Executive Summary India Mining Report Astra Mining 14.12.10 Australia India Indonesia Singapore International Head Office Level 11, 82 Eagle Street, Brisbane, QLD 4000, Australia For more information visit www.salvaresources.com Or call +61 (0) 7 3211 9911
Table of Contents 1.0 INDIA S MINING SECTOR: THE STORY SO FAR... 3 1.1 OVERVIEW... 3 2.0 GEOGRAPHICAL DISTRIBUTION OF RESOURCES... 3 3.0 MAJOR MINERALS IN INDIA A COMMENTARY... 4 3.1 COAL... 4 3.2 IRON ORE... 4 3.3 GOLD... 5 3.4 DIAMOND... 5 4.0 CHALLENGES IN INDIAN MINING INDUSTRY... 5 4.1 TECHNOLOGY AND CAPITAL ISSUES... 5 4.2 SOCIO-ECONOMIC MISBALANCE... 6 4.3 REGULATORY HURDLES... 6 5.0 REGULATORY REFORMS: THE NEED OF THE HOUR... 7 INTRODUCING - COMPANY BACKGROUND... 8 Page 2
1.0 India s Mining Sector: The story so far 1.1 Overview India is a mineral-rich country with huge reserves of minerals such as iron ore, thermal coal, bauxite, limestone, dolomite, gypsum and mica; sufficient reserves of lignite, chromites (metallic grade), manganese, zinc and graphite; while availability of gold, silver and diamond are scarce. It has the world s fourth largest coal reserves and fifth largest iron ore reserves. The Indian mining and mineral production sector has posted outstanding growth of 7.9% during 2009-10 over the previous year. The mining industry in India contributed 1.9 % of total GDP (April September 2009-10 est.) and is valued at approximately US $28.4 billion in production of ore and minerals. Coal and iron ore contribute more than 50% of the total production value. The pace of growth in production of minerals and ore is expected to accelerate as the demand from the manufacturing sector continues to expand due to India s huge domestic consumption requirements. However, this promise in the Indian mining industry is tempered by structural challenges which include low levels of technology penetration, environmental issues, socio-economic factors and regulatory frameworks. The Government of India has moved to tackle these and has been working towards a revised mining law which is expected to provide an impetus to the current exploration and encourage development of mines. 2.0 Geographical distribution of resources In value terms wise offshore area constitutes the maximum share of approximately 18% of the national output. Apart from offshore reserves, Andhra Pradesh followed by Gujarat, Jharkhand, Madhya Pradesh, Rajasthan, Orissa, Karnataka, Maharashtra, Tamil Nadu, Chhattisgarh and West Bengal has the largest share of mines in India. These 11 states along the western, southern and eastern parts of India, together accounted for 92.4 % of the mines in India in 2009-10. These mines cover all minerals from coal to gold and diamond. Page 3
3.0 Major minerals in India A commentary 3.1 Coal Coal is the most important fuel in India s energy mix, accounting for over 50% of India s electricity requirements. India has significant domestic resources currently estimated to be around 230 billion tonnes (CMPDIL, Apr 2010). However, this coal is generally of low calorific value and has high ash content. The Indian power and cement sector are the main consumers of this coal. Coking coal is in extremely short supply in India, forcing imports of almost 38 million tonnes this fiscal year. Both coking coal and thermal coal deposits are located generally in the eastern part of India. 3.2 Iron Ore As per UNFC reporting code on 01-04-2005, India has a huge resource base of almost 25.2 billion tonnes of iron ore comprising of hematite and magnetite. Of the total reserve base of 7.1 billion tonnes, hematite accounts for 7.0 billion tonnes, and magnetite 0.06 billion tonnes and reserves are mainly located in the states of Orissa, Jharkhand, Andhra Pradesh, Chhattisgarh, Karnataka, Goa and Tamil Nadu. The quality of Indian iron ore is generally high grade (62.5% Fe content and above). Presently India exports almost 50% of iron ore production to China as demand has been strong from Chinese buyers. Given the expansion plans of the domestic steel producers, it is expected that demand for iron ore will increase at a faster pace. Recent moves by state governments to ban illegal mining and stop transportation of illegally mined ore have affected overall iron ore exports. Around 85-90% of the total iron ore export traffic is transported using rail, while the remaining is through road. Key major ports exporting iron ore are Mormugao, Vishakhapatnam, Paradip, New Mangalore, Haldia and Chennai; whereas non major ports like Karwar and Belekeri also play a significant role. Major challenge for most of the Indian ports is the urgent need of modernization. Very few ports like Goa, Chennai and Vizag have facility of mechanical loading but the system does not operate at its rated capacity. The loading equipment deployed at major ports like Paradip and Haldia port are quite old and they are inefficient by international standards. Poor infrastructure at ports leads to high Page 4
throughput time, high turnaround time, slower loading rates, and delays due to breakdowns. This results in port congestion and overall high operating and transport costs. Capacity addition and mechanization of ports are the need of the hour, in order to handle more and more commodity in near future. 3.3 Gold Although India is the largest gold consumer and importer in the world, Indian gold production is insignificant. Its history of gold mining notwithstanding, gold mining in India has not picked up. As serious exploration has not been carried out, new mines have not been developed. There exists immense potential to carry out Greenfield gold exploration and also to develop the existing closed mines using appropriate new technologies. Hutti Gold Mine Company is currently, India's sole producer of primary gold. 3.4 Diamond The contribution of India in global diamond production has fallen significantly and now diamond production from Indian mines is negligible when compared to world diamond production. Majhgawan, (located in Madhya Pradesh) owned by National Mineral Development Corporation Limited (NMDC),is the only organized and mechanized diamond mine in India 4.0 Challenges in Indian mining industry 4.1 Technology and capital issues The mining industry in India has not been able to develop to its full potential, due to inefficient mining practices, the dominance of government agencies, and protection strategies adopted by the Government of India. In India, mineral exploration activities are predominantly conducted by government agencies, who are crippled by obsolete technology, shortage of technical man power and restrictive budgets. Globally, the spending on exploration programs for non ferrous minerals is almost US 12 billion whereas in India it is only US 5 million. Overall India s potential for minerals has not yet been tapped. The Indian operational mines are small compared to world standards. The mining industry is Page 5
characterized by a large number of small operational mines with a few large ones and these cause inefficiencies of economies of scale to slowly creep in. 4.2 Socio-economic misbalance One of the biggest challenges is the disparity between the growing mining industry and the lower economic growth of local population. While the mining industry provides considerable opportunities for economic development, the benefits of growth have not been transferred to the locals. A number of these concerns have been noted to be arising on account of the environmental concerns but in most of the cases, resistance is from the local community, who, in turn expected to benefit from jobs and other income generating opportunities which mining activities may create. This discontent is visible in the presence of subversive activities in the mining regions in India. 4.3 Regulatory hurdles The major hurdle facing mining projects is obtaining all the regulatory approvals. For commencement of mining operations in India, a mining company has to obtain consent from various statutory bodies starting from approval of drilling plans, forest clearances, environment clearances, clearances from state pollution control boards, approval of mine plans by the Indian Bureau of Mines, grant of mining lease by state government, land acquisition clearance, permission for using heavy earthmoving equipment from the Director General of Mine Safety. This process is often arduous and time consuming, causing major delays in project operations, resulting in potentially huge cost blowouts to the project. With a view of promoting investment and sustainable mining, the Government of India has made amendments to the proposed Mines and Mineral Regulation and Development Bill (MMDR), which will not only smooth the process flow but also bring transparency to the granting of mineral concessions. Page 6
5.0 Regulatory reforms: The need of the hour The proposed MMDR bill in its current form (ver. June, 2010) will encourage private participation and foreign investment in the mining sector. The auctioning of mining blocks through a bid evaluation process will certainly bring a level playing field for private companies in India. To ensure participation of local inhabitants and proper sharing of profit, the draft bill guarantees an assured annuity of 26% share of profit (PAT) earned by the miners to the local population. Thus, before the draft bill provisions are finalized and take shape of an act, a balance need to be achieved between the rights of local population and the growth of mineral industry as a whole. Disclaimer: Astra Mining Ltd (Customer) hereby acknowledges and agrees that Salva makes no representation or warranty, express or implied, as to the truth, accuracy, relevance, completeness or usefulness of the goods or services, whether oral or written; communicated to the Customer, and that Salva shall have no liability, in negligence or otherwise as a result of the Customer s use of or reliance upon the Information. Salva accepts no responsibility for any interpretation, opinion or conclusion that the Customer may form as a result of examining the goods or services. The Customer acknowledges that any opinions expressed by Salva are based on the knowledge and approach of the persons forming the opinion at the date that the opinion was formed and may have ceased or may in future cease to be appropriate in light of subsequent knowledge or attitudes. Subject to any applicable legislation affecting the right of Salva to limit its liability, Salva shall not be liable in any way whatsoever to the Customer or to any other person or entity for any loss or damage howsoever caused which the Customer or any other person may suffer whether or not such loss or damage arises as a result of the goods or services or any defect in those goods or from the failure or omission on the part of Salva (or any of its representatives, agents or employees) to comply with any obligation at law Page 7
INDIA MINING REPORT ASTRA MINING Table of Contents 1.0 Scope of Work... 6 2.0 Executive Summary... 7 3.0 Mineral Resources in India: Current Scenario... 9 3.1 Resource Categorization... 10 3.2 Future needs and potential investment avenue... 12 3.3 Production status of minerals in India... 13 3.4 Mineral Exploration in India:... 13 3.5 Mineral Policies and Mining Legislation:... 16 3.6 Coal Policies:... 17 3.7 Various State Mineral Policies:...20 4.0 Mining Legislation... 25 4.1 Mines and Minerals Development & Regulation Act, 1957 (MMDR).. 27 4.2 Draft MMDR Bill 2010...28 4.3 MCR, 1960... 37 4.4 MCDR, 1988... 38 4.5 Offshore Areas Mineral (Development and Regulation) Act, 2002... 39 4.6 Procedure for obtaining mineral concession...40 4.7 Coal Mine acquisition process in India...42 4.8 Road Map for commencement of mining operations in India... 43 4.9 Other Major Rules and Act Applicable to Mining Industry in India... 45 5.0 Foreign Direct Investment in mining... 46 6.0 Iron Ore... 51 6.1 Iron Ore resource... 52 6.2 Reserve and Resource Base in India... 54 6.3 Specification of Indian Iron Ore... 59 6.4 Statewide Distribution of Iron Ore:... 60 6.5 Iron ore beneficiation:... 62 6.5 Key Fe grade for deposits located in Major iron ore producing states 63 This Document contains confidential and commercially sensitive business information of Salva Resources Pty Ltd. This Document may not be reproduced in part or in whole without
6.6 Iron ore -demand and supply... 64 6.7 Iron ore producers in India... 68 6.8 Iron ore export... 68 6.9 Chinese Iron ore import regulations... 69 6.11 Port Infrastructure... 72 7.0 Indian coal sector...80 7.1 Coal Resources in India...80 7.2 Categorization of Resources... 81 7.3 Coal and India s Power Sector...82 7.4 Indian domestic Coal Production... 86 8.0 Gold...88 8.1 Gold Resources and Gold Mining in India...88 8.2 Gold Belts in India... 89 8.3 Hutti Gold Mines Limited... 90 8.4 Ore reserves estimated as on 01-04-2009:... 91 8.5 Recent Development in Gold Exploration in Country:... 92 8.6 Demand and Consumption... 94 9.0 Diamond... 95 9.1 Diamond Resources in India... 97 9.2 Operating Diamond Mine in India... 98 9.3 Diamond processing industry in India... 99 10.0 Pre Cambrian geological similarities between India and Australia... 100 10.1 Geological comparison of India and Western Australia... 101 11.0 Epilogue... 113 References:... 114 This Document contains confidential and commercially sensitive business information of Salva Resources Pty Ltd. This Document may not be reproduced in part or in whole without
List of figures Figure 1: Type of mineral resources, India... 9 Figure 2: Resource categorization... 10 Figure 3: Contribution of states... 13 Figure 4: GDP Growth Vs Mining Growth... 14 Figure 5: Expenditure on mineral exploration...15 Figure 6: Mining legislations...26 Figure 7: Mineral Concessions types and its attributes...31 Figure 8: Stipulated bid evaluation criteria for state government... 31 Figure 9: Transfer of mineral concession rights... 32 Figure 10: Features of RP and PP... 33 Figure 11: Process roadmap; Mining lease... 42 Figure 12: coal mine acquisition process, India... 43 Figure 13: FDI in Mining Sector... 47 Figure 14: Iron ore types...52 Figure 15: UNFC building blocks...53 Figure 16: Iron ore reserves in India...56 Figure 17: Iron ore distribution in India... 56 Figure 18: Magnetite resource, statewide distribution, India... 558 Figure 19: Hematite resources, statewide distribution, India...58 Figure 20: Iron ore, Fe % distribution, India...62 Figure 21: Grade wise distribution, Iron ore, India... 64 Figure 22: Steel consumption vs Production... 66 Figure 23: Per capita steel consumption, India...65 Figure 24: Iron ore production, India... 68 Figure 25: New Mangalore; Google Earth View...73 Figure 26: Karwar Port, Google Earth View...74 Figure 27: Haldia Port: Google Earth View... 77 Figure 28: Indian power sector; coal sources... 83 Figure 29: Indian cement sector; coal sources... 84 Figure 30: Coal production trend, India... 86 Figure 31: Coal producing companies, % share... 86 Figure 32: Gold resource, India... 88 Figure 33: Gold production, HGML... 91 Figure 34: Gold production and imports, India... 94 Figure 35: Diamond resources and grades, India... 97 Figure 36: Export-Import, diamonds, India... 99 Figure 37: Distribution of earth's oldest rocks (Condie, 2005)... 100 Figure 38: Distribution of micro continents of different geological time (Saha, 1987)...99 Figure 39: Distribution of crustal analogues from Australia... 106 Figure 40: Distribution of mineral deposits in Archaean and Proterozoic Australian provinces... 109 This Document contains confidential and commercially sensitive business information of Salva Resources Pty Ltd. This Document may not be reproduced in part or in whole without
List of tables Table 1: Number of reporting mines... 9 Table 2: potential investment avenue... 12 Table 3: Exploration status, India... 16 Table 4: Proposed area for mineral concession... 28 Table 5: Tenure for mineral concession... 29 Table 6: Mining lease, provisions... 35 Table 7: Road Map; Mining operations, India... 45 Table 8: Direct Taxes... 48 Table 9: Indirect Taxes... 49 Table 10: Other Taxes... 50 Table 11: Royalty rates..50 Table 12: Common Type of Deposits, UNFC... 54 Table 13: Specification of Indian Iron Ore... 59 Table 14: Geographical Distribution, Iron ore... 62 Table 15: Indian steel sector Vs Japanese and Chinese Steel Sector... 65 Table 16: Iron ore exporting ports, major attributes... 78 Table 17: Statewide distribution of Coal,... 81 Table 18: Coal Types, India... 81 Table 19: Coal Types and Grades... 82 Table 20: Ore reserves, HGML... 91 Table 21: Reserves, Majhgawan Mine... 98 List of maps Map 1: Iron ore distribution, India... 57 Map 2: Ports, India... 72 Map 3: Mormugao port...74 Map 4: New Mangalore port....75 Map 5: Chennai port 77 Map 6: Paradeep port... 77 Map 7: Visakhapatnam port... 78 Map 8: Coal resource, India... 85 Map 9: Gold prospects, India 90 Map 10: Diamond prospecting areas, India... 96 This Document contains confidential and commercially sensitive business information of Salva Resources Pty Ltd. This Document may not be reproduced in part or in whole without
Introducing Salva Resources - Company Background Salva Resources is a global provider of key technical and commercial services for exploration, mining and investment companies. These services extend across the entire project development timeline: Exploration Management Geological Modelling Mine Planning Site Safety Management Resources Marketing Due Diligence and other commercial services. Salva s growth has been realized through our strong relationships built upon delivering key technical services on budget and on time. Our rapidly expanding exploration team is currently involved in one of the world s most prominent coal exploration programs and welcomes the opportunity to provide its skills to Astra Mining Ltd. Salva maintains a reputation based on the ability to work to best industry standards on projects of all sizes and complexities. This level of service is made possible through the combination of a highly credentialed technical team with the training, experience and ability to validate a project s commercial viability and help drive it forward. For more information on Salva Resources technical and commercial capabilities, contact Todd Wild (Business Development Manager) on +61 7 3211 9911 or todd.wild@salva.com.au. Page 8