India Mining Industry Update Quarter 1 2012

Includes 3 FREE quarterly updates
India hosts a wide range of globally significant mineral resources, ranking among the world's top five
nations for its core competency commodity reserves of coal and iron ore. Iron ore reserves are estimated
in the region of 23bnt (billion tonnes) and account for 6% of global reserves, while coal reserves are
reported to be around 255bnt. India is the world's third largest producer of coal, fourth largest producer of
iron ore and the fifth largest producer of bauxite. However, only 10% of the country's landmass has been
explored, due primarily to significant regulatory and bureaucratic hurdles.
We expect India's mining industry value to reach US$57.2bn by 2017, marking an annual average growth
rate of 4.8% from 2011 levels. Growth will continue to be curtailed by India's poor operating
environment. A bright spot, however, is the increasing number of Indian companies venturing overseas to
secure stable, long-term supplies of minerals such as coal and iron ore in a bid to meet fast-rising
domestic demand.

Despite the potential passage of the 2011 Mines and Mineral Development and Regulation (MMDR) Bill
on the horizon, which seeks to improve transparency and introduce better legislative environment for
attracting mining investment, we remain wary of calling for a sea change in the country's mining industry.
The pervasiveness of corruption, vital regulatory and bureaucratic obstacles in India will continue to
prevent mining companies from achieving their full production capacity. In the past, mining
permits/licences are issued contingent on success in the reconnaissance phase. This practice exposes firms
to high levels of risk. However, the MMDR bill would allow for the granting of non-exclusive
reconnaissance licences and high-tech reconnaissance/exploration licences based on ability and intention
to develop an area. In addition, mining companies would be required to submit and display all data
pertaining to the granting, extension, termination and planning of operations in the public domain.
The bill also calls for a system for bidding licences; this would create a market for these licences,
increasing transparency. The current system of 'first-come, first-served' in distributing natural resources
for development is fraught with potential conflicts of interest and can be easily abused by officials. As of
April 2012, the Indian government decided to still distribute natural resource assets through this manner,
despite a Supreme Court ruling stating that all national resources must be distributed only through
auction.

Consumption To Continue Outpacing Production
India – Coal Production, Consumption & Balance (mnt)
Source: BMI, EIA
India's mining sector is highly stratified. There are a number of giant, mostly state-owned mines that have
an outsized impact on total output, in addition to the existence of a large number of small and inefficient
mines operating illegally. According to Austrade, 5% of operating mines in India produce about 50% of
the country's mineral output. Given the sector's strategic and economic importance, there is significant
government involvement, with the sector dominated by state-owned companies or public sector
undertakings (PSUs) such as National Aluminium Corp (NALCO), Steel Authority of India Limited
(SAIL), National Mineral Development Corp (NMDC) and Coal India. These four account for around
85% of India's total value of mineral production and are the main producers of key commodities such as
coal, iron ore, aluminium, copper and gold.