Capital expenditure in the domestic mining sector is expected to witness a substantial increase in the next financial year. Strong demand from industries, coupled with a cyclic high in global commodity prices, could also mean that spending for the next year may surpass pre-crisis levels.
Coal India (CIL), the world's largest coal mining company, has lined up between Rs 4,200-4,300 crore as capital expenditure for the coming financial year, said top officials. This will be the biggest ever domestic outgo for the miner. In the current financial year, the PSU had set a limit of Rs 3,800 crore for its operations in the country.
“In a particular year, this is will be the highest that CIL has ever spent. A substantial amount will also go towards procurement of large equipment and maintenance of the existing ones, as well as developing key infrastructure, such as railway siding,” a CIL official said.
It’s no different for NMDC, the country's largest iron ore producer. "Our capex for next year is pegged at Rs 3,300 crore, that's the highest in NMDC's history," said Rana Som, chairman and managing director, NMDC.
Most of that money will be invested in the miner's proposed steel project, the other cost heads being mines and pellet plant. "The entire spend will be financed through internal accruals," Som said, adding that NMDC is on an expansion spree, a reflection of good times.
With demand for coal outstripping supply in India there is increasing pressure on CIL, which accounts for about 82 per cent of domestic coal output, to ramp up production rapidly.
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“Our expected spending on equipment next year will be unprecedented. Since production has to go up, there is no alternative. We have to invest huge amounts to upgrade small-scale equipment and move into larger scale operations,” an official said.
Sainik Mining, one of the country’s biggest contract mining firms, expects further growth in business with the PSU going ahead.
“It is cheap for them (CIL), as contract mining brings down cost (of mining) to a fourth of what it would be otherwise. The mid-level equipment is doing better than the large scale ones, but we will look at leasing more equipment in the next year. We expect a growth of about 10 per cent,” said Rudra Sen Sindhu, director, Sainik Mining.
Aditya Birla Group company Essel Mining, which is exploring ventures in contract mining, is also backing itself to do more with state-run firms. “Large number of captive coal blocks that have been allocated (to the private sector) are in the no-go areas, and while the government will have to find a middle path, nothing much will happen in the first six months of the next year. But we are bullish on the public sector,” a senior official said.
Not just miners, user industries are also ramping up production. “Mines production has to be 1.25 per cent higher than the production capacity at the plants, that's the ratio," a SAIL (Steel Authority of India Ltd) official said. SAIL will double it capacity in 2012-2013, but some of the increase is likely to go onstream next year.
Tata Steel is already at it and will commission its additional three million tonnes of steel capacity in Jamshedpur next year. Multinational engineering firm Sandvik, which supplies equipment, tools, service and technical solutions for the mining industry, anticipates large projects to get going in the next financial year, thereby driving spending.
“In the iron ore industry, big players have consolidated their operations. We are targeting 2011, as a lot of large projects are in the offing and it should be a big turnaround year. The cash crush has eased out since last quarter and things are moving head. We are looking at more that 50 per cent growth in our surface mining segment next year,” an official said.
There are, however, serious challenges the sector faces. Apart from environment and forest clearance issues, which have marred several large projects in recent months, problems surrounding land acquisition and insufficient infrastructure continue to dog the mining industry in India.
The proposed amendment in the Mines and Minerals (Development and Regulation) Act, which is likely to bring substantial changes in the functioning sector, also need to be endorsed and enacted. Clearly, policy matters at the Centre will chart the miners' course, going forward.