Winning.

In challenging markets and beyond.

Sustainable mining to green steel

making

February 2011
Sustainable Mining to Green Steel Making
The Path to Choose

Contents

Iron ore and coal mining. Interesting times. Page 02

The proposed amendments. Challenges to the miners. Page 05

Sustainability frameworks. The directions. Page 09

Deloitte contacts Page 12

1 Winning. In challenging markets and beyond. © 2011 Deloitte Touche Tohmatsu India Pvt. Ltd.
 Iron Ore & Coal
Mining.
Interesting Times.
Iron ore and coal mining in India – interesting times

Steel prices are Indian States Iron ore & coal Government has
heading inclined to curb mine allocations macroeconomic
northwards exports of iron likely through objective of
again. ore. competitive bid. inflation control.

Global and Dependence on Land acquisition New business

domestic imports for met has become key models for mine
demand is coal in near in project development
picking up. total. implementation. have emerged.

New and Met coal prices Environmental Monitoring and

existing plants are forecast to and forest controlling
are looking to be an all time clearances are carbon footprint
secure supplies. high. being reviewed. is being done.

Miners’ financial Asset Acquiring and New technology

performance acquisitions in retaining talent adoption to help
better than steel iron ore and met has become a reduce met coal
makers. coal heating. concern. imports.

3 Winning. In challenging markets and beyond. © 2011 Deloitte Touche Tohmatsu India Pvt. Ltd.
 Sustainable development is at the core

Voluntary Mandated & Social

and marginal compulsory partnership
contribution contribution approach

Current state in mining industry

• On time and correct payment of
taxes
• “Voluntary” contributions for local
infrastructure
• Focus on philanthropy
• Mono-industry towns provide a
unique CSR context

4 Winning. In challenging markets and beyond. © 2011 Deloitte Touche Tohmatsu India Pvt. Ltd.
Proposed Amendments.
Challenges to the
Miners.
Captive mine allocation

• Policy on allocation - competitive bidding or first-come-first-serve or 'beauty

parade‟?
• Modality of bidding - While competitive bidding has been talked about and look
likely to be implemented, whether it will be on revenue/profit share or lump sum
upfront payment or a combination.
• Valuation - assets of minerals with limited exploration will cause issues in
valuation - with bids reflective of information asymmetry
• Impacts of bidding on the final product of the value chain and mitigation from
the inflation management perspective.
• Risks
– Competitive bidding can raise costs of production
– Lack of experience and expertise
– Forced backward integration can be organizationally tough
– Cost of procurement versus cost of mining

6 Winning. In challenging markets and beyond. © 2011 Deloitte Touche Tohmatsu India Pvt. Ltd.
Competitive bidding – post allocation risks

• Monitoring of timely and planned development - bidding process can motivate

investors to take the best out soon, and not follow scientific mining
• Development of infrastructure for mines - if government fails to develop the
backbone, the investor will have no recourse
• Land acquisition, rehabilitation and resettlement issues - mineral blocks need to
packaged with these preparatory works for the bidders to comfortably bid and
for the government to get better valuations of mineral blocks
• Environmental and forest clearances - bidders wouldn't wish to take the risk of
project delays or turn downs on these accounts when they have invested in
allocation
• Market for assets - bidders should be able to transfer lease so that liquidity of
asset is maintained. And, also government's intent of actual development of
mines is not hampered.

7 Winning. In challenging markets and beyond. © 2011 Deloitte Touche Tohmatsu India Pvt. Ltd.
Profit share with project affected people

• Pros
– Projects can get „social license to mine‟
– Delays and cost over-runs can be checked
– Local goodwill for the project‟s financial performance

• Cons
– New and marginal projects may have investment issues
– Foreign investments may be affected
– Substantial rise in cost of production for existing miners
– Likely profit-shifting
– Lowering of voluntary contributions

8 Winning. In challenging markets and beyond. © 2011 Deloitte Touche Tohmatsu India Pvt. Ltd.
 Sustainability
Frameworks.
The Directions.
Sustainability framework

• Acknowledge the importance of corporate accountability – economic,

environmental and social
• Establish mechanisms to monitor and assess corporate practices
• Strengthen public access to information
• Send the right messages
• Empower local communities
• Make clean production the required standard

10 Winning. In challenging markets and beyond. © 2011 Deloitte Touche Tohmatsu India Pvt. Ltd.
Sustainability Process

Strategize & Implement & Report &

Plan Review Communicate

• Mining companies have • Greater success in • Mining companies have

taken initiatives implementation than begun reporting
review
• Made commitments for • Reports have typically
sustainability programs • Focus on creating new been ‘audit’ reports rather
facilities than than a message to
• Lack systematic strengthening existing engage
approach in many cases, ones
particularly the • Lack of communication
government owned • Lack of measures of may be the reason for
companies effectiveness of spending mining projects facing
resistance

11 Winning. In challenging markets and beyond. © 2011 Deloitte Touche Tohmatsu India Pvt. Ltd.
Contacts
Contacts

Dipesh Dipu
Director | Consulting | Mining & Metals
Main: +91 (0) 40 4031 2000
Direct: +91 (0) 98495 53404
Email : ddipu@deloitte.com

Deloitte Touche Tohmatsu India Pvt. Ltd.

1-8-384 & 385, 3rd Floor, Gowra Grand,
S.P. Road, Begumpet,
Hyderabad 500 003
India

13 Winning. In challenging markets and beyond. © 2011 Deloitte Touche Tohmatsu India Pvt. Ltd.
Contacts

GUIDE Leader

V. Namasivayam vnamansivayam@deloitte.com +91 (0) 80 6627 6112

Energy & Resources Leadership

Debasish Mishra debmishra@deloitte.com +91 (0) 22 6619 8725

Energy & Resources Leadership

Shubhranshu Patnaik spatnaik@deloitte.com +91 (0) 124 679 2015

14 Winning. In challenging markets and beyond. © 2011 Deloitte Touche Tohmatsu India Pvt. Ltd.