growth (%) 8 However,2. overall coalofftake witnessed asignificantdrop Figure 4-5.Month-endcoalstock atpower plants Onaccountofthelower power generation,thecoal 3. The dropisattributedtothe low offtake by power plants. Figure 4-4.Y-o-Y coaldispatch Figure 4-6.Inventory atCILmines Month-end coalstockatpowerplants 47 Mar-20 Mar-19 growth of16 percentasillustratedbelow: in themonthofMarch2020andexperienced anegative power plants,whichissufficient for 28days. MT (ason31-Mar-2020) ofcoalisavailable withthermal high ofapprox 75MT(ason31-Mar-2020). as atpower plants.CIL’s inventory levels are at anall-time stocks have increasedatbothcoalminespitheadaswell Apr-19 Apr-19 CIL olsok(nM) Coalstock(inDays) Coal stock(inMT) 42 May-19 May-19 38 Imports

Jun-19 Jun-19 YoY coaldispatchcomparison(MT) Inventory atCILmines(MT) 30 Jul-19 Jul-19 24

Aug-19 Aug-19 53 60 SCCL 20 Sep-19 Sep-19 18 Oct-19 Oct-19 21 Captive Nov-19 Nov-19 25 2 4 6 22 Dec-19 Dec-19 3 5 12 13 33 1 Around45 Jan-20 Jan-20 14 Others 44 1 Feb-20 Feb-20 -16% 75 48

Mar-20 Mar-20 28 4.2.1.4 COVID-19 expected to shave off about • However, in view of the subdued demand and fall 7 per cent of non-coking coal demand in imported coal prices, CIL reduced the reserve price for e-auction to notified prices (refer to Domestic coal consumption is estimated to have Section 4.2.1.6 for details), which were typically dropped marginally in FY20, due to weak demand kept at 10-30 per cent premium to notified prices. from the power sector. In FY20, coal-based power This will be applicable for all auctions to be generation was limited by weak power demand as conducted during Apr to Sep 2020. well as strong generation from hydro and renewable energy sources. However, FY21 was anticipated to • For illustration, if we assume the entire e-auction witness healthy growth in coal consumption. Coal- sales happen at notified prices vis-à-vis 77 per based power generation was anticipated to increase, cent premium in FY19, (assuming other factors supported by some recovery in power demand and remain same), CIL’s income from e-auction sales, improved availability of low-cost domestic coal for during Apr-2020 to Sep-2020 is likely to decline non-regulated sector. by INR3,000-3,500 crore as compared to same period of FY19. As elaborated earlier, the disruption caused by COVID-19 pandemic to the industrial activity is likely 2. Impact of delayed payments to impact coal demand across sectors. Industrial Coal companies are supplying coal to customers, activity in sectors such as cement and sponge © 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved particularly power plants, despite non-payment of iron, which has come down sharply in Q1 FY21, dues, considering the precarious financial position is expected to pick-up only in H2 FY21. Further, of DISCOMs and to ensure power supply to end- slowdown in industrial activity will also reduce power customers. However, this is likely to increase the generation, which will also have a direct impact on working capital requirement for these companies, as the consumption of coal by the power sector. failure to receive payments on time, will necessitate In view of the above factors, the COVID-19 short-term fund raising from financial institutions, to pandemic is expected to reduce coal demand maintain operations. in India by approx. 60 MT or 7 per cent of total As per our estimates, a 3-month delay in receipt of consumption, compared FY20. Further, the decline payments is likely to impose an approx. INR350-400 in coal demand is much sharper at approx. 110 MT or crore17 cost on CIL, towards payment of interest on 12 per cent of total consumption, compared to the short-term loans, as well as loss on interest accrued. potential coal demand in FY21, in absence of COVID related impact. 4.2.1.6 Reduced non-coking import scenario 4.2.1.5 Reduction in E-auction premium, delayed Earlier in mid-March 2020, Honorable Coal Minister payments to reduce profitability had requested all the states to direct all GENCOs to maximize the domestic coal lifting and stop coal The demand slowdown of coal from end-use imports.18 Given the current scenario, we expect a sectors, coupled with adequate inventories, is fall in imports because of the following: expected to impact the profitability of CIL and SCCL. These companies are likely to witness a steep drop 1. Steps undertaken by CIL to reduce purchase in the price premium from e-auction sales, as well price of coal: CIL, in its recent notification,19 as delay in payments by end-users (mainly power declared that for the period of Apr-2020 to Sep- sector). 2020 the reserve price for e-auctions will be kept as Notified Prices (for both regulated and non- 1. Impact of E-auction price reduction regulated sector) • CIL’s sales can be broadly classified under 2 2. Huge pile of inventory lying at CIL’s pitheads: categories – Approx 75 MT as on 31-Mar-2020 (As mentioned – Fuel Supply Agreement (FSA), which are sold at in Section 4.2.1.3). notified prices; and – E-auction (nearly 10 per cent15 of Sales volume in FY19) prices earned a significant premium over notified prices (77 per cent16 in FY19).

Impact of COVID-19 on the mining sector in India 26 © 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved 27 Figure 4-7. Non-cokingcoalprice comparision (INR/tonne) Figure 4-8.Finishedsteel demandforecast business totake ahitprimarilyduetolackofdemand Post COVID-19, we expect the miningcontractor 1. substitution primarilybecauseofthefollowing: However, we donotforesee acompleteimport 2. 1. is supportedby thefollowing facts: to grow @10-12 percentover thenext decade.This Before COVID-19, the market size had been estimated crore. INR20,000 size ofcoalminingcontractorsinFY20was approx. witnessed inthelastdecade.Estimatedmarket – largeportionoftheuptickinthissectorhasbeen Mining contractorsareprevalent inthecoalsector see adip 4.2.1.7 Coalminingcontractor’s market likely to

maximum levels in2020 dropped asmuch30percentfromtheir Falling globalprices:The globalprices have employee isapprox. 3xthatof the private sector). improve productivity(For example, CILsalaryper component shouldhelpreducecostsaswell as contractual mining–ahigheroutsourcing Growing preference ofcoalcompaniestowards coal productionby 2024 CIL hadsetatargetofachieving 1billiontonne 2 Jan

Value in million tonne 9 Jan

SA coalRB1-CNFIndia 16 Jan FY20 E ~100 23 Jan 20

30 Jan 6%

6 Feb COVID-19 without ~106 FY21 13Feb 21 G4 grade(CILnotiﬁedprice)-ROM of 22 20Feb 12% of totalsteelconsumption, automotive, whichaccountsfor nearly72percent sectors, primarilyconstruction, infrastructure and The slowdown ineconomicactivitykey-end use to impactsteel industry 4.2.2.1 Plummeted demandinend-usesegments 4.2.2 Iron ore fall by 20-25percent inFY21. Therefore, we expect theminingcontractormarket to imports. demand declinewillbeintheform ofreducedcoal coal demandasitisexpected thatthebrunt ofthe that thehitwillnotbecommensuratewithfall in from end-usesegments.However, we alsoexpect 3. 2. 2. 1. steel demand.

Power plantsdesignedtorun onimportedcoalwill continued importsfromtraders/suppliers Existing contractual obligationsmay necessitate most likely continuetoimport,asitisnotgoing agreements/commercial agreements. to beeasycomeoutofalreadysignedsupply operations indefinitely. Major automakers have announced suspensionof halt atpresent All construction activitieshave cometoagrinding 27 Feb o mat High impact Low impact

FY21 5 Mar 88

12 Mar

20% 19 Mar 23 hasledtoasharpfall in 26 Mar FY21 80 2 Apr

9 Apr 28% 5,336

16 Apr © 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved

28 (INR/te) (INR/te)

HRC price ex-Kolkata price HRC Most 27

40,000 38,000 36,000 34,000 32,000 30,000 7-Apr-20 7-Apr-20 29 of their capacity utilisation. These These of their capacity utilisation.

28 7-Mar-20 Impact of COVID-19 on the mining sector in India Impact of COVID-19

HRC (2-5-8mm, IS2062), Kolkata 7-Feb-20 plants are avoiding a shutdown and operating and operating a shutdown plants are avoiding technical given at reduced utilisation levels, and restart of blast constraints in the shutdown it takes furnaces. Once a blast furnace is idled, to reheat, and it depending on the size, 30-40 days, happens only in contingency situations. producers are opting to shut down their plants their to shut down producers are opting since utilisation levels, at lower rather than operate and restart these easy to shut down it is relatively plants. (BOF) Furnace Oxygen (BF)/Basic Blast Furnace Majority of the Integrated based producers: out production are carrying Steel Plants (ISPs) @35-50 per cent Electric Arc Furnace (EAF) and Induction Furnace Induction Furnace (EAF) and Furnace Electric Arc from these plants producers: Production (IF) based at @5 to reduce to run likely reduced or have capacity. installed per cent of the overall

The slump in demand is also corroborated by the by is also corroborated slump in demand The slump in steel prices. Steel prices (both international slump in steel prices. Steel prices (both per also witnessed a dip of 15 and domestic) have cent in the past 2 months. 2. 1.

25 7-Jan-20

7-Dec-19 7-Nov-19

FOB China (2.5mm, ASSTM A36) 7-Oct-19

550 500 450 400 350 300 FOB China (USD/te) China FOB 26 the domestic steel industry is met through imports. the domestic steel 2020. June to become clearer by is expected situation plants steel for 4.2.2.2 Coking coal unavailability of 85 per cent of the coking coal requirement Approx to boost demand – disruptions and challenges arising – disruptions to boost demand Q1. to be overcome is expected out of the lockdown in the steel demand reduction expect we However, The to 20 per cent in FY21. per cent range of 12 assuming that the government gives fiscal stimulus gives that the government assuming in March 2020 stood at 15.74 MT, down 27.5 per cent per 27.5 down MT, in March 2020 stood at 15.74 MT of coal in March import of 21.72 year’s last over 2019. Disruptions in seaborne freight including closure of in seaborne Disruptions the hinder likely most will restrictions vessel and ports coal import overall of coking coal. India’s availability Steel plants operating at reduced capacity at reduced plants operating 4.2.2.3 Steel utilisation all consequence of demand-slowdown, a natural As either suspended steel plants in the country have reduced capacity their operations or are operating at utilisations. As per the Indian Steel Association (ISA), demand demand (ISA), Steel Association per the Indian As per cent in FY21 7.7 reduce by to likely of steel is Figure 4-9. International and domestic steel price trend trend price and domestic steel 4-9. International Figure © 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved 29 Figure 4-11. Iron ore dispatchfrom Odisha-MT Figure 4-10. Crude steel production-MT India a marginalde-growth incrude steelproduction. have increasedby 35percentinFY20,despitehaving available, thedispatch fromOdishaironoremines that sourceironorefromOdisha.Based onthedata especially for steel/DirectReduced Iron(DRI)players of ironoreintheshorttermmay notbeimpacted– halt. Regardless ofthis,itisexpected thatthesupply operations inmany mineshave almostcometoa been exempted duringthelockdown period,the Though miningisoneofthesectorsthathas short-term 4.2.2.5 per centinFY21 steel demandwillbeintherangeof12 percentto20 Due toCOVID-19, itisexpected thatreductionof iron production to shrink by 20-34MT 4.2.2.4 Demandofiron ore for domesticsteel & by Odishaminers,whohasslashedthelumpprices. approx. INR/tonne.Similartrendisalsoobserved 500 NMDC hasalreadyreducedtheironorepricesby demand asevident fromthefalling ironoreprices. We arecurrently witnessingadropinironore FY20. in FY21comparisontoapprox. 100 MTdemandin turn translates toapprox. 80to88MTsteeldemand

Iron ore supplymay notbeaconstraint in FY18 FY18 103 98 30 (refer toSection4.2.2.1).This in Y9 FY20 FY19 Y9 FY20 FY19 111 105 -2% 35% 109 109 141 31 capacity ofaround87MT, around 75MToftotalproductionandhadanEC recently expired ironoreminingleasescontributed post expiry ofminingleaseson31-Mar-2020. The were alreadyanticipatingademand-supplydisruption In thisregard,itisworthwhile tonotethatcompanies production. FY19 whenexports comprised53percentoftotal India was anetexporter ofprimaryaluminiumin over last3months 4.2.3.1 Prices ofaluminium crashed by 16percent 4.2.3 Bauxite to normalcykeeping pacewiththemineproduction. transportation andlogisticsthatneedstocomeback wise, therewillnotbeany supplyshortage.Itis like non-availability oflabourers,trucks, etc.Capacity However, onehastoseetheaftereffects oflockdown pandemic, atleastfor next coupleofmonths. players fromany supplydisruption duetoCOVID-19 plants. Suchironorestockinghasinsulatedthese carried outby steel/DRIplayers attheirrespective may beattributedtoinventory buildingupexercise 2020. Therefore, thesubstantialhigherdispatch mines was heldinthemonthsofJanuary toMarch of merchantsupplyinOdisha.The auctionofthese linked toglobalLMEpriceindex. Figure 4-13.Aluminium(LME)price trend (USD/tonne) Figure 4-12.Aluminiumproduction andexports 41% Prod. (MT) 2.9 FY17 1,726 Oct-19 1.9 33 1,775 1,771 1,775 Realisation fromsaleofaluminiumis Nov-19 50% 3.4 Y8 Y9 Apr-Jan’20 FY19 FY18 Export (MT) Dec-19 1.7 1,773 32

Jan-20 thusrepresentingthebulk 51% 3.7 1.9

Feb-20 1,688 Export -%Prod. 1,502

Mar-20 16% 53% 3.0 1,484 Apr-20 1.6 © 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved 30 - 42 43 41 Impact of COVID-19 on the mining sector in India Impact of COVID-19 Malaysia South Korea USA Taiwan Japan Mexico Brazil Thailand Italy Others Exports: Exports: to various being exported is currently Aluminium the following shows analysis FY20-9M The countries. break-up of exports:

2. of the export-destinations many be observed, may As the pandemic and it is by been badly affected have these countries is that the traction of business in feared is it Also, globally, months. few next for going to be slow their companies are revisiting that the aluminium observed to calibrate downward, plan and are likely Capex approved demand falling companies will face whereas automobile subdued. All these to be likely activity is and construction of a direct impact on the exports to have are likely factors Indian aluminium manufacturers. primary aluminium from demand primary aluminium export that India’s It is expected per cent. around 15 to plunge by is likely are moderated, it is expected Unless the production levels of in excess that the production of aluminium will be demand, thus leading to piling of inventory. supply prevent to most players leases for 4.2.3.4 Captive of bauxite disruptions bauxite captive their own have NALCO and HINDALCO has a small bauxite mines in Odisha and Jharkhand. BALCO to Vedanta mine in Chhattisgarh which mostly supplies remaining requirements and VAL’s Aluminium Limited (VAL), through imports. of bauxite is sourced from OMC and also on 24-Mar announcement of country wide lockdown Post 2020, mining operations at most of the bauxite mines in 2020, mining operations at most of the temporarily suspended. Jharkhand and Chhattisgarh were bauxite mine in Kodingamali On the other hand, OMC’s has refinery, Odisha, which supplies bauxite to Vedanta’s continued its operations. mines, production curbs at the bauxite Notwithstanding any aluminium in the exports in demand for because of the fall that supply of bauxite ore will not it is expected market, Once the lockdown aluminium makers. be a constraint for that there will be limited believe we restrictions are relaxed, challenges in ensuring supply of adequate quantities of easier to bauxite to the refineries as it will be relatively in the case of NALCO, restart the supply chain. In fact, per cent capacity recorded more than 100 the company bauxite mines with a Panchpatmalli utilisation of its captive MT in FY20. production of 7.3 33%

39 26% 40 15% 35 7% 2% 4% 3% 3% 4% 3% In fact, the company still continues to the company In fact, 38 36 37 This would in turn hit realisation of primary hit realisation in turn would This 34 Monthly production running just around 12 just around 12 Monthly production running HINDALCO: rate run v/s normalized per cent lower source bauxite ore from Kodingamali bauxite mine of bauxite mine source bauxite ore from Kodingamali its aluminium Odisha Mining Corporation (OMC). Also, remain largely smelting operations at Jharsuguda, Odisha unaffected. In current scenario of subdued demand from the above scenario of subdued demand from the above In current sectors, it is estimated that domestic aluminium demand per cent 10 of approx. to the tune reduce may Domestic Demand: its use by Aluminium consumption in India is driven sector automobiles, and construction in the power, aggregating to nearly 75 per cent of total consumption. All units have been operational with pruned been operational with pruned NALCO: All units have manpower at Lanjigarh in Odisha Alumina Refinery The Vedanta: against is operational with all precautionary measures minimum with and the plant is running COVID-19 workforce.

aluminium players, which may push them to operate at push them to operate which may aluminium players, domestic customers in the capacities and find new lower is domestic market customers in the Finding new market. there has been a as it is known an interesting proposition and ancillary on creating the downstream focus renewed and stainless steel), Aluminium (akin to steel for ecosystem where primary plants Odisha like especially in that states at mineral resources are available are located, and also costs. delivered lower comparatively less disruption witnessing 4.2.3.2 Aluminium smelters counterparts than steel only have Capacity utilisation of most aluminium players slightly dipped till date: 1. Production of aluminium expected to outpace to of aluminium expected 4.2.3.3 Production demand primary aluminium demand in the near-term, Going forward, to remain subdued, due to continuing in India is likely as exports: in domestic demand as well weakness 1. 3. 2. Recently due to the pandemic, we observe a likely global a likely observe pandemic, we due to the Recently in LME Aluminium in the decrease – as reflected slowdown prices. Figure 4-14. Export of aluminium (Country-wise): FY20 9M (Apr’19 – Jan’20) FY20 9M (Apr’19 – Jan’20) of aluminium (Country-wise): 4-14. Export Figure © 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved 31 Figure 4-15.Sector-wise cementconsumption 1. as well as decline ininfrastructure spending: weak economic growth, subduedrealestatemarket is unlikely torevive immediately. This isonaccountof lockdown restrictionsareeased,-demandfor cement While cementoperationswillresumeoncethe previous year. to have reducedby 25percent,comparedtothe Cement productioninMarch2020areestimated affected thecement production by companies. imposition oflockdown inMarch2020hasseverely in themonthofMarch.Insuchascenario, picks upsubsequentlytorecordhighestproduction monsoons, specificallyduring July toNovember and 2020. Cementproductionisusuallylow duringthe almost allcementplantsinthelastweek ofMarch The COVID-19 lockdown hasledtothe shutdown of consumed inproductionofclinker. of cement,withapprox. 94percentoflimestone Limestone is the critical raw material in the production demand incementandlimestone 4.2.4.1 Slowdown inconstruction activityto hit 4.2.4 Limestone below: Sector-wise consumptionofcementismentioned is highlydependentontheconstruction activity.

by migrant workers just aheadofkharifsowing andreverse migration face challenges towards workforce mobilisation expenses. Further, urbanconstruction activitiesto slowdown asbeneficiariesare likely tocurtail Urban housing:PMAY-Urban isexpected tosee 7% 7% 45 15% 46 26% 33% Low costhousing industries capex Comercial, Others - Infrastructure Urban housing Rural housing 44 Cementdemand (MDPA). per MineDevelopment andProduction Agreement in 2019 andtheoperationswilllikely commenceas 7 limestoneblocksin2018 and2limestoneblocks successfully auctioned,10 limestoneblocksin2017, estimated resourcesof2,370MThave been Further, thereare19 FY21. cement plants,ifthereissurgeindemandH2of not expect limestonesuppliestobeaconstraintfor government facilitating miningoperations,we do agreements for the procurementoflimestone.With limestone leasesorhave long-termsupply Most ofthecementcompanieshave captive to limestone supplies for cementplants 4.2.4.2 Captive limestone leases to limitdisruption requirement fromthecementsector. likely toleadaproportionaldeclineinlimestone in FY21isexpected todeclinesignificantly, whichis On accountoftheabove factors, cementdemand September 2020onwards. the above, thedemand may likely topickuponlyfrom disruptions willlimitconstruction activity. Inview of of availability ofsandaswell asweather related Further, withtheonsetofmonsoonseason, issues 3. 2.

Road Transport andHighways. to NHAIduetollsuspensionby theMinistryof of migrantworkforce andlossofrevenue occurred highways, areimpactedby delays inmobilisation major infrastructure projects,suchasroadsand same time,investments by private companiesin ability tofundinfrastructure projects.Atthe and welfare measures.This islikely tolimitits under stress,arelikely tobeprioritized for relief of FY21,asthegovernment finances,already sector arelikely tobesubdued,atleastinH1 Investments: Investments intheinfrastructure earners purchasing power ofagricultural anddailywage by lockdown andtheconsequenthitonincome individual homebuilder-driven segmentisimpacted Rural housing:Slowdown isexpected asthe 47 limestoneblockswith © 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved

W-3 W-3

W-1

Mar-20 Mar-20 Jan-20 Jan-20

Nov-19 Sep-19

56 Jul-19

Impact of COVID-19 on the mining sector in India Impact of COVID-19 May-19 May-19

Demand of ferrochrome to reduce owing owing reduce to of ferrochrome Demand Mar-19 55

Subdued domestic stainless demand Subdued domestic stainless demand stainless steel Due to falling market: export Weak prices of of Chinese industry, prices and shut down last 2 years. in to lowest fallen have ferrochrome

India is also a net exporter of ferrochrome and and of ferrochrome exporter India is also a net ferrochrome more than 60 per cent of total exports China and South Korea country. ore produced in the contributing major importers of ferrochrome are two from exports of total ferrochrome about 70 per cent India. in ferrochrome a fall expect we Due to COVID-19, production because of the following: 1. 2. already witnessing a halt in ferro-alloys are We a for per industry sources, except production. As rest all Bengal, plants in Karnataka and West few the lock down post shutdown plants have ferro-alloys announcement in India. Jan-19 4.2.5.2 export low demand as well stainless falling to demand of the major components used is one Ferrochrome tonne every For in stainless steel manufacturing. to 200 of ferrochrome kgs 100 of stainless steel, in MT of ferrochrome 1.34 are used. India produced MT in 9M CY19. 1.02 and CY2018

Nov-18

Sep-18 Jul-18

But due to the 53 May-18 52

During the same period, During the same Mar-18

49,50 Jan-18 48

90,000 80,000 70,000 60,000 50,000 Ferrochrome Price (INR/te) Price Ferrochrome lockdown of the entire country with major sectors of the entire lockdown and manufacturing automobile, construction, like that demand almost coming to a halt, it is expected to decrease in the of stainless steel industry is likely coming fiscal. Figure 4-16. Ferrochrome domestic prices: Ex-Jajpur, Odisha Ex-Jajpur, domestic prices: 4-16. Ferrochrome Figure Before the outbreak of COVID-19, it was estimated it was the outbreak of COVID-19, Before at rate grow that the stainless steel demand will 5 years. next of 8-9 per cent for In India, cookware and consumer durables consume and In India, cookware steel while other nearly 45 per cent of total stainless Transport), Railway, (Automobile, ART sectors like Building,ABC (Architecture, and Construction) 20 per cent, per cent, process industry consume 13 per cent respectively. and 16 by 5 per cent in CY2019 in comparison to 7 per in comparison per cent in CY2019 5 by in CY2018. cent growth Growth in stainless steel production will go will go production in stainless steel 4.2.5.1 Growth in 2020 down reduced has production growth Indian stainless-steel the form of ferrochrome. More than 80 per cent of More than 80 of ferrochrome. the form in stainless is utilized total ferrochrome the world's steel production. Chromite ore ore 4.2.5 Chromite in constituents is one of the key Chromium steel. It is added in stainless and alloy manufacturing comparison to world average of 5.7 kg and 14.1 kg in kg and 14.1 of 5.7 kg average comparison to world China will continue to grow. by approx. 2.9 per cent from 2018 to 52.2 MT. and 52.2 MT. to 2.9 per cent from 2018 approx. by in per capita steel consumption of 2.5 kg low having Global stainless-steel melt production was increased increased melt production was Global stainless-steel © 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved 33 Figure 4-18. Usage offerro-alloys 1. short term,duetothereasonsmentionedbelow: We expect disruption insupplyofchromiteore state. cent oftotalchromiteoreproductioncomesfromthis lie intheJajpur districtofOdishaandabout99per About 96percentofchromiteorereserves inIndia in FY21 4.2.5.3 2. 1. face impediments. Both demandandsupplyofmanganesearelikely to 4.2.6.1 Disruption inmanganese ore supply chemicals, etc.). is beingusedinnon-metallurgicalprocess(battery, of steel.Anothersmallportionabout1percent cent isdirectlyusedinblastfurnaceduringmaking ferromanganese/silicomanganese andabout4per 94 percentofmanganeseoreisconsumedas in productionofsteelandstainlesssteel.About Manganese oreisanothermineralthatused 4.2.6 Manganese ore

to lockdown. witnessed 80percentfall inmonthofApr-19 due COVID-19 Impact:DispatchfromJajpur districthas OMC andMisrilal. reason for reductionisduetolessproductionfrom in FY20comparisonto3.4MTFY19. Major has comedown by approx. 6percentto3.2MT ore fromOdishaisbeingseennow. Total dispatch region: Reduced quantum ofdispatchchromite Depleting reserve intheopenpitSukinda area. is anacuteshortageoflabourforce inthemining have almostcometohalt.DueCOVID-19, there carried outmanually, allactivitiesinSukindazone of bothferromanganese/silico manganese Demand Side:Indiaexports asubstantialamount

million tonne 57

Chromite ore supplydisruption expected 0.00 0.50 1.00 1.50 2.00 58 60 As majorityoftheoperationswere Consumption insteel 59 Exports shareintotalferro-alloyusage FY18 31% Ferro-Manganese Consumption instainlesssteel FY19 28%

Figure 4-17. Chromite ore dispatchOdishainMT(FY19) 3. 2. 0.00 1.00 2.00 3.00 4.00

ore productionfromthese3minesinFY21. overall, we foresee adeclineinthetotalchromite operating levels may take acoupleofmonths. So commencing productionandreachingprevious High courtofOdisha.Also,for BCMohantymines, of Misrilalmines,thereisanongoinglitigationin Alloy, thesistercompany ofTata Steel.Incase Misrilal. Allthreemineshave beenbagged by TS chromite minesofTata Steel,BCMohantyand Government ofOdishahadauctionedthree Recent auctionof3merchantchromiteoreblocks: ferro-alloys in thelastfew years. production capacityofthecountry(>100 percent) ore andhasbeenimportingmorethanthe Supply side:Indiaisnetimporterofmanganese export market. dropped duetodipinsteeldemandandaweak Demand ofboththeseferro-alloys demandhas 50 percentofseabornemanganeseoremarket. lockdown inSouthAfrica,whichcontributesabout for thishasbeenattributedtotheextended a suddensurgeinpastcoupleofweeks. had beentrendingdownwards buthave witnessed FY18 FY19 3.42 53% Ferro-Silico-Manganese 61 62 Export Manganese pricesinitially FY20 3.23 FY19 51% FACOR Balasore IMFA IDC ofOdisha Tata steel OMC Misrilal BC Mohanty 63 Reason 64 © 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved 34 Impact of COVID-19 on the mining sector in India Impact of COVID-19 5 Jan 20 5 Feb 20 5 Mar 20 5 Apr 20 6.00 5.00 4.00 3.00 2.00 1.00 0.00 per cent, USD/dmtu USD/dmtu per cent, impact on manufacturing and construction activity. activity. and construction impact on manufacturing in construction the sustained weakness In particular, minor minerals to hit the demand for activity will likely the close linkage in the Q1 and Q2 of FY21, given them. between minor minerals have Also, certain high value For export markets. to the exposure significant used in oil instance, barytes, which is primarily to Middle-East and the drilling, is mostly exported stone, is granite, used as a decorative Similarly, U.S. the COVID-19 to China. Therefore, primarily exported as subdued to the global trade as well led disruption to impact the demand likely are also global markets and production of minor minerals. and major between differentiator Another key minor minerals is the minor mineral leases are less with a higher reliance on manual labour. mechanized, is of minor minerals the demand disruption Therefore, impact on the employment a profound to have likely of the local communities. and well-being in Q1, seems to be unavoidable de-growth Overall, economic activities are and perhaps also in Q2. The only in H2 of FY21. again to gather momentum likely impact of COVID-19 In order to address the overall specific actions are needed on mining sector, by all concerned, especially the out by to be carried in order and the business community, governments to boost demand and at the same time to ensure that there is no supply disruption. suggestions in the present our stakeholder-wise We chapter. next 3.5 136% 2.6 Net Imports as % production 80% 102% FY16 FY17 FY18 66 Net Imports 133% FY15 crore in FY19, which accounted for 44 which accounted for crore in FY19, 65 Production

4.0 2.0 1.0 0.0 3.0 5.0 million tonne tonne million Minerals such as barytes, calcite, silica sand, quartzite (industrial minerals), which are typically sector used in manufacturing road metal, etc., Minerals such as granite, gravel, sector. which are typically used in the construction

Figure 4-19. Manganese ore production and imports Figure 4-20. Price CNF India, South Africa Mn 37.5 and imports production Mn 37.5 ore Manganese Africa CNF India, South 4-19. 4-20. Price Figure Figure per cent of the total revenues of minerals in India of minerals per cent of the total revenues mineral a significant share of account for and they of the among a few states. Even in a few revenues top 5 mineral producing states, a large portion of the of mineral production can be attributed to minor value (89 per cent) and minerals, such as Andhra Pradesh (47 per cent). Rajasthan • elaborated in the earlier sections, the COVID-19 As significant to have is likely and related disruptions Based on their usage, minor minerals can broadly be Based categories: classified into two • Impact on minor minerals 4.3 Impact on minor minerals subdued global activity, construction 4.3.1 Weak minerals minor limit demand for to trade minerals discussed earlier, In addition to the key pandemic on the “Minor the impact of COVID-19 leases are also to be considered. minerals” whom are those minerals, for “Minor minerals” jurisdiction, such the regulatory and administrative prescribe rates of to frame rules, as the powers grant of DMF contribution, the procedure for royalty, to the state mineral concessions etc. are devolved governments. generated from minor minerals was value The INR54,569 Till both the twin issues of lack of demand as well as increased raw material prices are resolved, we expect expect we material prices are resolved, raw as increased as well Till both the twin issues of lack of demand a muted manganese ore demand. and therefore, muted production of ferromanganese/silicomanganese © 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved 35 Some oftheadditional actionsthatCentral andStategovernments may take uparementioned hereunder. Government recognisestheminingsectortobeone were announced infive tranchesindicatingthatthe self-reliant India.The various elementsofthepackage primary focus ondeveloping ‘AtmaNirbhar Bharat’or package ofINR20lakhcroreon12 May-2020 with Honorable Prime Ministerannouncedaspecial 5.1 Suggestions for Central andState governments B. A. short-term, medium-termandlong-term. it isimportanttodevise aturnaround strategyfor the has posedbefore theminingandmetalssectorinIndia, Considering themulti-faceted challengesthatCOVID-19 • • • •

5 INR5,000 crore)to begiven toCIL’sINR5,000 consumers. Concessions incommercial terms(reliefworth rights fromCIL'smines Auction ofCoalBed Methane(CBM)extraction through rebateinrevenue share Incentivising CoalGasification/Liquefication CIL andprivate blocks For evacuation ofenhancedcoalproductionfrom Infrastructure development crore: ofINR50,000 governments andthe industrywillhave toexecute growth ambitionsfor comingfinancial year. Both the market positionofpre-COVID-19, settingrealistic with aimfor ‘recovery’ andbringbacktheatleast to 1year): Mid-termactionsshouldbetargeted RECOVERY phase–Medium-term(next 6months over thecoming5years willnotbevery challenging. path torecovery and achieving aggressive growth Central andStateGovernments, thesubsequent are kept intactwithrightPolicy directives fromthe ‘fundamentals’ ofthe sector. Ifthe‘fundamentals’ time extremely nimbletoprevent damagetothe stakeholders toremainpatient,andatthesame companies, etc.This timephasewillrequireallthe impact onthetoplineandbottomlineof and ancillarysectors,(d)survival againstthedirect including MSMEs,smallcontractors,downstream impact tothesecondaryplayers intheecosystem job losses(bothdirectandindirect),(c)negative in termsofloss(a)GVA contributioninFY21,(b) to theimmediateeffects/losses tothe economy Industry. Actions arerequiredtoeffectively respond required tobeundertaken by bothGovernment and is later):There areimmediateactionsthat or tillthetimepandemicpersists,whichever RESPONSE phase–Short-term(next 3months Coal sector ahead andlooking up Way forward –looking Some ofthekey highlightsinclude: tranche oftheeconomicstimuluspackage. consideration for long–were announcedinthefourth and mineralssector–someofwhichwere alreadyin times. Structural reforms pertainingtothecoalsector of thekey focus areasduringtheseunprecedented C. • • • • •

Joint auctionofcoalandbauxiteblocks. Auction mining blocks of500 cum-mining-cum-production regime Introduction ofseamlesscomposite exploration- non-captive mines Elimination ofdifference between captive and of award ofminingleases Rationalisation ofstampdutypayable atthetime this sector, whichwillhelpinunlockinglotofvalue. could betopromoteanddrive indigenousR&Din need ofsuchkindintervention. Anotheraspect status istherefor everyone tosee.Miningisindire able togenerateaftergettingtheInfrastructure of tractionTransport and Logistics sectorhasbeen for thesectorfor the next level ofgrowth. The kind mining sectorwillopenupplethoraofopportunities example, providing “Infrastructure” status tothe the requiredtractionatlocaleconomy level. For key drivers willbecreationofjobsandproviding to bedriven by individual Stategovernments. The interlinkages withotherindustrysegmentswillhave of businesswiththebackward andforward creating downstream andancillaryecosystem broader businessandeconomicgoals.Focus on Long-term actionsmustbetargetedtowards RESILIENCE phase–Long-term (next 1-2 years): into thelargerpartofmine-to-millvalue chain. time, they can focus on value addition by diversifying digitisation andtechnologyenablement.Atthesame can focus oncostoptimisationwithadoptionof be very highinIndia.Ontheotherhand,companies the taxstructure, whichis currently consideredto Another areagovernment couldlookatoptimizing FCFS (first-come-first-serve) canbeconsideredtoo. should otheroptions(withadequatemeasures)like be theonlyoptiontoallocatemineralresourcesor is scopetorevisit thepolicyonwhetherauctioncan certain actionsduringthisperiod.For example, there Minerals sector 1

© 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved 36 Policy level level Policy interventions interventions Boost demand consumer Impact of COVID-19 on the mining sector in India Impact of COVID-19 imports imports / Reduce Export demand Export expenditure expenditure Government Government Suggestions - Ease liquidity crunch - Ease liquidity crunch Suggestions Suggestions - Facilitate smooth operations smooth operations - Facilitate Suggestions Setting up an online platform for skilled/semi-skilled/unskilled labourers for Setting up an online platform This at work. deployment for to register and update on their availability payroll – on own database will help the industries in quick hiring of workforce or on contractual. programme to specific skill development must also drive State governments sectors including various for of skilled workforce ensure adequate availability to to be given real estate, etc. Priority mining, infrastructure, construction, through skill centers, so that requirements can be local youth unemployed fulfilled from local communities.

Development of land-bank in suitable locations for compensatory resettlement compensatory resettlement for of land-bank in suitable locations Development of adequate land parcels mining,of availability since lack of people impacted by miners. constraint for is a key Relaxation on submission of statutory mining related returns mining related returns of statutory on submission Relaxation mineral blocks auctioned recently on auction premium, for of GST Waiver migration of labour (post lifting Ensure that the anticipated large-scale reverse State ability to function. In this regard, does not hinder industries’ lockdown) actions: two consider undertaking following may governments – – lodging, food, and other necessary facilities for Ensure adequate arrangements terminals enroute from mines to destinations/ports - in this regard, at the truck the State governments be directed by local district administration may of temporary clearances (FC, EC) handed out to the Extend period of validity mine owners new investments capital encourage to Deprecation Accelerated of quantum Increase of – to maintain competitiveness Railways charged by freight rates Rationalize domestic sectors. Moratorium on loan repayment for both long-term and working capital loans both long-term and working for repayment Moratorium on loan to employees capital loans, to manage payments working of low-cost Provision to contractors payments like costs and other fixed such as electricity during (ED) during the for utilities charges of fixed Waiver period lockdown Import such as GST, levies, statutory or instalment options for payment Defer Compensation Cess, etc. GST NMET, DMF, duties, Royalty,

• • • • • • • • • • • • smooth Facilitate Facilitate operations operations

Long term Long term Short term term Short Short term term Short Medium term Medium term Medium term Medium term Ease sub-headings: following classified under has been further forward way suggested The liquidity crunch liquidity crunch Suggestions - Government expenditure Short term • Relaxation in the state’s fiscal deficit targets under the Fiscal Responsibility and Budget Management (FRBM) Act to support investment and welfare activities

Medium term • Kick-start capex cycle by immediate release of funds for projects under National Infrastructure Pipeline. Prioritize projects with low lead-times, which can immediately generate employment and create demand for core industries (steel, cement, etc.).

Suggestions - Export demand/Reduce imports

Short term • Provide incentives to promote export of commodities, especially iron ore. This must be encouraged by the governments for FY21 and may be revisited when the demand in domestic steel market picks up pace again. Exports will ensure multiple benefits to the mineral economy – mine operations will continue, trucks will ply on the roads, and hence there will be overall traction in the ecosystem ensuring engagement of workforce and continuity of livelihood • Consider levy of Anti-Dumping Duty on commodities such as steel, at least till the time the industry/economy normalises Medium term • Increase import duties on commodities such as thermal coal, iron ore, etc., which are abundantly available in India.

Suggestions - Boost consumer demand

Medium term • Sector-specific stimulus packages for critical core sectors, including steel manufacturing and infrastructure and construction sectors may be considered • Ferrous and non-ferrous metals scrap policies must be finalized and implemented quickly. This will help in multiple ways, for example, vehicle scrappage policy to revive demand from Automobile sector. All rights reserved a Swiss entity. (“KPMG International”), of independent member firms affiliated with KPMG International Cooperative and a member firm of the KPMG network Partnership © 2020 KPMG, an Indian Registered

37 Suggestions – Policy level interventions

• Rationalisation of the high taxes and duties, which are one of the highest in the world whereas global average is 40-45 per cent. A scientific approach may be designed to Medium simplify the multitude of levies and arrive at a reasonable rate, which will support term India’s manufacturing while enabling sustainable mining and welfare of mining affected communities. There is a significant variation in Royalty, Seigniorage Fees and Dead Rents, across states for minor minerals, which needs to be rationalized. • Amend MMDR Act 1957 to relax the provisions related to timelines and minimum production for development of auctioned blocks in the MDPA entered into by the successful bidder

• Grant ‘Infrastructure’ status to the mining sector. This will help mining projects to obtain financial support from financial institutions, especially for the financing of prospecting, exploration and mine development activities

• Mineral blocks must be put for auction by the State Governments only with pre- © 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved embedded statutory clearances, which will be transferred to the successful bidder post auction • All states must be mandated to implement IT enabled systems, to ensure end-to-end accounting of mineral/ore in the supply chain. The i3MS system in Odisha is a good model to replicate, with additional features that may be built-in for intelligent report creation. • Indian mining sector needs better data management practice as there is hardly any integrated data source available today that is considered as reliable and recognized source of authentic and real-time data on any commodity or mine. Ministry of Mines, Government and Ministry of Coal, Government of India can take the lead, and drive time- bound mandate to create such databases • India needs to create its own ecosystem for building the culture of R&D and innovation for future sustenance. In this regard, following actions may be considered: • Notwithstanding the multi-faceted benefits that can be achieved through technology adoption, it is still quite difficult for Indian mining companies to place R&D/innovation Long term high on their short-term agenda when they are dealing with other fundamental risks and adversities to even survive and stay in the business • Hence, the immediate onus is perhaps on the Governments (Central and States) to take the initiatives and keep budgetary provisions for this. Government Ministries like MoM, MoC, MoS, and state-level Departments of Mines/ Geology/Steel/Industries can be the first movers in this regard and drive collaborative research on issues affecting the mining sector • In order to drive collaborative research, create collaborative platforms like the CRC Mining in Australia to bring together all stakeholders. The Governments, alongside crucial contribution from Academia, Research Organisations, Regulators, OEM’s, Suppliers, etc. are a must that will help create a conducive atmosphere for promotion of the innovation culture at a broader and deeper scale. • Enable long-term planning of mineral excavation, a National Land Utilisation Policy needs to be evolved and suitable areas with significant mineral potential have to be identified and reserved for mining industry, to ensure availability of prospective areas for mineral exploration for the future generations in-line with the principle of Intergenerational Equity • Regional and detailed exploration should be carried out over the entire geologically conducive mineral bearing areas of the country in a time-bound manner • In order to attract global exploration companies with modern state-of-the-art technologies, alternate mechanisms for allocation of mineral leases, other than forward auction, should be implemented. Exploration agencies must be provided an attractive option to convert their Reconnaissance Permit (RP) to Prospecting Licence (PL) to Mining Lease (ML), without having to match the highest bid quoted during the auction process.

Impact of COVID-19 on the mining sector in India 38 © 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved 39 The suggestedway forward hasbeenfurtherclassifiedunder following sub-headings: 5.2 Suggestions for miningcompanies Medium term Short term • • • • • • • •

otniyo Saeodr Business Stakeholder Continuity of functions like contractandprocurement,finance,HR,administration,etc. in coreoperations,managementofphysical assetslike HEMM,andsupport Future ofmininginIndiawillbedriven throughdigitalisationandautomation, Adopt ‘Digital Transformation’ asatooltotransform intoanew company. operations andprevent working capitallock-ups requirements –planoperationsbasedoncustomerrequirements, tooptimiz Maintain regularcommunicationwithcustomerstounderstand evolving to remainsubduedover themedium-term production-based payments andpenalties,asdemandfromend-users islikely Operators, sub-contractors,suppliers,etc.toincorporatesuitablere Companies shouldproactively renegotiatecontractual termswithMDO’s/Mine expenditure –throughspecificcostoptimisationdrives Company-wide review andrationalisationofcosts,tocutdown unnecessary counter partiestoprevent legalissues in caseofpandemics(suchasCOVID-19) andproactively collaboratewith contracts andcheckwhetherprovisions have beenmadetoinvoke theclause Companies shouldcarefullyreview theForce-Majeure clauses intheirexisting commercial arrangements, etc policies, reachingouttocustomersandexploring collaborative (win-win) for this.For example, revisiting thecurrent salesandmarketing andpricing operations, especiallytillQ2ofFY2021. Specificmeasures may beconsidered Special focus tobekept onensuringadequateliquidityfor running the AP, inventory) thatwillquicklyoptimize cashflow for thebusiness liquidity andcrisiscashneeds,aswell astacticalworking capitalactions(AR, Companies shouldundertake working capitalanalysis todeterminethelevel of of criticalKPIs comply withtheordersofcompetentauthorities;ii)Continuousmonitoring Robust SOPsshouldbedeveloped tominimize theriskoftransmissionand developments andtake fast-paced decisions inarapidlyevolving scenario–i) Set upcross-functionalcommandandcontrolcenterstostay ontopofthe prtos aaeet planning management operations Suggestions -Continuityofoperations visions in e © 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved 40 sis Impact of COVID-19 on the mining sector in India Impact of COVID-19 2 Suggestions - Business planning - Business Suggestions Suggestions - Stakeholder management management - Stakeholder Suggestions For long-term business planning, companies should embark on a path of For sustainable cost reduction and profit maximisation, through critical analy stretched balance sheets should de-leveraging example, of operations. For in a sustainable and solvency to ensure adequate liquidity priority, be a key of projects/ subsidiaries, which do not meet expected manner; or divestment profitability thresholds options (both related consider diversification Large mining companies may may This disruptions. and unrelated) to build resilience in case of unforeseen especially outside India. on inorganic moves, include a special focus Companies should start adopting holistic and Integrated Production Planning and Integrated Production Companies should start adopting holistic of production. levels the threshold above (IPP) with scenarios built at par and obligations and/ contractual eb defined either based on may levels Threshold not just with on costs. IPP must be driven to break-even or minimum level on whom production players internal departments, but with larger ecosystem truck contractors, vendors, example are dependent upon, for and offtake associations, etc firms with complementary strengths, Explore strategic partnerships between companies example, For utilise technical and financial resources. to effectively stretched balance auctioned blocks but have in end-use sectors, who won development for MDOs/MOs JVs with cash-rich consider forming sheets, may of the blocks Companies should develop and institutionalize protocols for the workforce workforce the protocols for and institutionalize Companies should develop as social distancing and travel manner, to collaborate remotely in an efficient lockdown restrictions continue beyond companies to is critical for it the success of the remote working, ensure To use. in its effective the right collaboration tools and train the workforce in invest Health and welfare of employees, contractual workforce (and customers, workforce contractual of employees, Health and welfare Personal of such as ensuring availability to be prioritized relevant) wherever of all access control and regular disinfecting Equipment (PPE), Protective spaces, etc operating areas/office for adequate measures to take firms sector, intensive Mining being a labour at the mine. Any nature, of contractual particularly protection of the workforce, has potential to significantly impact availability of labor large-scale disruption of operations revival reliant on mining in the larger eco-system to invest Companies need suppliers, etc. to ensure small contractors, transporters, operations, particularly to the supply chain when the operations restart. Global minimal disruption to advance committed have and Vale, mining majors, such as BHP Group to support small and medium-scale business to their suppliers, payments of operations during the lockdown survive

• • • • • • • • • Long term Long term Short term term Short Short term term Short Medium term Medium term Medium term Medium term © 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved 41 End Notes End

6. 5. 4. 3. 2. 1. Chapter 2-Emerging realities during thepandemic 14. 13. 12. 11. 10. 9. 8. 7. 6. 5. 4. 3. 2. 1. Chapter 1-Contribution oftheminingsector to theeconomy

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5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 1 7. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 4. Acknowledgement

We acknowledge the efforts put in by the following individuals in developing the paper: 1) Bidyut Chakraborty 2) Manoj Gurramkonda 3) Siddharth Sahoo 4) Deepak Kumar 5) Manideep Boppana 6) Tarang 7) Shiva Rao 8) Chandan Singh 9) Sumit Chowdhury

We would like to thank the team below for their contributions: Amit Dey Nisha Fernandes Darshini Shah Rahil Uppal All rights reserved a Swiss entity. (“KPMG International”), of independent member firms affiliated with KPMG International Cooperative and a member firm of the KPMG network Partnership © 2020 KPMG, an Indian Registered

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