BMI View : We expect a swathe of Indian companies to venture overseas in the pursuit of copper, coal and iron ore as the economy experiences rapid growth and regulation restricts domestic investment opportunities. We expect Africa to become the key destination for Indian mineral sector investment as the continent is rich in high-grade untapped reserves that India will need as the economy grows.
In line with our expectations, chronic power shortages and a domestic shortfall in coal prod uction combined with significant regulation have encouraged an increasing number of Indian companies to venture abroad in search of mining opportunities. C ompanies such as Coal India Limited (CIL), Vedanta Resources and Tata Power have continued to hunt for investment opportunities in other cou ntries as they seek to plug the growing deficiencies of key minerals , most notabl y c oal, copper, tin and iron ore . S tate-run CIL has recently proposed the signing of a memorandum of underst anding with the South African government in a bid to establish a wholly-owned subsidiary for the development of coal mines . Desp ite holding the largest extractable coal reserves in the world, at approximately 22bnt (billion tonnes), the company has struggled to boost output due to failure in obtaining the necessary environment and regulatory clearances.
|India - Coal Production, Consumption & Balance (mnt)|
Mounting Shortages As Imports Become Increasingly Threatened
C oal consumption in India has c ontinued to outstrip production over the past decade, to reach a deficit of 137mnt (million tonnes) in 2011. We expect the growing shortfall in coal output to persist over the coming years and do not envisage a return to surplus anytime soon. Although the country has turned to imports to support its domestic consumption needs, we highlight that re cent policies implemented in Australia and Indonesia , which together account for almost 70% of India ' s imported coal, is a genuine cause for concern. The former's imposition of carbon taxes could discourage investment while the latter threatens to ban exports of low grade coal as of 2014.
|Treading On Thin Ice|
|India - Coal Imports (mnt) & Growth|
Reforms On The Cards, But Still A Parlous Outlook
Whilst India's coal industry possesses immense potential for considerable development, we believe the pervasiveness of corruption and significant bureaucratic hurdles will continue to curtail production and prevent miners from achieving full output. Despite the potential passage of the 2011 Mines and Mineral Development and Regulation (MMDR) Bill, which seeks to improve transparency and introduce better legislative environment for attracting investment, we remain wary of calling for a sea change in the country's mining industry. T he government's newfound resolve on reform is beholden to the fickle support among members of the government. In May, Chief Minister Naveen Patnaik voiced his opposition against the passing of MMDR, citing the bill as a violation to the federal structure of the constitution with the transfer of supervising functions from the state government to the Indian Bureau of Mines (IBM) union.
|Self-Reliant, For Now|
|India - % Of Global Production & Consumption (2011)|
India currently has relatively little investment in Africa's mining sector with Vedanta ' s operations in Zambia and Namibia as well as Tata Steel ' s mines in Mozambique some of the only notable exceptions. Compared with the presence of Western, Russian or Chinese companies ' reach across Africa ' s mineral reserves India is far behind, perhaps on a par with where Chinese companies were around 15 years ago. Much of the reason for this has been that India is relatively self sufficient in the production and consumption of minerals. However, we expect India to become a much larger consumer of key metals over the coming years as GDP growth average 6.6% over the next decade. Given the regulatory issues highlighted above, we expect Indian companies to increasingly look abroad for minerals, most notably iron ore, copper and coal, demand of which will substantially increase as India industrialises.
It is worth noting that Indian mineral investment to date has generally not followed the same pattern as that by Chin a . Chinese investment in Africa ' s mining sector has typically been accompanied by high-level politicians and political deals as well as substantial infrastructure projects. Indian investment has followed a more Western approach with little political involvement or high profile developments in infrastructure or the construction of prestige projects .
|Production Will Struggle to Meet Growth|
|India - Mined Production Forecast Growth, % y-o-y|
Southern & Western Africa To Attract Investment
We expect southern Africa to receive much of the interest from Indian companies seeking to plug India ' s shortfall in coal and copper. Mozambique has some of the largest coal reserves due to come online in the next few years and Botswana and Zambia have world-leading undeveloped resources of coal and copper. Furthermore, with the development of the ports of Durban and Beira, the region will have substantial capacity to export coal direct to India. We also expect West Africa to receive substantial interest given the size of the region ' s high grade reserves and our forecast for Indian steel consumption to average 6.8% over the next five years, whereas domestic iron ore production will grow at 5.1% over the same period.
One final area that India will look to Africa for investment is uranium. India is looking to significantly increase nuclear power generation and thus with stringent domestic regulation, the country will look to invest in Namibia and Niger, which contain some of the largest uranium reserves in the world.
|Source: BMI, Company Reports|
|Coal India||Mozambique||Coal||Planning to invest US$400mn to develop two coal exploration blocks granted by the Mozambican government.|
|Coal India||South Africa||Coal||Proposing a memorandum of understanding with the South African government to establish a wholly-owned subsidiary for locating and developing coal mines.|
|Essar Minerals||India, North America, South America||Iron ore, Coal, Manganese||Undertaking exploration and development of minerals.|
|Essar Minerals||Mozambique||Coal||Focusing on the exploration and geological mapping of five coal blocks in the provinces of Niassa and Tete.|
|Jindal South West Energy||South Africa||Coal||Bought 70% of South African company Indian Ocean Mining.|
|Jindal Steel & Power||Mozambique||Coal||Was awarded a 25-year licence to explore and mine coal in Tete province.|
|Steel Authority of India Ltd||Afghanistan||Iron ore||Awarded rights to develop the rich Hajigak iron ore mines.|
|Tata Power||Indonesia||Coal||Acquired a 26% stake in Indonesian coal mine PT Baramulti Sukses Sarana Tbk (BSSR) to ensure fuel security for its power plants.|
|Tata Power||Indonesia||Coal||Signed a long-term coal supply agreement with PT Antang Gunung Meratus (AGM) in July.|
|Tata Steel||Côte d'Ivoire||Iron ore||The company has a 75% share in Tata Steel Côte d'Ivoire, which is currently developing the Mount Nimba iron ore project.|
|Tata Steel||Mozambique||Coal||The company has a 35% share in Australian company Riversdale Mining's Benga and Tete coal exploration licences.|
|Vedanta Resources||Zambia||Copper||Acquired a 79.4% stake in Zambia's Konkola Copper Mines (KCM).|
|Vedanta Resources||Namibia||Zinc||Bought Skorpion Zinc off Anglo American for US707mn.|
|Vedanta Resources||South Africa||Zinc||Bought Anglo American's 74% share in Black Mountain Mining project.|