Looking for a Turnaround

Caught in the web of policy paralysis and undesirable instances in the past many years, the mining sector in India is looking for a turnaround with policy support from the government and progressive steps taken by the mining majors. However, there is a long way to go for mining to be on fast track like the infrastructure sector. Mining in India had been in the news for all the wrong reasons in the past many years, be it the scams, illegal mining, delay in policy processes, restriction to private participation in mining except captive mining for steel, cement and power production. Things seem to be improving slowly, thanks to the government's new policy initiatives such as amendment in mining policy and of late, allowing private participation in commercial coal mining. There are still hurdles to overcome, in the form of environment-related uncertainties and lack of adequate technology and equipment for mining at the required pace and quality. Market getting better In India, mining is largely focused on coal, iron ore, limestone and bauxite. Recently the zinc and copper mining has also picked up due to global slowdown in copper and zinc mining. Pavethra Ponniah, Vice President and Sector Head - Corporate Sector Ratings, ICRA explains, 'Overall domestic coal production is expected to reach 737 mt in FY2019 against 676 mt in FY2018, growing by around 9 per cent YoY. With improved availability, domestic coal scarcity is expected to alleviate towards the end of FY2019, and therefore the high domestic coal production growth rate is unlikely to sustain into FY2020. Between FY2021 and FY2022, domestic coal production is expected to grow at a moderate rate of 5-6 per cent annually, in-line with the projected growth in annual energy demand of 5 per cent during this period.' Karnataka and Odisha are leading in iron ore mining in the country. Ponniah elaborates, 'Aided by the rising supplies from Odisha and Karnataka, domestic iron ore production is expected to increase from 198.8 mt in FY2018 to around 232 mt in FY2020. However, given the limited progress in auction of iron ore mining leases, Odisha's iron ore production is expected to decline in FY2021 following the closure of many merchant mining leases after March 31, 2020. This could lead to a domestic ore shortage for some time till auctioned leases ramp up and fill up the supply vacuum. Therefore, unless the government extends the lease validity for merchant miners whose leases are expiring in March 31, 2020, domestic iron ore production is expected to decline to around 212 mt in FY2021 against 232 mt in FY2020.'According to Sandeep Singh, Managing Director, Tata Hitachi Construction Machinery Co, the mining scenario in India is on a recovery path after the recent downturn. He adds, 'Coal being the major driver of this growth trajectory is now showing signs of recovery after Coal India announced aggressive production targets. Various actions taken by the Coal Ministry like addition of new rail lines and wagons in coal mining areas have ensured smooth dispatches. Metallic minerals like iron ore, after the revised guidelines issued by the Supreme Court, has registered increase in production and dispatches. The recent strategic buyouts by cement majors like UltraTech Cement, Holcim etc in the cement sector is itself an indicator of adding capacity with an intent to address the increase in demand. The growth in various sectors is expected to accelerate in the years ahead.'Dheeraj Panda, Head - Excavator and Mining Business Unit, SANY Heavy Industry India, indicating a positive outlook, says, 'The Indian mining sector has witnessed many reforms, initiated by the Central Government. The captive mining policy which was in effect in India for such a long time will now be replaced with open bidding policy. The idea behind this was to further augment the production of coal through commercial mining. This would help ramp up efficiencies in the coal mining and extraction processes. It is expected to bring in greater efficiency, best possible technology, higher investment and more employment in coal-bearing areas, especially in the mining sector.'India is expected to become the fifth largest manufacturing country in the world by the end of 2020. The Government of India has set an ambitious target of increasing the contribution of manufacturing output to 25 per cent of GDP by 2025, from 16 per cent currently. According to Animesh Nandy, Business Lines Manager - Drilling Solutions, Epiroc Mining India, this growth in the manufacturing sector will also lead to the growth of the mining sector as the outputs of the mining sector act as inputs for the manufacturing sector. 'As the manufacturing sector expands, it is expected that even the mining sector will expand because of the domino effect,' he adds.Coal India was planning to produce 1 billion tonne coal by 2020 as per an earlier set target. However, the plan was revised recently by pushing the deadline forward to a couple of years at least (2022 or 2023). Commenting on this, Nandy adds, 'A very ambitious and welcome target indeed but now it seems some distance away from 2020 for sure for various contributing and cascading reasons. India is committed towards development of cleaner energy and thus focus on other form of energies are growing such as hydro, gas, residual, nuclear etc. The share of thermal power is projected to reduce in the total energy pie, however around 57 per cent is still thermal, it is big. Looking at the present scenario, I personally feel that for 1 billion tonne, it will be 2022 and beyond. Ministry to coal's adhoc measures to increase production is at best viewed with ridicule as the necessary infrastructure is not present.' Will privatisation help? Privatisation has helped various segments to improve their performances and progress. Mining has been strictly a government-controlled affair so far. This year only the government has come out with the policy change of allowing private players in commercial coal mining. What will be the impact of this privatisation? Says Ponniah, 'The government has allowed commercial coal mining by private entities since February 2018. However, any meaningful contribution to domestic production from private commercial miners will be visible only over the long term.'According to Singh, the privatisation of commercial coal mining is becoming a key for the increase in the overall coal production of the country, as these are time-bound projects with penalties and incentives which attract contractors to diversify in the mining segment. He adds, 'To achieve the desired aggressive outputs, the traditional methods of mining have to be changed/modified/upgraded. This would lead to upsizing of mining equipment with the latest technological advanced features, to make them more reliable and productive. Hence, increase of privatisation has created a necessity for introducing the latest mining equipment which have advanced features like environment-friendly engine, vehicle health monitoring systems, etc in India.'Panda observes emergence of new mining contracts in the near future which is a good sign for equipment manufacturers. 'There are many positive signs that we see in the mining sector in the near future. In the contract mining segment for example, the overburden (OB) removal tenders floated by CIL and its subsidiaries are being finalised in a speedy manner. Many key mining contracts are nearing completion, which would mean the space for new contracts to be floated this year. The contract mining rates are better than last year and we see a scope for some more improvement. Also, many mine development and operation tenders for coal blocks are getting finalised. These are good signs for the mining equipment manufacturers.'However, Nandy is speculative about the scenario as he cautions, 'Commercial coal mining is still in government paper and nothing on the ground is visible to me till now. Moreover, news from different corridors say that due to pressure from coal unions and other coal stake holders, government is mooting a proposal to put a stay on the proposal of commercial coal mining by private players or will go slow on this. Globally due to decrease in demand from the biggest coal consuming country in the world i.e China, there is an abundance of good quality coal at much cheaper rates and hence importing coal is a cheaper options.' Technology adoption Mining in India has created many sensitive issues with respect to environment and safety. It is important to minimise pollution and risk involved in the mining processes. Technology plays a key role in these areas. However, the level of new technology adoption in India is very lower compared to global markets. According to Ponniah, a trade-off between short-term costs and long-term benefits has led to limited adoption of high technology products in Indian mining sites. 'The size of the equipment used in Indian mines is also smaller than its global counterparts. According to news reports, 95 per cent of CIL's total coal production comes from its 177 open cast mines, out of the company's total 369 mines, with 50-60 per cent of the production coming from 26 crucial mega mines. The other mines are relatively smaller in size, which constrains mechanisation. Apart from the Indian PSU BEML, demand for higher capacity mining equipment is largely met through imports.' However, the privatisation of commercial coal mining can open doors to new advanced machines and technologies. 'Until early 2018, private mining was allowed in India only by captive miners with restricted end-use such as by cement, and steel companies. The February 2018 move by the Government of India to allow private players in commercial coal mining can be a game changer for technology adoption in Indian mining if it draws large global players like Rio Tinto, Vale, BHP Billiton, Xstrata and Anglo American, among others,' points out Ponniah. Singh is of the view, 'Acceptance of proven global technology in mining has been a challenge in the past years. Although initiatives like the knowledge sharing, visits to global mining sites, etc of the users in the mining industry have created an awareness to implement the latest technology, the operational challenges are not allowing the aggressive implementation of the technology at the mine sites. The technology providers are working towards awareness programs/training which can enhance the implementation but it seems this would take more time than what is expected.'Nandy elaborates on the trends in technology adoption, 'Technology in drills has taken a huge leap globally. Multiple drills in one bench are operated from a control station remotely, cabless drills are in use, telematics, teleremote, rig scans and many other systems are in demand. This is also for other mining equipment manufacturers as well. Technology adoption is picking up with the private mining companies in India as well be it Reliance or Tata Steel or Lafarge Holcim. Government companies are lagging in this race but off-late have started positive, especially for the production and hauling equipment range. But for drills, they still use age-old technologies mostly. However, a couple of government companies have started discussion with different drill manufacturers on upgrades which is a positive sign to start with. Technologies are now available, which increases efficiencies, saves energy as well as increases safety such as telematics, recording of operation parameters and their analysis and high-precision GPS, low-emission electronic engines, remote fuel monitoring, RCS, drill efficiency indicators etc.'When it comes to the offloaded job to contractors in India, Nandy says, 'I hardly see proper mining drills in use, forget technology. Use of waterwell drills which is banned and now drills mounted on excavators are in rampant use instead of proper blast hole drills for mining. You will not see these allowances in developed mining markets globally.' Demand-supply scenario Demand for the mining equipment is too cyclic in nature so, equipment manufactures need to be constantly in touch with the stakeholders to assess the demand for equipment or access the cyclic curve, according to Nandy. 'Most of the time, the manufacturers are in sync with the demand of the equipment and gear up to the spikes but for low-capacity equipment, there were cases in the past of mismatch in the demand-supply due to many external reason and policies. Today, companies like us are well poised to cater to the demand of the Indian market with majority of the lower capacity equipment being manufactured in the country itself.'In mining the product applications are fixed and capacity addition or modifications are done on the machines to enhance the productivity, safety and operators comfort. 'Technologies in mining equipment are more focused towards lower emissions, more analysis of operational data, capacity enhancement, lower manpower and lower manual intervention and cost efficiencies along with a big requirement of safety aspects and automation. Teleremote applications, HPGPS, higher capacity single-pass drills and higher compressors sizes, longer economic life of the equipment, bench remote options, and electronic engines are the technologies and product improvements are in vogue,' says Nandy. Aftermarket support The success of any business lies in the effective aftermarket support. In mining, the aftermarket support is crucial as equipment downtime is not at all affordable in mining due to the nature of work and location. Partha Mookherjee, Head - Mining Equipment Business, Larsen & Toubro says, 'L&T's strengths lie in its ability to remotely manage large assets in various projects across India with full maintenance contracts and site support agreements. Our service engineers are well equipped and trained to rapidly assemble large machines at project sites in shorter lead times. Besides, L&T provides training and expertise to the operators to handle Komatsu, Scania and L&T machines.'Helena Hedblom, Senior Executive Vice President Mining and Infrastructure, Eprioc, says, 'We also have a very high focus on aftermarket services, making sure that the customer really gets complete benefit. Being close to the customer is key to improve our products, services, quality, processes and supply chain. So aftermarket support and being close to our customers are critical for our growth in the market.' Importance of sustainable mining With increased sensitivity towards the environment and negative impact of global warming, it is imperative that we need to have a clear focus on environment conservation. Says Mookherjee, 'Mining, being a contributor to global pollution, it is natural that all of us should move towards sustainable mining. L&T, being an environmentally conscious company, has always been in the forefront of nature conservation. Komatsu equipment incorporate all the latest features which are environment-friendly like lead-free radiators, emission-compliant engines, low-noise cabins etc, which meet the most stringent pollution norms applicable anywhere in the world.Epiroc is a major player in environment-friendly battery-powered ventilation technology in mining. Hedblom, elaborates, 'We also have a major presence in battery technology. When mines go deeper and deeper, the need for ventilation will be more, and 70-80 per cent of the oxygen underground is used by engines. Using battery technology can improve the working environment underground and at the same time, reduces the need for exhaust ventilation. So our product development plans are heavily towards automation and battery-driven equipment, and will contribute to sustainable mining environment.' Market challenges According to Singh, the mining equipment industry in India is guided by the complex buying process, involving a lot of documentation as well as acceptance and adaptation of the latest technology. 'All along, the buying process talks of provenness, which makes the global manufacturers less willing to take risk of promoting the equipment in India as it leads to financial implications. In the current frameworks, technology does not score any points, however the situation seems to be improving. We see that the mining equipment industry in India has a good potential and should grow aggressively.'Panda highlight the current tendering process a key challenge for equipment companies. He adds, 'One key challenge that equipment manufacturers are facing currently is the tender evaluation criteria. It is still largely based solely on pricing, while the technical weightage is not considered for evaluation. Products that focus on R&D and offer superior technology and quality, cannot match L1 pricing. We feel, this needs to be addressed as the industry becomes more and more competitive.' Our country has been witness to sharp changes in the mining regulatory framework in the last few years, around prospecting schemes, award of leases, auction of concessions, as well as compliances. There has also been quite a judicial intervention. On the impact of these changes, Mookherjee says, 'Yes, there has been a disruption in mining activities starting with Supreme Court judgement in the coal and mining sector coupled with adoption of stringent norms in LA and R&R which had slowed down the overall process of new projects coming up. We are, however, hopeful that with the overall positive business scenario and growth prospects, the industry shall revive sooner than later. The slowing down of the industry has impacted the off-take of mining machinery but things have started looking up of late with enquiries and overall buoyancy.' Opportunities galore The policy changes and new aggressive approach of mining players have created new opportunities for mining equipment manufacturers in spite of a challenging environment. A major boost in this direction is the Coal India's decision to acquire equipment worth Rs 120-130 billion in the coming 2-3 years. Says Ponniah, 'Overall, MCE demand potential from the coal mining sector has been a function of the timeline of equipment ordering by CIL. Coal production by CIL and its subsidiaries has grown by 11.9 per cent during YTD FY19 (up to August); this growth momentum is expected to continue considering the demand pick-up from thermal energy. Coal India has lined up a sizable capex plan of ~Rs 9.5 billion for FY2019; the PSU spent ~ Rs 8.6 billion in FY2018. Further, CIL has announced plans to procure equipment worth Rs 120-130 billion via global tenders over the next three years, with Rs 40-50 billion of orders placed in FY2019. This could translate into sizable demand for Indian equipment companies.'According to Singh, Coal India's decision of acquiring mining equipment has been a positive move as in the last few years there has been very low buying considering the economic scenario. He adds, 'With their announcement of acquiring mining equipment worth Rs 120-130 billion in the next two to three years, it is likely that they would be buying heavy earthmoving machinery (HEMM) like rope shovel, hydraulic shovels, dump trucks, wheel loaders etc. Tata Hitachi, a leader in excavators in Indian market, which is subsidiary of Hitachi Construction Machinery Japan, has excavators with diesel drives with a range from 1 cu m bucket capacities to 45 cu m bucket capacities as well as electric drives from 11 cu m to 45 cu m bucket capacities, dumpers with IGBT, AC drive technology with 190T, 240T and 290T capacities, wheel loaders etc. These are the categories where we would be interested in.'Panda adds, 'CIL and its subsidiaries have increased their production target. Naturally, there would be increased demand for the mining equipment from these companies. The purchase cycles for the equipment have reduced. Also to add to the outlook, the existing fleet is nearing the expected economic life. The focus is now on the equipment that would increase operational efficiencies while maintaining the highest levels of reliability.'Nandy says, 'Globally, the share of drilling equipment is only about 5 per cent of the total mining equipment purchase. Procurement plans in India by CIL is no different. Moreover, the decision to procure equipment of the mentioned value is for long terms and also includes replacement of existing bigger and high value equipment. The percentage of equipment for newer projects and expansion against replacements will be the key and needs to be seen.' Future promising but challenging According to Ponniah, while demand for construction equipment has witnessed strong growth during the past two years, supported by Central Government's infrastructure investments, particularly in roads, demand growth for mining equipment has been relatively muted at 5-10 per cent. She adds, 'Future growth potential is a function of the timing of CIL's equipment order placement. Given CIL's big plans for FY2019, demand for mining equipment can witness a strong uptrend, particularly in Q4FY2019. Also, while demand for mining equipment in India is largely linked to demand for coal, iron ore and limestone, aggregate production for road work would also leads to demand for high tonnage equipment in stone quarrying.'Ponniah further adds on the growth trend, 'Supported by increasing commodity prices, global mining equipment demand grew by over 50 per cent during FY2018, registering its first year of growth since FY2014. However, volumes are still less than 50 per cent of the previous peak of FY2012. Capital expenditure by global mining majors is expected to witness a revival in CY2018, after five years of decline, supported by improving prices for base metals, coal and crude. This in turn is expected to support pick-up in global mining equipment demand, going forward. Singh expects the mining equipment market to grow at a rate of 6-8 per cent year-on-year. Mining in India has gained some momentum this year with the progressive policy initiatives. Steps towards privatisation of commercial coal mining, lifting of bans in iron ore mining and improvement in mine auctions by the government have created new opportunities for mining equipment players. But the growth will depend on how soon and fast the mining activities take off and continue at a steady pace. Mining Scenario in India Coal: The domestic coal mining industry is dominated by the two central miners, Coal India Limited (CIL) and Singareni Collieries Company Limited (SCCL), who cumulatively account for around 93 per cent of the total domestic coal production. The share of production from captive miners has remained at less than 10 per cent. CIL's coal production growth slowed down to 2.4 per cent in FY2018, which coupled with bottlenecks in rake availability, and a recovery in energy demand, led to a severe coal shortage for thermal power plants during the last fiscal. To replenish depleted coal stocks at thermal power plants, CIL has been able to ramp up production at a healthy rate of 14.1 per cent YoY in April-July of FY2019, which has led to cumulative coal inventory at power plants rising from a low of 12.2 mt as on October 31, 2017 to around 20.6 mt as on July 31, 2018. Given the trends in FY2019 thus far, CIL is on track to comfortably meet the FY2019 production target of 610 mt, provided transport infrastructure does not become a limiting factor. Overall domestic coal production is expected to reach 737 mt in FY2019 against 676 mt in FY2018, growing by around 9 per cent YoY. With improved availability, domestic coal scarcity is expected to alleviate towards the end of FY2019, and therefore the high domestic coal production growth rate is unlikely to sustain into FY2020. Between FY2021 and FY2022, domestic coal production is expected to grow at a moderate rate of 5-6 per cent annually, in-line with the projected growth in annual energy demand of 5 per cent during this period. Iron ore: In May 2014, following the Supreme Court's judgment, 26 of the 56 iron ore mines in Odisha, which were operating under the second or more deemed renewal clause, were closed. This led to a decline in iron ore production from Odisha from 76.2 mt in FY2014 to 52 mt in FY2015, and India's iron ore production declined from 152.4 mt in FY2014 to 129.3 mt in FY2015. However, with the enactment of the 'The Mines And Minerals (Development And Regulation) Amendment Act, 2015' in March 2015, mining leases which had expired after their first renewal were automatically extended till March 31, 2020 (for merchant miners), and till March 31, 2030 (for captive miners). This helped increase the iron ore output from Odisha from 52 mt in FY2015 to around 101.5 mt in FY2018. Given the March 2020 deadline for lease validity for many merchant miners, Odisha's iron ore production is expected to increase to around 124 mt in FY2020. Moreover, with the Supreme Court allowing an increase in mining cap in Karnataka from 30 mt to 35 mt, and with the auctioned iron ore mines of JSW Steel beginning production from FY2019, Karnataka's production is expected to increase from 29.1 mt in FY2018 to around 38 mt in FY2020. Aided by the rising supplies from Odisha and Karnataka, domestic iron ore production is expected to increase from 198.8 mt in FY2018 to around 232 mt in FY2020. However, given the limited progress in auction of iron ore mining leases, Odisha's iron ore production is expected to decline in FY2021 following the closure of many merchant mining leases after March 31, 2020. This could lead to a domestic ore shortage for some time till auctioned leases ramp up and fill up the supply vacuum. Therefore, unless the government extends the lease validity for merchant miners whose leases are expiring in March 31, 2020, domestic iron ore production is expected to decline to around 212 mt in FY2021 against 232 mt in FY2020. Limestone mining: Indian cement production during FY2018 grew by 6.3 per cent to 298 million MT, was higher by 6.3 per cent, compared to 280 million MT in FY2017. In Q3 FY2018 and Q4 FY2018, production increased by 10.6 per cent and 18.2 per cent, respectively, due to improvement in demand along with the base effect of demonetisation during the above-mentioned period last year. For FY2019, cement demand growth is estimated at 6 per cent, led by pick-up in affordable housing and infrastructure segments, mainly road and irrigation projects. - Pavethra Ponniah India: Mining Facts <ul><li>Mining is one of the core sectors in India that drive growth in an (our) economy. Not only does it contribute 2.5-3 per cent to GDP, it also acts as a catalyst for the growth of other core industries like power, steel, cement, which in turn, are critical for the overall development of the economy.</li><li>More than 90 per cent of the mines are surface mines in India </li><li>Major minerals in India are mined by organised sectors only </li><li>Technology is still in the backstage with respect to the world standards </li><li>Size of mines (mostly) is comparatively very small with respect to global standards </li><li>Coal, iron ore, limestone and bauxite are the major mined rocks and minerals</li><li> Coal mining is dominated by state agencies such and CIL and SCCL, while private mining still constitutes a very low percentage for coal.</li><li>A large percentage of mining in CIL and SCCL is outsourced these days and technology used by these outsourced agencies is mostly the same age-old methods which were used 20 years back.</li><li>Complexities of legal procedures and local inhibitions are a dampener for new mining projects in India</li><li>Restrictions on the new thermal power plants, exports of iron ore lumps, imports of coal, transportation from pit heads etc act as road blocks in new developments and capacity enhancements. Environment activist lobbies are continuously working for restricting the mining activities in tribal dominated and mineral-rich areas Hope to see the government plan to go 1.5 BT (coal) by 2022, if not earlier, and some push for upgrading to modern, efficient, safe and environment-friendly technologies sooner.</li><li>Zinc and lead will experience the largest gains of 27 per cent and 18 per cent, respectively. This is primarily due to mine supply closures and discretionary shut-ins in several countries.</li></ul>- Animesh Nandy MINING MACHINERY FROM TATA HITACHI Tata Hitachi is the leader in the mining excavator segment in India. We have a range from 3 cu m bucket size (47T class) going up to 5-6.5 cu m excavators (100T class) made in India, and up to 800T class excavators made in Japan. We have over 50 per cent market share in 65T class excavators and above. Tata Hitachi has sold a 260T class Hitachi EX2600E electric excavator - a first of its kind in India - fitted with 15 cu m bucket capacity and enjoys 100 per cent market share in that category. Hitachi has been in the forefront for development of new technologies in mining equipment. For e.g. Autonomous Haulage Systems on dump trucks have been successfully developed, dump trucks (EH3500AC-3, EH4000AC-3, EH5000AC-3) are fitted with proven Hitachi IGBT û AC drives which can also be converted to a trolley option. We had announced the introduction of -7 series in excavators on EX1200-7, EX2600-7, EX3600-7, and EX8000-7 for the global market which is another step of technology to the global market which have specifically designed with options of Tier IV engines. Our excavators are fitted with WIU (WiFi Interface Units) enabling the data download from the equipment from 50 m away of the equipment. The introduction of 'Arial Angle' to identify the blind spot in equipment to avoid accidents etc, is a major technological enhancement in our offering.- Sandeep Singh MINING GROWTH OPPORTUNITIES Expansion of underground mines for metal MDO in coal mining Increase impetus on exploration by government agencies Efficiency increment thru autonomous solutions Ambitious target enhancement of coal to 1.5 billion tonne Capacity augmentations in the metal segment specially NMDC, Hindustan Zinc etc<br /

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Looking for a Turnaround

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