JOHANNESBURG (miningweekly.com) – India, today, in purchasing power parity terms, is the fourth-largest economy in the world, with a gross domestic product (GDP) of just over $4-trillion. (In terms of the official exchange rate, India’s GDP is $1,43- trillion.) This is the result of two decades of rapid and sustained economic growth. From 1991 to 2002, this averaged 6% a year, jumping to almost 9% annually for the period 2003 to 2007. The Great Recession slowed this to about 5% in 2008 and some 7,4% in 2009, but it recovered to about 9% last year.
This growth stems from a process of economic reform which started in 1991 and which, in turn, was a response to a fiscal and balance of payments crisis. Despite several changes in administration, this reform process has been sustained. Consequencly, the Indian economy is generally expected to grow by 8% or more this year and by between 7% and 9% annually for the next three to five years. Like the Chinese dragon, the Indian tiger has developed a hunger for raw materials from foreign shores.
Africa, of course, is both rich in resources and relatively close to India. As the Indian economy has boomed, so has trade between the two regions. In 1991, total bilateral Indian-African trade was $965-million; in 2008, it amounted to $35-billion.
Modern economic relations between the two regions date back to the nineteenth century and nearly all Indian foreign investment in the 1960s went to Africa. Between 2000 and 2007, Indian investment in Africa jumped by 837% and, in 2009, Africa hosted about 33% of total Indian foreign investment.
These figures cover total investment in all economic sectors, not just in mining and metals. But there is little doubt that India, as a country, and Indian companies are interested in Africa as a source of raw materials to help feed its growing economy. Already in 2007, Africa supplied some 20% of India’s oil imports.
INDIAN MINING INDUSTRY
According to the country’s Ministry of Mines, India itself produces 89 minerals, divided into four fuel minerals, 11 metals, 52 nonmetallic minerals and 22 minor minerals. In 2008, India was the world’s number one producer of mica blocks and splittings; number two in the production of chromite, and also number two in barite; number three in coal and lignite; number four in iron-ore; number five in bauxite; and number seven in manganese ore. (In terms of metals, India ranked fourth in the production of steel and eighth in aluminium.)
The US Geological Survey (USGS) reported in 2008 that the value of India’s mineral output in the 2007/8 financial year (FY) was $25,3-billion, representing 3% of GDP. State-owned companies controlled 83% (by value) of the country’s total mining output, 95% of the coal output and 100% of the copper output.
Responsibility for State-owned mining companies is split between the Ministry of Mines, the Ministry of Coal and the Ministry of Steel (iron-ore). Leading State-owned mining companies include NMDC, India’s largest iron-ore producer; the Steel Authority of India, the country’s largest steel producer, which has its own iron-ore, dolomite and limestone mines; Hindustan Copper, India’s only vertically integrated copper company; National Aluminium Company (Nalco); Coal India, the world’s largest coal producer; Neyveli Lignite Corporation; and the Mineral Exploration Corporation.
However, since the revision of the National Minerals Policy, in 1994, private investment (both local and foreign) has been allowed in the exploration and mining of chrome, copper, diamonds, gold, iron-ore, lead, manganese, molybdenum, nickel, platinum-group metals (PGMs), sulphur, tungsten and zinc. And the country has a number of major private-sector mining companies, although most of them are parts of major conglomerates, such as the Tata group or the Essar group or the OP Jindal group.
India’s biggest, independent, private-sector mining group is Vedanta Resources, which has revenues of more than $6-billion and, in terms of revenues, is the country’s largest non- ferrous metals and mining company. (It should be noted, though, that Vedanta’s listing is on the London Stock Exchange.)
But while India’s minerals and metals exports in FY 2007/8 were worth $20,6- billion, amounting to 14% of total exports, the country’s minerals and metals imports that year totalled $77,5-billion, or 34% of all imports. Thus, even though local mining output is rising, it is often not rising fast enough to meet the rapidly increasing demands of Indian industry. For example, India’s coal production cannot keep up with domestic demand and is currently falling short by 80-million tons per year (Mtpy) – a shortfall that is forecast to increase to 269 Mtpy by 2021/22. Apart from petroleum, and diamonds to feed India’s huge cutting and polishing industry, the USGS lists India’s main metal and mineral imports as coal, coke, copper ores and concentrates, iron-ore, phosphate rock and sulphur.
Earlier this year, speaking in Johannesburg and referring only to South Africa, Indian Commerce and Industry Minister Anand Sharma highlighted that this country has “gold, and we have an insatiable appetite for gold”. “Even during the economic recession, the imports of gold into India increased by 50%. You produce diamonds – five out of every six diamonds which are produced in the world come into Indian hands. We have the world’s largest diamond cutting and polishing industry. We are one of the largest importers of coal from South Africa. India imported 12-million tons of coal from South Africa last year. It is not only gold and diamonds. It is coal, it is manganese ore. You have large deposits of chrome ore. We want . . . to take chrome to the western coast of India for the manu- facture of high-quality steel. You also have the Rustenburg brand of nickel, which is very popular. All that will go [to India].”
Africa accounted for 4% of global mining and metals deals in 2009 and 8% in 2010, reports assurance, tax, transaction and advisory services group Ernst & Young. In all, there were 42 such transactions in 2009 and 86 last year, representing an increase of 105%.
Of the 2010 deals, four were ‘outbound’ – that is, African companies investing in projects outside the continent – 11 were intraregional (African companies investing elsewhere on the continent) and 71 were ‘inbound’ – non- African companies investing in Africa. The number of inbound deals in 2010 represents a jump of 223% over the 22 inbound deals of 2009.
“On a mineral-rich continent, mining and metals continue to attract investment and drive economic growth in most African countries,” states Ernst & Young Africa mining and metals leader in South Africa Adrian Macartney. “With a trend towards investment in developing economies and the abundance of mineral resources, the volume of trans- action in Africa is likely to rise.”
The home countries of the overseas com-panies which acquired African mining assets and projects last year included Australia, Brazil, Canada, China, South Korea, the UK and, of course, India. In terms of commodities, 32% of these acquisitions (by value) were for iron-ore and 18% for PGMs. (Energy metal uranium accounted for 5%.) In terms of home countries, and again by value, 13% of these deals were done by Chinese companies and 8% by Indian groups. (But by far the biggest share was taken by the Brazilians, with 27%.)
Ernst & Young points out that African countries in general are seeking to increase the benefits to their peoples from foreign investment in all sectors. These could include requiring foreign investors to have local partners or, with regard to mining, seeking local beneficiation of minerals and metals, thereby adding value, creating higher-skilled jobs, and helping build local industry.
Africa’s desire for development is well understood by India and Indians. “India’s approach is very different to China’s,” says South African Institute for International Affairs research associate Frank van Rooyen. “India looks towards Africa as a partner in securing energy and industrial resources. But India seeks – genuinely – to add value. It seeks long-term, mutually beneficial relationships. India sees itself as helping to uplift the peoples of Africa.”
“We took a conscious decision, as part of our partnership with the continent of Africa, [aimed at] the empowerment of people and capacity building, [and at] value addition, to set up, in many places, diamond cutting and polishing centres, so there is local value addition and job creation,” cited Sharma. Thus, an Indian Africa Diamond Institute is to be set up in Botswana by the Indian Diamond Institute Surat, and an Apex Planning Organisation for the Southern African Development Community coal industry is to be established in Mozambique by Coal India and India’s Central Mine Planning and Design Institute. But Indian investment in Africa, across all sectors, has been led by the private sector, not by the major State-owned companies.
Vedanta bought 51% of Zambia’s Konkola Copper Mines (KCM) for $48,2-million, in 2004, later increasing its stake to 79,4%. KCM is Zambia’s largest mining and metals com- pany and has an annual production capacity of 200 000 t of copper. It also produces cobalt, pyrite and sulphuric acid. It has been reported that Vedanta has invested more than $750-million in KCM, including the original purchase price.
Last year, Vedanta bought Skorpion Zinc, in Namibia, off Anglo American for $707-million, as well as Anglo’s 74% share in Black Mountain Mining for $348-million. Black Mountain Mining encompasses the Black Mountain zinc mine and the Gamsberg zinc project, both in South Africa.
India’s Tata megaconglomerate is involved in mining projects in the Côte d’Ivoire and Mozambique. In the Côte d’Ivoire, Tata Steel has a 75% share in Tata Steel Côte d’Ivoire which is developing the Mount Nimba iron-ore project. A detailed feasibility study is under way. Iron-ore from Nimba would be used to feed Tata’s steel operations, particularly in the Netherlands and the UK.
In Mozambique, Tata Steel has a 35% share in Australian company Riversdale Mining’s Benga and Tete coal exploration licences, which, together, cover an area of 24 960 ha. Benga alone has the potential to yield 720-million tons of coking coal. Tata’s share of the coking coal will be used to feed its steel plants around the world, and not just in India.
Further, Tata Steel owns 27,1% of Riversdale itself, and Riversdale also has the Zambeze coal project, in Mozambique, the Riversdale Anthracite Colliery project, in South Africa (in KwaZulu-Natal), and the operating Zululand Anthracite Colliery, also in KwaZulu-Natal. Currently, Riversdale is the subject of a takeover offer from major global miner Rio Tinto, but Tata Steel, which is the single biggest shareholder in the Australian miner, does not seem eager to sell. (Riversdale’s second-biggest shareholder is another steel group – Brazil’s Companhia Siderúrgica Nacional – which has a 17,58% stake but, oddly, no offtake agreement with the coal miner.)
The Essar group’s mining business, Essar Minerals, is undertaking exploration and development of iron-ore, coal and manganese in India, Africa and North and South America. Its African activities are focused on the exploration and geological mapping of five coal blocks in the provinces of Niassa and Tete, in Mozambique.
Two subsidiaries of the OP Jindal group are active in the mining sector in Africa. Last June, Jindal South West Energy announced that it had agreed to buy 70% of South African company Indian Ocean Mining (subject to due diligence). The South African company holds coal prospecting rights in the north-west region of the country. In February, it was reported that Jindal Steel & Power had been awarded a 25-year licence to explore for and mine coal in Mozambique’s Tete province in return for a $180-million investment. The licence covers 21 540 ha.
Much smaller Indian companies are also active. For example, there is Dharni Sampda (previously Taurian Resources – the new name means ‘earth wealth’ in Sanskrit), which has somewhat more than 500 employees – more than 200 in India and more than 300 in Africa.
The company mines manganese in Côte d’Ivoire and has exploration permits for the metal and for bauxite, also in Côte d’Ivoire, and an exploration permit for tantalite in Sierra Leone. Dharni Sampda also has exploration permits for uranium in Niger
It can safely be assumed that other Indian private-sector companies are active or interested in mining opportunities in Africa. And, belatedly, India’s giant State-owned companies are beginning to emulate their private-sector compatriots and Chinese counterparts and seek opportunities in Africa.
In January, Coal India asked the Mozambican government for another five coal exploration blocks in addition to the two already granted. The company revealed that it was ready to invest $400-million in develop- ing mines on its first two blocks, aiming at producing ten-million tons of coal in five years and employing 3 000 Mozambicans. In addition to Mozambique, South Africa and Zimbabwe are on its priority target list, along with Australia, Canada and the US.
Also in January, India’s Ministry of Steel revealed that it was in talks with South Africa to permit State-owned Manganese Ore India to buy manganese assets in this country. NMDC last year signed a 50:50 joint venture agreement with South Africa’s Kopano ke Matla Investments to enter the coal and iron-ore mining sectors in South Africa. The Indian group may also be interested in rock phosphates in Zimbabwe. Nalco is known to be interested in coal, copper and uranium opportunities in Africa and elsewhere to diversify away from aluminium.