The growing volatility of markets and commodity prices of several minerals, with the majority of them showing a downward trend, has strained the margins of mining companies across the world, including India. Companies are therefore being compelled to focus on performance improvement and cost reduction by investing in efficient technologies and equipment. The path to achieving this, however, is fraught with a number of long-standing issues and challenges. India’s major focus has been to establish solutions in strategic resource development, resource and reserves estimation, orebody knowledge, mine planning and mining methods for extraction. While the assessment of technological requirements is strongly dependent on the nature of the reserves and resources underground, the need for a holistic production and economic model including all elements of the value chain has created a demand for technologies such as industrial automation and control systems, simulator training, equipment control and guidance, advanced mine surveying technologies, underground mining and surface drilling technologies, and machine guidance and control systems, which are compatible with enterprise resource planning software solutions.
Moreover, growing uncertainties in the industry and lower mineral prices have forced mining companies to consider operational flexibility in their strategic planning. This would enable them to alter production depending on demand and price scenarios. Selection of the right technologies and equipment to facilitate this flexibility will be vital for their performance.
As far as production planning and operational scheduling is concerned, technology penetration has been considerably lower than global levels. Modern technology application is close to nil in the country and mining operations continue to remain quite primitive. While mineral inventory and production management systems continue to be conventional, there has been growing pressure on expanding production without necessarily focusing on quality management. Therefore, to increase flexibility in strategic planning, the adoption of advanced technologies is critical. Unfortunately, India’s mining sector is still beset by several challenges and issues regarding technology adoption.
Financial position of mining companies
Finding funds for technological investments has been a major issue. Equipment procurement requires a significant proportion of investments to be made by mining firms. As a result, when cash flows and growth in the sector are strained, acquiring new equipment and paying for maintenance costs proves to be a significant challenge.
While technology adoption calls for patience in terms of the realisation of benefits, the country’s mining segment has been primarily concerned with short-term costs rather than long-term benefits. Adoption of the latest technologies, be it in mining methods, equipment or automation, all require substantial initial investments and benefits start kicking in only after a period of time. Thus far, mining firms have adopted short-sighted decision-making strategies and have avoided making the requisite investments.
In addition to these issues, the paucity of soft financing from financial institutions and banks has crippled investment in mining equipment and technologies. The inherent nature of the mining industry, with capital-intensive equipment, high manufacturing lead time, higher costs of borrowing and low depreciation rates, has discouraged the flow of funds into the sector. Moreover, banks and non-banking institutions face the issue of high bad asset ratios in the mining equipment market. Among the major subsectors in the industrial sector, “basic metal and metal products” accounted for the highest stressed advances ratio of 34.4 per cent, as of March 2016. In terms of outstanding amounts, the iron and steel industry saw the highest slippages into the non-
performing asset (NPA) category at 7.8 per cent. The iron and steel, and mining industries also exhibited low profitability in 2014-15. A macro stress test of sectoral credit risk revealed that in a severe stress scenario, the iron and steel industry, which had the highest gross NPA (GNPA) ratio at 30.4 per cent as of March 2016, could see its GNPA ratio rising to 33.6 per cent by March 2017. This has forced institutions to be extremely wary while lending to projects in the mining industry.
Limited indigenous availability
Domestic production of mining equipment continues to remain low. Moreover, even components and spare parts of heavy machinery are mostly unavailable in the country and this leads to the underutilisation of equipment. With a high dependence on foreign suppliers for equipment and parts, Indian mining companie sare exposed to currency fluctuations as well.
Competitive imports and pricing issues
Another challenge has been the growing demand for equipment which is inefficient but low cost. Equipment manufacturers in China, Korea and Hong Kong have lower costs of production, enjoy export incentives offered by their countries and avail of India’s attractive import duty regime, leading to the inflow of inefficient equipment. In order to protect the domestic sector, the Indian Construction Equipment Manufacturers’ Association has urged the government to regulate the import of second-hand equipment.
Domestic equipment providers are also facing constraints on their operating margins primarily due to the absence of fixed prices for equipment and growing competition from markets abroad. Also, the lack of consistency in demand has posed capacity planning challenges for mining equipment suppliers in the country.
Absence of a secondary market
A secondary market for used construction equipment is also not well developed in India. As a result, the resale of equipment continues to pose a huge challenge for the sector. Equipment rental markets are also limited, and this has further heightened the dependence of Indian companies on imported equipment.
Unskilled, inexperienced personnel
The lack of skilled workers is one of the biggest challenges faced by the mining industry. This has not only had repercussions on mining operations but has also decreased the utilisation of existing equipment. This scarcity has further affected the equipment procurement plans of mining companies.
As one of the most heavily taxed industries in the country, the mining industry has fairly limited incentives for the private sector to invest in the improvement of technology and equipment. Moreover, several geotechnical difficulties such as the gassiness of coal seams, hard-roof strata, thick intra-banded seams, steeply dipping seams, higher relative humidity, and others, in coal mines in India have presented severe challenges in adopting technologies. In such a scenario, it would be important for the government to incentivise domestic mining companies to collaborate with global mining equipment manufacturers, global technical experts and consultants, and scientific and regulatory institutions in India and abroad to investigate the modifications needed in specific technologies to adapt them to Indian conditions. Collaborating with international players would also help transfer technical knowhow from developed countries to India.
In addition, initiatives such as Make in India should focus on building indigenous manufacturing capacity for mining equipment. Another recent initiative has been an agreement to form a joint venture between Russia’s heavy equipment building company Uralmash and Noida-based SRB International to manufacture heavy equipment for the steel and mining sectors. With an eye on growth in these sectors, Uralmash plans to invest up to $6 million annually.
The Skill India initiative and company-funded training programmes also assume importance, as it is essential to focus on narrowing the skill gap of labour in the sector. The government has already initiated steps towards skill development by collaborating with the Queensland government’s Centre for Virtual Mining, Safety in Mines Testing and Research Station. The virtual mining training will include labour safety, mine planning and refinery operations, and will significantly improve productivity while minimising mine and plant accidents.
Protecting the indigenous mining equipment industry is also vital for the government to encourage growth in the sector. The threat from countries such as China and Hong Kong that are producing low–cost mining equipment has grown in recent years. India’s favourable import duty regime on mining equipment should therefore be reconsidered and steps should be taken to protect the interests of domestic producers and suppliers.
Although investments in technology and equipment face a number of challenges in the mining industry, efforts towards improving the supply of this equipment domestically and making funds available for these investments will be vital areas of focus in the time to come.