India’s mining sector has seen several important developments in recent months. State governments have commenced the process of auction of mines after the incorporation of an enabling provision in the Mines and Mineral Development and Regulation (Amendment) Act, 2015 (MMDR Act), and after the annulment of the fourth round of coal block auctions.
A major concern in the sector pertains to declining iron ore production. This is due to delays by state governments in the grant of clearances and in the reopening of mines, following the lifting of the ban on iron ore mining earlier imposed by the Supreme Court.
Indian Infrastructure gives a detailed account of recent trends and developments…
Capacity additions
In 2014-15, the production of coal increased by around 8 per cent, limestone by 4 per cent and lignite by 9 per cent, over the previous year. During the same period, however, the production of iron ore and bauxite declined by 15 per cent and 0.4 per cent respectively.
In 2014-15, the total number of mines that reported production (across all minerals) stood at 3,318, a decline of 11 per cent over the 3,722 mines operational in 2013-14. Specifically, the number of mines that reported production of metallic minerals declined by 10 per cent (from 663 to 595) and that of non-metallic minerals declined by 14 per cent (from 2,484 to 2,148) during the period under consideration. However, the same number of mines remained in production for coal (including lignite).
Auction of mines
One of the key provisions of the MMDR (Amendment) Act, 2015 (notified in January 2015) pertains to the grant of mineral concessions (for major minerals including iron ore) through the auction route by undertaking competitive bidding. The act stipulates that the auction of mines be undertaken by the state government in a transparent and non-discriminatory manner and that the states receive a share in the value of the mineral output.
The states have commenced the auction of mines, with a total of 63 mines (across eight states) being offered in the first phase. Of these, the maximum number of mines (15) is located in Karnataka, followed by Rajasthan (11) and Odisha (10).
With respect to limestone, 23 mines aggregating 2,899 million tonnes (mt) of reserves have been put on offer. The mines are located in Andhra Pradesh (six mines aggregating 597 mt), Chhattisgarh (four mines aggregating 474 mt), Gujarat (five mines aggregating 1,083 mt), Jharkhand (two mines aggregating 1 mt), Maharashtra (one mine of 42 mt), Odisha (two mines aggregating 13 mt) and Rajasthan (three mines aggregating 689 mt).
For iron ore, 16 mines aggregating 307 mt of reserves have been put on offer. The mines are located in Karnataka (14 mines aggregating 196 mt), Maharashtra (one mine of 11 mt) and Odisha (one mine of 100 mt). For bauxite, one mine in Maharashtra with 15 mt of reserves has been put on offer.
Coal block auctions
Following the deallocation of 204 (out of 218) captive coal blocks in September 2014, the government notified the Coal Mines (Special Provisions) Bill, 2015 that outlines a transparent procedure for the management and reallocation of the cancelled coal blocks. The Ministry of Coal (MoC) commenced coal block auctions in December 2014. As of March 2016, three rounds of auctions awarding a total of 31 coal blocks have been conducted. In December 2015, the MoC cancelled the fourth round of coal block auctions owing to a tepid response in terms of number of bids submitted as well as the bid amounts. (These blocks had been earmarked for the unregulated sectors.) The poor response can primarily be attributed to an increased supply of coal and low demand from the steel industry. The fourth round of auctions is likely to take place once market conditions improve.
One of the recent significant developments in the coal mining segment is the Cabinet Committee on Economic Affairs (CCEA) approval of the allotment of coal mines to central and state public sector units (PSUs) for commercial mining. The CCEA has essentially done away with end-use restrictions and has allowed the sale of coal from these blocks to medium, small and cottage industries under the provisions of the Coal Mines (Special Provisions) Act, 2015.
Resumption of iron ore mining
Although the ban on the production of iron ore has been lifted, production volumes remain low. This is primarily due to delays by state governments (such as Karnataka, Goa and Odisha) in extending statutory clearances and other approvals for the commencement of mineral production. Moreover, major iron ore producing states have imposed restrictions in the form of production caps as a part of their efforts to curb illegal mining and conserve the environment.
Technology trends
- Advanced exploration technologies are widely available in India. However, the current policies and procurement methods prohibit their application as some of them are rather expensive. Government companies have budget constraints, while private participation in the exploration sector has been limited. In this context, ore-body modelling, reserve and resource classification, mine planning, and feasibility assessment are all likely to face challenges.
- The industry has steadily moved towards the utilisation of higher capacity equipment. In opencast coal mines, use of the shovel-dumper combination for overburden removal and coal winning is common. In some cases, draglines are used for overburden removal and shovels and dumpers for coal extraction.
- Technologies for improving operational efficiency are also available but the mining industry has not adopted these yet. A critical reason for this was that earlier the need for efficiency was not perceived due to the high profit margins during the commodity super-cycle experienced from 2002-03 to 2013-14.
- Mining companies have begun to consider investments in energy-efficient equipment and devices, which not only provide good returns but also reduce the carbon footprint. However, gains in energy efficiency come only after time-consuming procedures. Thus, there will be a lag between their adoption and visible returns.
Going forward
The mining sector is likely to receive a fresh impetus with the commencement of mine auctions. Besides bringing transparency to allotment procedures, auctions are likely to revive investor sentiment. Other developments such as the opening up of the coal sector for commercial mining (although only by central PSUs and for sale to small and medium industries) have been welcomed. Given the growing focus on the development of infrastructure, output from mining, which forms the raw material for various end-use industries, is also expected to witness a surge in demand. However, it is critical to address the challenges facing the sector, including delays in clearances, restriction on mining activities, etc., for realising all the opportunities.