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2 Contents Advantage India Market overview and trends Growth drivers Success stories: CIL, SAIL Opportunities Useful information 2

3 Advantage India Demand growth Rise in infrastructure development and automotive production driving growth in the sector Power and cement industries also aiding growth in the metals and mining sector Attractive opportunities There is significant scope for new mining capacities in iron ore, bauxite, and coal Untapped metal reserves in India are to the tune of 82 billion tonnes 2015F Industry value: USD305.5 billion Competitive advantage Advantage India Policy support 2011 Industry value: USD141.9 billion India holds a fair advantage in cost of production and conversion costs in steel and alumina It s strategic location enables convenient exports to developed as well as the fast-developing Asian markets 100 per cent FDI allowed in the mining sector under the Automatic Route Mining lease granted for a long duration of minimum 20 years and up to 30 years Approval of MMDR Bill (2011) to provide better legislative environment for investment and technology Source: Datamonitor, Aranca Research Notes: FDI - Foreign Direct Investment, MMDR Bill - Mines and Mineral (Development and Regulation) Bill ADVANTAGE INDIA 3

4 Contents Advantage India Market overview and trends Growth drivers Success stories: CIL, SAIL Opportunities Useful information 4

5 Evolution of the Indian metals and mining sector Present 1947 Mining sector received a boost post independence under the impact of successive Five Year Plans 1956 Central Government promulgated Industrial Policy Resolution The exploration of minerals was intensified and the Geological Survey of India was strengthened Indian Bureau of Mines was established to look after the scientific development of mineral resources 1972 Mineral Exploration Corporation established to conduct exploration with focus on coal, iron ore, limestone, dolomite and manganese ore India is the largest producer of sheet mica, the third largest producer of iron ore and the fifth largest producer of bauxite in the world Crude steel production in India expanded at a CAGR of 6.8 per cent over India accounted for 7.3 per cent of the metals and mining industry in the Asia- Pacific region in 2011 Source: DataMonitor, Notes: CAGR - Compound Annual Growth Rate MARKET OVERVIEW AND TRENDS 5

6 Segments of metals and mining industry Iron and steel Iron and steel segment offers a product mix which includes hot rolled parallel flange beams and columns rails, plates, coils, wire rods, and continuously cast products such as billets, blooms, beam, blank, rounds and slab, and metallics and ferro alloy Coal Coal market consists of primary coal (anthracite, bituminous and lignite) Metals and Mining Aluminium Aluminium segment includes alumina chemicals, primary aluminium, aluminium extrusions, aluminium rolled products Base metals Base metal market consists of lead, zinc, copper, nickel and tin Precious metals and minerals Precious metals market includes gold, silver, platinum, palladium, rhodium, diamond Source: Aranca Research MARKET OVERVIEW AND TRENDS 6

7 Strong growth in India s metals and mining sector over the years India s metals and mining industry recorded a strong 19.8 per cent expansion in 2011 to touch USD141.9 billion Value of India s metals and mining industry (USD billion) Much of the above growth in the industry s value can be attributed to higher prices given that production volume growth was relatively lower at 3.2 per cent (total production stood at million metric tonnes) Production volumes have been growing steadily over the years - over , it registered a CAGR of 5.2 per cent; with prices also rising during this period, the sector s value rose by around 17.7 per cent (CAGR) Notes: CAGR - Compound Annual Growth Rate Source: Datamonitor, Aranca Research MARKET OVERVIEW AND TRENDS 7

8 Iron and steel accounts for a major share in India s metals and mining sector Iron and steel is the largest segment of the Indian metals and mining industry, accounting for 68.5 per cent of the overall industry value (2011); coal is the other major sub-segment with a 26.5 per cent share India accounted for 7.3 per cent of the metals and mining industry in the Asia-Pacific region in 2011 Shares in India s metals and mining industry (2011) 3.2% 1.6% 0.2% India s share in the metals and mining industry in Asia-Pacific (2011) 26.5% 68.5% Iron & Steel Coal Aluminium Base Metals Precious metals & minerals 9.2% China 4.2% Japan 7.0% India 7.3% South Korea Rest of Asia-Pacific 72.4% Source: Datamonitor, Aranca Research MARKET OVERVIEW AND TRENDS 8

9 Iron ore: Production remains strong India is the world s fourth largest iron ore producer (global share of 11 per cent) Iron ore production (million tonnes) Iron ore production is estimated to have grown at a CAGR of 2.6 per cent between FY07 to FY11; total production in FY11 stood at almost 208 million tonnes In FY11, the share of the private sector in total iron ore production in India was 72 per cent Andhra Pradesh, Chhattisgarh, Goa and Jharkhand accounted for 97 per cent of India s total iron ore production in FY11 FY07 FY08 FY09 FY10 FY11 Source: Ministry of Mines (Annual Report ), Aranca Research MARKET OVERVIEW AND TRENDS 9

10 Rising steel demand driving growth in iron ore production Given that iron ore is a key ingredient in steel production, the expansion in iron ore production in India can be linked to the country s fast-expanding steel sector Crude steel production expanded at a CAGR of 8.0 per cent over to touch 72.2 million metric tonnes India is the fourth largest producer of crude steel in the world (2011) with a global share of 4.8 per cent Crude steel production (million metric tonnes) Shares in global crude steel production (2011) % 7.2% 4.6% China 4.8% 45.9% Japan United States India Russia Source: World Steel Association, Aranca Research MARKET OVERVIEW AND TRENDS 10

11 Rising domestic demand puts pressure on supply of iron and steel (1/2) India is the world s third largest exporter of iron ore India s exports of iron and steel (USD billion) With rising domestic demand-supply gap and to make domestic supplies more attractive, the government on March 2011 hiked freight charges and taxes on iron ore exports FY07 FY08 FY09 FY10 FY11 FY12 Source: Reserve Bank of India, Aranca Research MARKET OVERVIEW AND TRENDS 11

12 Rising domestic demand puts pressure on supply of iron and steel (2/2) India has turned into a net importer of iron and steel due to strong growth in the manufacturing sector and rising infrastructure projects India s transition into a net importer of steel despite the strong growth in domestic steel production shows the demand potential of the sector The impact of strong growth in domestic steel production has been most felt in the iron ore sector; with steel firms ever rising demand for the raw material, India s imports of iron ore has been growing steadily (for example, iron and steel imports increased at a CAGR of 13.3 per cent over FY07-12) India s imports of iron and steel (USD billion) FY07 FY08 FY09 FY10 FY11 FY12 Source: Reserve Bank of India, Aranca Research MARKET OVERVIEW AND TRENDS 12

13 Coal production growing at a steady pace Coal production recorded a CAGR of 8 per cent over FY08-10 Coal production (million tonnes) In the coming years, coal production in the country is likely to receive a boost as the government plans to replace the country s captive mining policy in coal and iron ore with an open bidding one FY08 FY09 FY10 FY11RE FY12BE Source: Government of India (GOI), Ministry of Coal, Aranca Research Notes: CAGR - Compound Annual Growth Rate RE - Revised Estimate, BE - Budget Estimate MARKET OVERVIEW AND TRENDS 13

14 India s role in global coal production India is the world s fourth-largest producer of coal, with the world s fourth-largest reserves Shares in global coal production (2010) Coal India Ltd (CIL), a Government of India enterprise, is the world s largest coal company based on raw coal production and coal reserves 19.8% 14.8% US 6.3% Australia 5.0% 5.8% China India Indonesia Rest of the World 48.3% Source: BP - Statistical Review of World Energy 2011, Aranca Research MARKET OVERVIEW AND TRENDS 14

15 Key geological coal and iron ore deposits in India States with major coal deposits Jharkhand (76,963 mt) Odisha (66,307 mt) Chhattisgarh (46,682 mt) West Bengal (29,853 mt) Andhra Pradesh (22,016 mt) Madhya Pradesh (21,988 mt) Maharashtra (10,308 mt) States with lower coal deposits Uttar Pradesh (1062 mt) Meghalaya (577 mt) Assam (387 mt) Nagaland (316 mt) Bihar (160 mt) Sikkim(101 mt) Arunachal Pradesh (90 mt) Coal deposits in million tonnes (mt) States with iron ore deposits Odisha (44.8 mt) Karnataka (34.3 mt) Goa (3.7 mt) Chhattisgarh (3.4 mt) Jharkhand (3.2 mt) Andhra Pradesh (0.8 mt) Madhya Pradesh (0.3 mt) Maharashtra (0.1 mt) Iron ore deposits in million tonnes (mt) Source: Geological Survey of India, Indian Bureau of Mines, Aranca Research MARKET OVERVIEW AND TRENDS 15

16 Major metals and mining players in the country Segment Major Player Market Share Other players Iron and Steel NA Sesa Goa, SAIL, Orissa Minerals Coal 80% Bharat Coking Coal, Reliance Natural Resources, Northern Coalfields Aluminium 60% National Aluminium Company (NALCO), Bharat Aluminium Company (BALCO) MARKET OVERVIEW AND TRENDS 16

17 Notable trends in the metals and mining sector Captive mining for coal In captive mining for coal, companies are permitted to set up coal washeries and for specified end uses, including the setting up of power plants, fertilisers and steel units Under the captive route, the government has allocated 198 coal blocks with geological reserves of about 42 billion tonnes to various public and private sector companies Focus on domestic market The demand for metal and metal products is rising in the domestic market with India being a net importer in the metals segment In March 2011, freight charges and taxes on iron ore exports were increased to boost domestic supplies Overseas ventures In search of greater mineral opportunities, an increasing number of Indian mining companies are venturing overseas in a bid to secure stable, long-term supplies of minerals especially in the areas of coal and iron ore Coal India plans to export 10 MT of coal from Mozambique to India in the next 10 years; the company is seeking more licence blocks in Mozambique Notes: MT - Metric Tonnes MARKET OVERVIEW AND TRENDS 17

18 Contents Advantage India Market overview and trends Growth drivers Success stories: CIL, SAIL Opportunities Useful information 18

19 Strong fundamentals and policy support aiding growth Higher demand for metals Policy support Increasing investments Growing infrastructure investments Sustained growth in India s automotive sector Inviting Relaxed FDI norms Allowing private ownership Resulting in Value of M&A deals in metals and mining rose at a CAGR of 138 per cent over Aluminium and coal benefiting from rising power production Reduced customs duty Increasing FDI Rising production of cement increasing demand for coal Notes: M&A - Mergers and Acquisitions, FDI - Foreign Direct Investment GROWTH DRIVERS 19

20 Metals and Mining Power and automotive production fuelling demand (1/2) Sustained growth in India s automotive sector has been driving demand for steel and aluminium Automotives production increased at a CAGR of 13.2 per cent over FY05-12 Passenger vehicles was the fastest growing segment during this period with a CAGR of 14.5 per cent India is expected to become the world s seventhlargest automobile market by 2016 and the third largest by 2030 Total production of automobiles in India (million units) FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 Passenger Vehicle Three Wheelers Commercial Vehicle Two Wheelers Source : SIAM, Aranca Research Notes: FY - Indian Financial Year (April - March) GROWTH DRIVERS 20

21 Power and automotive production fuelling demand (2/2) The power sector accounts for a large share of the consumption of aluminium and coal in the country Power generation in India increased at a CAGR of 6.0 per cent during FY06-12 In the Eleventh Plan, India is estimated to have added around 60,000 MW of generation capacity at an investment of USD11.5 billion Power generation in India (in TWh) To meet growing power demand, the Power Ministry has targeted capacity addition of 85,000 MW in the Twelfth Plan ( ) period FY06 FY07 FY08 FY09 FY10 FY11 FY12p Source : Central Electricity Authority (CEA), Aranca Research Notes: TWh - Terawatt-hour, p - provisional GROWTH DRIVERS 21

22 A fast-expanding construction sector has aided growth in metals demand (1/2) Infrastructure projects continue to provide lucrative business opportunities for steel, zinc and aluminium producers India s infrastructure sector expanded at a CAGR of 15.8 per cent over FY08-11 India s expanding infrastructure industry (USD billion) FY08 FY09 FY10 FY11 FY12E FY13F FY14F FY15F FY16F FY17F Source : Business Monitor International s (BMI) report on infrastructure industry in India Q4 2012, Aranca Research Note: F - forecasts (by BMI) GROWTH DRIVERS 22

23 A fast-expanding construction sector has aided growth in metals demand (2/2) India s residential and non-residential building industry expanded at a CAGR of 10.7 per cent over FY08-11 Residential and non-residential building industry (USD billion) Growth in the sector is set to increase in the next few years; forecasts put the CAGR for FY12-17 at 14.5 per cent Iron and steel being a core component of the real estate sector, demand for these metals is set to continue given strong growth expectations for the residential and commercial building industry FY09 FY10 FY11 FY12F FY13F FY14F FY15F FY16F FY17F Source : Business Monitor International s (BMI) report on infrastructure industry in India, Aranca Research Note: F - forecasts (by BMI) GROWTH DRIVERS 23

24 Rising cement production - contributor to growing coal demand India is the world s second-largest producer of cement; the sector s strong expansion over the past decade has been a key contributor to rising coal demand By FY13, the cement sector is expected to add additional capacity of 92.3 million tonnes Cement production in India (million tonnes) Source: CMA, Edelweiss research, Ministry of External Affairs (Govt. of India), Department of Industrial Production, Aranca Research Note: e - Estimates FY08 FY09 FY10 FY11 FY12e GROWTH DRIVERS 24

25 Factors behind rising cement production in India Increasing number of houses Government support Higher cement production Expanding road construction Large infrastructure projects Source: Aranca Research GROWTH DRIVERS 25

26 India has a distinct competitive advantage over its peers Within the Asia-Pacific region, India is ahead of South Korea and Philippines in the mining sector; at the same time it is in competition with Australia, Malaysia, China, Indonesia and Japan Limits of potential returns Risks to realisation of returns Mining Industry Country structure Limits Market risks Country risk Risks Mining rating India South Korea Japan Philippines Source : India mining report by BMI-Q2 2012, Aranca Research Note: Description of each headline given in the Appendix GROWTH DRIVERS 26

27 Strong policy support gives metal and mining sector a boost Allowing private ownership Government of India is encouraging private ownership for steel operations and other high priority industry Reduced custom duty Government of India significantly reduced the duty payable on finished steel products and has streamlined the associated approval process Relaxed FDI norms FDI up to 100 per cent is permitted under the Automatic Route to explore and exploit all non-fuel and non-atomic minerals and process all metals as well as for metallurgy FDI caps for coal and lignite has been increased to 100 per cent under the automatic route Approved NMP In a positive move for the sector, in 2008, the Indian Cabinet approved the National Mineral Policy (NMP) 2008, to boost FDI in mining Notes: FDI - Foreign Direct Investment GROWTH DRIVERS 27

28 MMDR bill Overview of the MMDR bill GOI approved the new mining bill - the Mines and Minerals Development Bill (MMDR) - on 30 th Sep 2011; the bill calls for mining firms to share either profits or amounts equivalent to royalties with local communities The proposed bill is expected to make it easier to win local approval and smoothen the land acquisition process General restrictions and mineral concessions Reservation of areas for PSUs removed State governments to set up special courts to expedite prosecution in illegal mining Statutory Coordination cum Empowered Committee at central and state levels to decide upon stringent penalties for offences Process of revenue collection and usage Central government to establish National Mineral Fund; respective state governments to establish State Mineral Fund(s) District Mineral Foundation will be set up by the state government which will work for the interest and benefit of persons or families affected by mining related operation in the district and will be managed by a governing council The mining tax collected will be spent within the district Notes: GOI - Government of India, PSUs - Public Sector Undertakings GROWTH DRIVERS 28

29 Foreign investments flowing in; rise in planned expenditure (1/2) Cumulative FDI inflows over Apr Sep 2012 into the metals and mining sector stood at USD8.2 billion FDI inflows into metals and mining over Apr Sep 2012 (USD million) The sector accounted for 4.8 per cent of total cumulative FDI inflows during the period 8,000 6,000 6,726.0 Notes: FDI - Foreign Direct Investment 4,000 2,000 0 Metallurgical Industry 1,071.1 Mining Diamond, Gold Ornaments 24.8 Coal Production Source : Department of Industrial Policy & Promotion, Aranca Research GROWTH DRIVERS 29

30 Foreign investments flowing in; rise in planned expenditure (2/2) Total M&A deal value in metals and mining increased at a CAGR of 138 per cent during In 2011, M&A deal value in the mining sector stood at USD11.2 billion, 292 per cent higher than the corresponding figure for 2010 (USD2.9 billion) Acquirer M&A activities (as of Sep 2012) Target Acquisition Price (USD million) Vedanta Resources PLC Cairn India Ltd (30.4% stake in December 2011) 4,541.9 Sesa Goa Ltd Sterlite Industries 3,911.0 Vedanta Resources PLC Cairn India Ltd (10.1% stake in July 2011) 1,513.2 GVK Power & Infrastructure Ltd Hancock Coal-Queensland Coal 1,260.0 Sesa Goa Ltd Cairn India Ltd 1,175.9 JFE Steel Corp JSW Steel Ltd 1,029.1 Lanco Resources Australia Griffin Coal Mining Co Pty Ltd Source: Thomson Banker, Deal tracker, Aranca Research GROWTH DRIVERS 30

31 Contents Advantage India Market overview and trends Growth drivers Success stories: CIL, SAIL Opportunities Useful information 31

32 Coal India Limited (CIL): Leader in mining industry in India (1/2) CIL signed an MoU with Ministry of Coal in 2011, wherein CIL targets to produce million tonnes of coal Revenues (USD billion) 14.6 CIL also signed an MoU with Shipping Corporation of India in 2010 to create comprehensive end-to-end logistic solutions Notes: CAGR - Compound Annual Growth Rate, MoU - Memorandum of Understanding, FY - Indian financial year (April - March) FY07 FY08 FY09 FY10 FY11 FY12 Source: Bloomberg, Aranca Research Set up in 1967, Coal India Limited (CIL) is the largest coal mining company in India Coal India contributes around 85 per cent of total coal production in India SUCCESS STORIES:CIL, SAIL 32

33 Coal India Limited (CIL): Leader in mining industry in India (2/2) The company's strategic overseas ventures with Colombia and US enabled it to meet India's rising energy demand FY12 Coal production (in million tonnes) CIL plans to invest about USD6.25 billion to increase capacity, acquire new mining projects, machineries and equipment FY11 FY10 FY Government has recently allocated 116 coal blocks to CIL for expansion FY08 FY Non Coking Coal Coking Coal Source: Company Website, Aranca Research SUCCESS STORIES:CIL, SAIL 33

34 Steel Authority of India Ltd (SAIL): A story of steel (1/2) SAIL has entered into a Joint Venture with POSCO, Korea; Kobe Steel Limited, Japan; Rashtriya Ispat Nigam Ltd; Larsen & Toubro Ltd; National Mineral Development Corporation; Hindustan Prefab Ltd; and IRCON International Limited, Turkey SAIL employees bagged the maximum number of Viswakarma Awards declared in Aug Revenues (USD billion) SAIL's expansion plan worth USD15 billion will increase its production capacity from 14 million tonnes per year (current) to 24 million tonnes by CAGR - Compounded Annual Growth Rate Notes: Viswakarma Award is for outstanding achievement or good performance on the part of workers in increasing productivity, quality, safety, working conditions, import substitution etc FY07 FY08 FY09 FY10 FY11 FY12 Source: Company website, Aranca Research Incorporated in 1954, Steel Authority of India Ltd (SAIL) is India's second largest producer of iron ore SUCCESS STORIES:CIL, SAIL 34

35 Steel Authority of India Ltd (SAIL): A story of steel (2/2) It won the Gold Trophy of SCOPE Meritorious Award for R&D, Technology Development & Innovation for Total saleable steel production (million tonnes) It was also awarded the Corporate Social Responsibility & Responsiveness by the President of India in FY09 FY07 FY08 FY09 FY10 FY11 FY12 Source: Company website, Aranca Research SUCCESS STORIES:CIL, SAIL 35

36 Contents Advantage India Market overview and trends Growth drivers Success stories: CIL, SAIL Opportunities Useful information 36

37 Opportunities Untapped market with strong growth potential Scope for new mining capacities in iron ore, bauxite and coal Rapid growth of user-industries to drive demand for metals and minerals India s per capita steel consumption was 55 kg in mid 2011 compared to the global average of 225 kg Rural per capita steel consumption is likely to double from its present consumption of 9.7 kg by 2015 By FY12, a shortfall is expected in domestic supply of steel worth 3-8 million tonnes India has the world s fifthlargest reserve base of bauxite and fourth-largest base of iron ore respectively, and accounts for about 7 per cent and 10 per cent respectively, of total world production India also has the fourthlargest global reserve base of coal, and accounts for 7.5 per cent of the total world production Strong long-term demand from the steel industry is expected to further boost the iron ore industry Increasing power production is likely to catapult demand for coal Booming construction, automobiles, and packaging industries are expected to lend substantial support to the metals and mining sector Note: kg - kilograms OPPORTUNITIES 37

38 Contents Advantage India Market overview and trends Growth drivers Success stories: CIL, SAIL Opportunities Useful information 38

39 Industry Associations Aluminium Association of India 118, 1 st Floor, Ramanashree Arcade 18, M. G. Road Bengaluru, Karnataka Phone: , Fax: aluminium@eth.net Federation of Indian Mineral Industries FIMI House, B-311, Okhla Industrial Area Phase - I, New Delhi Phone: Fax: fimi@fedmin.com Indian Stainless Steel Development Association L -22/4, DLF Phase - II Gurgaon, Haryana Phone: Fax: nissda@gmail.com USEFUL INFORMATION 39

40 Appendix BMI s Mining Business Environment Ratings Market structure: it takes into consideration mining output in USD billion, sector value growth, % y-o-y r, mining sector, % of GDP Country structure: it takes into consideration labour market infrastructure, physical infrastructure r, tax, and scope of state Market risks: it considers metals prices, 5-year, forecast average, metals price forecast, average 5-year growth, regulatory framework, legal framework Country risk: it considers, long-term external risk, corruption, bureaucracy, long-term policy continuity Mining ratings: it shows the overall scores of the above indicators USEFUL INFORMATION 40

41 Glossary CAGR: Compound Annual Growth Rate FDI: Foreign Direct Investment FY: Indian Financial Year (April to March) So FY10 implies April 2009 to March 2010 GOI: Government of India IBM : The Indian Bureau of Mines MoU: Memorandum of Understanding PPP: It could denote two things (mentioned in the presentation accordingly) - Purchasing Power Parity (used in calculating per-capita GDP) Public Private Partnership (a type of joint venture between the public and private sectors) PE: Private Equity USD: US Dollar Conversion rate used: USD1= INR48 Wherever applicable, numbers have been rounded off to the nearest whole number USEFUL INFORMATION 41

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