India Mining Report Q4 2009

India is a country rich in natural resources, with around 24 different minerals including bauxite, copper, iron, gold, lead, manganese and coal occurring in almost half of the county’s total land mass of 3.2mn square kilometres. Despite being resource rich, a lack of updated infrastructure, labour restrictions and government red tape is preventing India from establishing itself as a mining country in the same league as its counterparts overseas. However, developments are in place to attract private investment from foreign and domestic countries and India is poised for significant growth within its mining sector over the coming years.

In July 2009, Reuters reported that the country had experienced an 18% rise in iron ore exports during the month of May compared with the previous year to 10.607mn tonnes according to data collated from by the Federation of Indian Mineral Industries. This was an encouraging increase from the fall in April’s exports by 20.6% to 9.157mn tonnes. Approximately half of India’s annual production of iron ore; approximately 200mn tonnes, is exported with a significant proportion of exports arriving in China. Exports for the fiscal year ending March 09 were up slightly by 1.4% to 105.764mn tonnes.

The annual budget, announced in July 2009 contained measures which would have significant impact on the gold bullion industry. Finance Minister Pranab Mukherjee announced that tax would be reimposed on gold, as well as an increase on gold and silver customs duty. Import duty would be increased from INR100 per 10g to INR200 per 10g. The announcement was expected to further impact the falling imports of gold into India which had been decreasing since the beginning of the year. In July 2009 imports of gold into India were down 75% to just 51 tonnes for H102 which had been mostly affected by the increase in price of the commodity and scrap sales of gold.

There was a stark contrast between the importing of 18 tonnes of gold in January 2008 to just 1.8 tonnes in the same period of the following year. Since 2000 India has been importing around 400-800 tonnes of gold each year and 2009 looks set to be one of the worst years for imports with the half yearly result to date. The diamond industry was still being affected by the global economic downturn, and in May 2009 DeBeers announced a cut in production of rough diamonds by over 90%. The Diamond industry in Surat would be notably affected by this development, as Surat depends on as much as 60% of the INR300bn crore (US$6.24bn) annually imported to come from DeBeers. In July 2009, however there was a positive development for the industry in India. A consortium of 60 diamond exporters in India: Diamond India (DIL) are the first company in the world, apart from DeBeers group Diamond Trading Company; to negotiate the procurement of rough diamonds directly from Namibia. This is a significant to Indian exporters who are expected to benefit with savings of 5-7%, a notable amount for certain exporters whose margins may only be 3%. Traditionally, exporters from India traded through the Belgium city of Antwerp which procured diamonds from African miners. By going directly to the source Indian exporters avoid commission charges as well as higher freight costs. Coal falls far short of demand despite the natural resources, and BMI believes the government and companies have to address the improvement of production within this sector as demand for power continues to soar.

In May 2009, coal minister Sriprakash Jaiswal stated that the Prime Minister had a 100- day programme outlined to help boost the economy in the current market conditions. Part of this programme included boosting coal production by improving efficiency and approval time for environmental permits. State owned coal mining company Coal India stated that faster approvals for permits within the mining industry would significantly help accelerate production.

In June 2009, the government expected an independent regulator to be established within six months and it is hoped that such a move will attract private investment of INR118,000 crore by increasing production to 1,061mn tonnes per annum by 2025 according to The Times of India. Jaiswal favoured a simple model of a minimum price being set based on government evaluation of coal quantity in a mine, then offering it to the highest bidder, removing the need for government supervision of production and sale, thus minimising opportunities for corruption. Though the National Mineral Policy will no doubt boost growth within the mining industry, there here has been criticism about the effectiveness long term on environmental and social issues. Concerns were voiced by the Centre for Science and Environment in June 2009 which considered the long-term social and environmental impact of the Indian mining industry. The organisation believes that the policy, set to attract foreign investment and new technology into the sector; will promote exploitive mining practices, and further exacerbate the problem of poverty in the tribal-inhabited, resource rich areas.