Market and product

India hosts a wide range of natural resources, which include four fuel minerals (such as coal), 11 metallic minerals (such as iron), 22 minor minerals (such as copper), and 52 non-metallic minerals (such as clay). It is a significant producer of a number of ores and minerals. India also figures at the top in the production of sheet mica, is the third largest producer of coal, the fourth largest producer of iron ore and the fifth largest producer of bauxite.

However, India's swelling energy demand - which is being driven by a rapidly expanding economy - means that the further development of the mining sector is badly needed, especially in coal, which is the key fuel for the country's power sector. To this end, the government is working on attracting private investment into the coal sector in order to accelerate production and expand existing mines. Indeed, a bill is set to be introduced to parliament to amend the Minerals and Metals (Development and Regulation) Act 1957, which will enable bidding for state-owned coal blocks to take place. State-run coal company Coal India has approximately 18 coal blocks which are not being developed. Both the Steel Authority of India and privately-owned Tata Steel have expressed interest in working with Coal India to restart operations at some of the mines. There have also been developments in appointing an independent coal regulator in order to help liberalise the sector and create greater transparency. In December 2009, the government finalised the draft note outlining the set up of the coal regulator and forwarded it to the law ministry for review.

Coal-fuelled power plants generate more than half of India's power. In February 2010, Indian company GVK Power & Infrastructure (GVKPIL) achieved financial closure for its INR32bn (US$693.3mn) coal-based power plant in Punjab, India. GVKPIL has received INR24bn (US$520mn) in debt, the rest will be financed through its own equity investment. The debt is being provided by a consortium of 13 members, led by Industrial Development Bank of India (IDBI). The Goindwal Sahib project, will have an installed power generation capacity of 540 megawatts (MW). It is expected to be completed within 36 months. Coal is indigenous to India and, according to British Petroleum (BP)'s 'Statistical Review of World Energy' India had 58,600mn tonnes of proven coal reserves at the end of 2008, equal to 7.1% of the global total.

Elsewhere, in January 2010, Bloomberg reported that import of gold into India - the world's largest consumer of the precious metal - looks set to increase throughout 2010. In 2009, India imported 343 tonnes of gold and according to the Bombay Bullion Association but it is thought that this total will be exceeded by the end of 2010. Indeed, for the first month of 2010, imports are expected to hit 20-25 tonnes, significantly outperforming 2009 levels of 9.8 tonnes. As gold prices continue to rally, many countries are making investments in the yellow metal to diversify assets and protect themselves against currency fluctuations.

Meanwhile, in January 2010 it was reported that the government would divest 10% of its 99.59% share in Hindustan Copper in an initial public offering (IPO). A further 10% would then be divested in a followon pubic offer. The capital raised will partly be used to help the company expand production. Shakeel Ahmed, the CEO of Hindustan Copper stated that: 'We plan to raise output by 3.5 times in five-seven years' time through reopening of closed mines, optimising production from existing mines and acquisition of new ones.' Indeed, Ahmed expects strong demand and the recovery of copper prices to help Hindustan Copper generate a net income of INR1bn in the financial year ending March 2010.

Forecasts India's mining sector should continue to post impressive over the forecast period driven by strong domestic demand. The long-term prospects of the sector - like that of the Indian economy as a whole - are very positive. In 2009, it was estimated that the mining industry contracted by 2.0% as the global economic crisis impacted on exports in key sectors such as iron ore and copper. But, the market should return to strength in 2010 and by 2014, we forecast that the mining industry will reach a total value of US$60.27, approximately 2.22% of GDP, after growing at an average rate of 8% per year in real terms.