Big Steps: Trends and developments in the mining industry

Trends and developments in the mining industry

While Covid-19 has had serious implications for the mining industry, mining companies have shown remarkable resilience, continuing operations even during the pandemic. There is a significant focus on the automation of mining operations and use of digital solutions to increase productivity, promote sustainable resource use, lower fixed costs, and enhance workforce safety. Artificial intelligence (AI), machine learning (ML) and industrial IoT have a number of use cases for the sector.

The opening up of the coal sector to private players will attract a huge capital investment in the country over the next few years. The foreign direct investment (FDI) cap in the mining and exploration of metal and non-metal ores has been increased to 100 per cent under the automatic route. The Geological Survey of India has almost doubled its exploration activity by implementing about 400 mineral exploration projects on various mineral commodities. All these will help the mining sector realise its true potential.

Impact of Covid-19

Prior to the outbreak of the Covid-19 pandemic, various PSUs and private mining companies had laid out significant expansion and capex plans, for both existing and new mines. However, the spread of Covid-19, right at the beginning of the financial year, affected the entire mining value chain. Industrial activities recovered sharply, except for the mining sector, which is still at lower levels as compared to the pre-lockdown levels.

The Indian mining sector is heavily dependent on private contractors that work as mine operators (MOs) or mine developers-cum-operators (MDOs). Currently, the level of dependence on contractors is 60-70 per cent of the total volume of ores and overburden excavated from the earth. The Covid-19 pandemic has significantly impacted the demand for coal and key minerals, which has further affected the receipt of payments by MDOs/MOs from the allottees due to cashflow issues faced by miners.

Impetus to commercial coal mining

Earlier this year, in a bid to liberalise the coal mining sector, the central government notified the Mineral Laws (Amendment) Ordinance, 2020, which opened up coal mining to non-coal companies, removed restrictions on the end-use of the fuel, and introduced flexible criteria for bidders to participate in auctions. As part of the Atmanirbhar Bharat package, the government announced the auction of 41 coal blocks for commercial use, with the aim to reduce coal import and increase job opportunities in coal-bearing areas. These would operate on a revenue sharing model and performance-linked incentives. Further, the auctions are likely to bring in competition and attract foreign investment, promote the use of more advanced equipment and technology, and enhance production efficiency.

Of the coal blocks auctioned, 19 bidders have been allotted mines under the country’s first commercial coal mining auction. This will fetch the states an estimated revenue of over Rs 65 billion per year. Given the fierce competition in the auction, the highest premium remained at 66.75 per cent and the average premium at 27 per cent. The successfully auctioned 19 mines are spread over five states, namely, Madhya Pradesh, Chhattisgarh, Odisha, Jharkhand and Maharashtra. They have a consolidated peak rated capacity of 51 million tonnes per annum. Further, the government launched the National Coal Index for the first tranche of commercial coal auctions. This index will be used to calculate the amount of performance security that companies need to pay after winning the coal blocks. It will also have a bearing on the price of coal to be sold from these mines.

Limited mineral exploration

The country has vast geological resources, but currently mining accounts for only around 2 per cent of the GDP. The lack of certainty on converting an exploration asset into a mining asset is the major roadblock. Thus, in order to attract private players, a first come, first served principle must be introduced for granting exploration rights with provisions for automatic transfer from a prospecting to a mining lease. The extraction and management of minerals must be integrated in the overall industrial strategy.

As part of the government’s Rs 20 billion stimulus package, a seamless composite exploration-cum-mining-cum production regime will be introduced to enhance private investments in mining. Earlier, there was no single-window clearance agency and clearances were required from multiple ministries and departments at both the central and state levels. However, in January 2021, the government launched a single-window clearance portal, a unified platform that facilitates the grant of clearances and approvals required for starting a coal mine in the country.

Low penetration of technology

Overall, the level of technology deployment in India’s mining sector is much lower than that of its global counterparts. Some of the pressing concerns are shortage of skilled manpower, financial constraints, low equipment utilisation, and environmental issues. Surface mining is prevalent in the country for shallow deposits of metallic ores and minerals. The share of underground mining, which offers opportunities for the exploration of deep-seated high-quality deposits, has been declining. Not only is underground mining costlier, but it also requires high-end equipment and technology solutions for successful exploitation. The large scale of operations has also resulted in an increase in the size of mining equipment. There is also a significant focus on the use of energy efficient equipment and reduction in diesel consumption.

The automation of mining operations and use of digital solutions can help increase productivity, promote sustainable resource use, lower fixed costs, and enhance workforce safety. AI, ML and IIoT offer a number of use cases for the sector. AI-powered robotic devices can perform core mining activities such as drilling, blasting, loading and hauling. Besides, unmanned aerial vehicles/drones and geospatial technologies (such as GPS, GIS and remote sensing) can be used for targeted mineral exploration, preparation of mine plans and access to real-time updates on mining operations. With real-time data collection and analytics, overall mining operations could be further improved and streamlined.

Other key developments

The mining industry has welcomed the measures announced by the government as part of its Rs 20 billion stimulus package. The policy measures are aimed at enhancing investments in the mining sector by opening up coal mining to the private sector.

The joint auction of bauxite and coal mineral blocks will be launched to enhance the aluminium industry’s competitiveness. A total of 500 mining blocks will be offered through an open and transparent auction process immediately. With the aim to achieve 1 billion tonnes of coal production by 2023-24, Coal India Limited (CIL) will invest over Rs 1.22 trillion in about 500 projects on coal evacuation, infrastructure, project development, exploration and clean coal technologies. Besides, CIL has relaxed its rules and provided exemptions for the greater participation of stakeholders in its tenders.

In sum

The government has prioritised sustainable mining through out-of-the-box measures such as the use of surplus mine water for irrigation and drinking purposes in and around mining areas, extraction and use of sand from overburden, promotion of eco-mine tourism and bamboo plantation. A capex investment plan has been made for activities related to sustainable development in the next five years. The investment includes expenditure on mining equipment, setting up of solar plants, surface coal gasification, first-mile connectivity projects and other out-of-the-box activities for environmental protection. The government aims to achieve 100 million tonnes of coal gasification by 2030 at an estimated investment of over Rs 4 trillion. The key growth drivers such as high demand, policy support, innovation and increasing investments remain the same. However, a number of issues still warrant policy attention. Much work needs to be done to step up exploration efforts, especially with regard to better utilisation of the National Mineral Exploration Trust funds. Legacy issues such as delays in the award of requisite approvals and clearances also need to be addressed. For auctions, the prevailing bidding systems can be reworked. For instance, a single-stage sealed-bid system can result in more efficient outcomes. There is also scope for encouraging financial levies (such as royalties), which are currently very high as per international standards.