'Iron ore to be hit if royalty hiked'

The proposed hike in royalty across major minerals including iron ore is likely to burden the industry as well as result in the rise of the cost of production per tonne of steel. A panel formed to review mining royalties has recommended that iron ore royalty rates should be raised to 15 per cent from 10 per cent.

As a result of this, the additional burden for steel mills would be in the range of Rs 500-700 per tonne in their cost of production, Ernst & Young, the research firm said.

In a report, 'Mining in Emerging Economies - Sharing the spoils', released at the fourth international conference on mining, organised by Federation of Indian Mineral Industries (FIMI), here today, E&Y said, steel and mining companies are already feeling the heat of the economic slowdown and is hurting their revenues. The mining firms are paying 10 per cent royalty on the mineral they extract.

"The Indian mining industry had been on a slow growth track, in sync with economic slowdown. The ongoing slowdown has had an impact on demand for metals across all the major consuming sectors. In line with the overall trend, the index of mineral production for FY13 is estimated to be 121.91 compared to 128.45 for FY12, registering a negative growth," said Anjani K Agrawal, partner and sector leader - mining & metals, Ernst & Young LLP.

He said, concerted efforts from all stakeholders could accelerate growth of the Indian mining sector. The emerging markets will continue to lead the resurgence of the sector and one could see a continuing trend of these high-growth economies accounting for major inbound M&A transactions in the sector, he said.

"Although the mining industry has borne the brunt of the global recession, emerging economies show strong potential for growth driven both by good quality resources and domestic demand, propelled by relatively higher economic growth. We feel that although Indian mining activity has been subdued in recent times, there is tremendous upside if supplemented with concerted efforts from all stakeholders," he said.

However, despite the slowdown, the Indian mining majors are sticking to capital expenditure plans. After spending Rs 1,600 crore on capacity expansion in FY13, NMDC Limited plans to spend Rs 2,700 crore during FY14, a 70 per cent rise year on year. Most of the capital would be utilised for its upcoming steel plant in Chhattisgarh.On the other hand, Sesa Goa has committed to spend $400 million (about Rs 2,500 crore) over the next three to four years to develop and operate its three iron ore assets in Liberia, the E&Y report, said.

The development of mining equipment and technology for underground coal mining presents a great opportunity as production from underground coal mines is limited to around 50 million tonnes, the report said. The report states that some of the challenges specific to the Indian market are social license to operate, margin protection and productivity improvement, infrastructure access, fraud and corruption, sharing the benefits, capital project execution, competition for land usage and regulations.