Indian Economy News

Start-ups eye opportunities in mining sector

Mumbai: Mining start-ups are mushrooming in India as the country aims to boost production of natural resources to spur economic growth.

These companies, offering technical assistance, consultancy, research and even financing services, are betting on India’s thrust on power production, infrastructure development and indigenous manufacturing to raise the demand for minerals such as coal, iron ore and bauxite.

“Mining for iron ore is only around 200 million tonnes (mt) while for coal it is about 400 mt. This will double in the next five-six years with the auctions and the provisions of the Mines and Minerals (Development and Regulation) Act,” said Monica Bachchan, director at Metalogics Projects Management Services Pvt. Ltd.

“Further, the potential for mining in the country is at over 500 billion tonnes, which will slowly open up in the following years,” Bachchan added. She and partner Bharti Mishra, both in their 20s, provide consulting and information services on mining and auctions.

Projecting similar growth, Virginia Mining Resources, a company started by former Indian Administrative Service officers and private mining industry experts in August 2014, sees mining-sector revenue at $30-35 billion in the next five years, from $5.5-7 billion now.

“With the slew of reforms expected to vitalize the sector, we believe a reasonable return on investment is expected, subject to conducive regulatory environment,” said Vineet J. Mehra, managing director of Virginia Mining Resources. “Our ultimate aim is to be a pure-play miner. We want to be another Rio Tinto originating from India.”

This start-up has clients such as Adhunik Metaliks Ltd, Adhunik Power and Natural Resources Ltd, GVK Power and Infrastructure Ltd, Dalmia Bharat Ltd, Essar America, Essar Algoma, Essar Power Ltd and JSW America to whom it provides consulting, exploration, project management, mine management, audit, financing, reclamation, equipment selection and other geological services.

“Contract mining is emerging as a good business opportunity,” said Rakesh Arora, managing director and research head at Macquarie Capital Securities (India) Pvt. Ltd. “With reforms in the mining sector, the growth rate is expected to pick up sharply and the need for specialist mining companies is going to increase.”

Two other start-ups have equally strong beginnings—one of them is already a coal block owner and the other got incorporated four years ago.

Araanya Mines Pvt. Ltd, incorporated on 12 January with a paid-up capital of only Rs.5 lakh, won the Lohari coal block in Jharkhand for Rs.2,438 a tonne in the government’s coal block auctions in March.

Veer Resources and Projects Pvt. Ltd, an early starter, was incorporated in May 2011 with a paid-up capital of Rs.1 lakh for mining and quarrying.

Thin margins

Competition is already intensifying in the sector owing to the sheer number of start-ups in the midst of larger companies such as the Aditya Birla Group’s Essel Mining and Industries Ltd and Adani Mining of the Adani Group.
“The big consultancies in this sector have dropped their tariffs, so the smaller ones like ours have to survive on minimal margins and at times with no profits,” said Bachchan of Metalogics. “We are sure that the market will open up soon and times will change for us.”

That said, companies still have rosy projections.

“We are expecting revenue of $10-12 million and we have a sufficient incoming order book to back it up,” said Mehra of Virginia Mining, which is bidding for two large mining projects in the country that would require it to raise significant debt.
Both Mehra and Bachchan said a special policy for junior miners and creation of a skilled workforce in the mining sector would be helpful for future growth.

According to data from the mines ministry, India has approximately 316 iron ore mines and 556 coal mines, several of which operate in the country’s central and eastern regions, bastions of Maoist rebels.

The mining sector has seen a turbulent past as many iron ore mines were closed until a few years ago owing to illegal mining and environmental degradation. Coal mines also saw troubled times as the Comptroller and Auditor General of India’s office accused the government of allocating coal blocks in an inefficient manner during 2004–09.

With legal challenges behind it, the government is pushing the sector to produce more so that India can be self-sufficient in minerals.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.

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