MANAGEMENT DISCUSSION AND ANALYSIS Global Mining Industry Currently the global mining industry is passing through a challenging phase where global commodity markets have fallen by more than 50% for most of the mineral commodities in past three years. Parallel to this, Indian mining industry is undergoing various reforms in its Coal as well as Mining sector. The average stock price of global Metals and Mining companies and Base Metal companies decreased by 13% and 3% respectively since April 2014. This was mainly due to weak demand for commodities from China, fall of more than 50% in Iron Ore and Gold prices, over supply of metallurgical coal, weak M&A activities and large mining companies selling its non-core assets. Overview of Indian economy Economic growth picked up in India from FY2013-14 with inflation markedly declined. The external economic position of the country was comfortable, helped by positive policies and lower global oil prices. The outlook for India is for economic strengthening through higher infrastructure spending, increased fiscal devolution to states, and continued reform to financial and monetary policy. The government is intended to move steadily to tackle difficult structural issues that have stalled investment and limited economic performance in recent past. The government's initial estimates for Fiscal Year 2014 - 15 (ending 31 March 2015) showed that economic growth accelerated to 7.4%. After growing by 4.5% in FY13-14, industry accelerated to 5.9% in FY14-15, helped by a 6.8% expansion in manufacturing sector. Manufacturing sector is expected to grow in excess of 10% in the final quarter of FY14-15. Improved coal production helped double the growth of electricity generation over the brvious year's rate. For mining sector, at macro level, according to new series of the Gross Domestic Product, the Gross Value Added (GVA) by the mining and quarrying sector at constant prices is rising over a period of time. GVA for mining sector has increased by 7.5% over past two years. Indian Mining Industry Mining sector plays an important role in growth of Indian economy. It ensures the availability of fuel for power generation and raw material for steel production. Further, mining ensures raw materials for other industries. Apart from making available raw materials for industrial sector, mining sector in India contributes significant amount of taxes and royalties to state & central governments. GMDC's focus has been on fulfilling the mineral needs of Gujarat and providing a boost to small and medium sized industries of Gujarat. However, in recent past the contribution of mining sector to GDP is decreasing. The rapid pace of growth that the mining industry had been enjoying for over a decade was arrested in 2008-09, with the advent of global recession. World economic growth decelerated quickly, adversely affecting both developed and emerging economies. Indian mining industry was also affected by this global phenomenon. Economic Survey of India (2014) highlights that the growth of mining sector declined from an average of 7.1% in during four financial years 200710 to an average of 1.6% during next four years 2010-14. This decline is mainly attributed to the legal, regulatory and environment issues, among others. Recently the mining industry of India is undergoing a series of reforms for various segments such as coal mining, land acquisition and non-coal minerals. To attract foreign investment, 100% Foreign Direct Investment is permitted in the mining sector. The National Mineral Policy, 2008 inter alia provides guidance for promoting research and development in the mineral sector directed towards the development of new technologies for conversion of existing mineral resources into viable economic resources and improvement of regulatory environment. This year sweeping changes have been seen in the laws governing the mining sector. Some of these reforms have been passed by the Government while some are in draft stage. Recent Reforms India is witnessing unbrcedented changes in the mining sector since 2014 with reforms and growth on agenda. With the new mining ordinance for auction of minerals and the new Govt.'s latest budget (heavy focus on infrastructure investment), mining sector's contribution to GDP is expected to increase considerably. The Central Government has indicated to introduce policy reforms (such as br-existing legislation instead of permissions) that would ease the project implementation. In mining sector, the Government has come out with Mines and Minerals (Development and Regulation) Amendment Act, 2015 which provides the framework for promoting transparency in the mining sector to boost the investments. This change will kick start investments in the mining sector. Clarity on licensing terms, auctions, transfer of concessions will enable the sector to attract investment on its own terms, without having to depend on end-use plants. The act has allowed auction of minerals by respective state Governments and four minerals viz. Bauxite, Iron Ore, Limestone, Manganese, have been categorized as notified minerals. The financial gains and additional levies through this act and auction process will be used for local development and exploration. Also, the Government has subsequently released rules for auction of all the minerals by state Government. In coal sector, the Honourable Subrme Court in September 2014 cancelled the allotment of 204 coal mines after holding their allocation as "arbitrary" and "illegal". Subsequently, Government issued The Coal Mines (Special Provisions) Ordinance, 2014 to provide for allocation of coal mines and vesting of the right, title and interest in and over the land and mine infrastructure together with mining leases to successful bidders and allotters. The revenue generated through auctioning of coal blocks will benefit the state Governments and will in-turn be utilised for betterment of Project affected people and developing infrastructure and undertaking exploration in mining areas. Industry Structure and Developments The country is endowed with huge resources of many metallic and non-metallic minerals. Mining sector is an important segment of the Indian economy. Since independence, there has been a pronounced growth in the mineral production both in terms of quantity and value. India produces as many as 87 minerals, which includes 4 fuel, 10 metallic, 48 non-metallic, 3 atomic and 24 minor minerals (including building and other materials). The total value of mineral production (excluding atomic minerals) during 2013-14 has been estimated at Rs 2,27,176 crore, which shows a decrease of about 9.32% over that of the brvious year. During 2013-14, estimated value for fuel minerals account for Rs 1,55,646 crore or 68.51%, metallic minerals, Rs 37,213 crore or 16.39% of the total value and non-metallic minerals including minor minerals Rs 34,317 crore or 15.10% of the total value. Growth Drivers for Mining Sector • With the Indian economy expected to grow by approximately 7% in the years to come, sectors such as infrastructure and automobiles will receive a renewed thrust, which would further generate demand for power and steel in the country. This is expected to provide a major thrust to the demand of minerals like coal and iron ore. • Minerals like manganese, lead, copper, alumina are expected to witness double digit growth in the years ahead. There is significant scope for new mining capacities in iron ore, bauxite, and coal. • India has an advantage in the cost of production and in conversion costs of steel and alumina. • Sustained growth in India's automotive sector has been driving demand for steel and aluminium. • The power sector accounts for a large share of the consumption of aluminium and coal in the country. • Infrastructure projects continue to provide lucrative business opportunities for steel, zinc and aluminium producers. • India has the 301.56 Billion Tonnes coal reserves as of April 2014. Production of coal stood at 540 Million Tonnes and 557.7 Million Tonnes in 2012 and 2013, respectively. Performance 1. Product-wise performance Mining, the core competency of GMDC, continues to lead the business operations. GMDC has started operations in Umarsar Lignite Mine and Mevasa Bauxite Mine in the FY 2014 - 15 that added further value to company's mining business. GMDC's six active lignite mines together produced 87.09 lakh metric tonnes of lignite during the FY 2014 - 15, while eight active Bauxite mines produced 2.6 lakh metric tonnes of Bauxite. GMDC's power division consist of ATPS Thermal Power Plant, Wind Power Plants and Solar Power Plants. Total 1669.5 Mega Units of power was produced in the FY 2014 - 15. PLF of Akrimota Thermal Power Plant and Wind Power have increased to 62.04% and 23.04% respectively in FY 2014 - 15. Opportunities and Threats Opportunities • Indian mining sector is undergoing major reforms. This provides opportunity to GMDC to expand its mineral portfolio • Advanced research in producing bio-fertilisers by use of Lignite is a new avenue that the company can explore. Use of bio-fertilizer will reduce country's dependency on chemical based fertilizers and may also provide better yield to farmers. • GMDC has ventured into value added services through joint ventures and projects with plans to produce cement, zeolite, chemicals and beneficiation of minerals like Fluorspar etc. These projects will be completed in future and commence production, which will add to the Corporation's output and profitability. • Strengthening of segments apart from Lignite and Bauxite will reduce company's risk during events of changes in economic, industrial or policy scenarios of the country. • The company may explore opportunities for mining and sale of secondary minerals available within its Lignite mines. • GMDC is one of the leading mining PSU in the country and possess rich experience and expertise within the mining sector. Threats • The Government has introduced auctioning process for allotment of coal blocks as well as other mineral leases. Thus, the company may have to participate in competitive auction for allotment of new mining leases. Though, there are various provisions available within these rules which may help GMDC in allotment of mining leases • Slow progress in finalization of Land Acquisition, Rehabilitation and Resettlement 2013 Act, and other problems related to land acquisition may lead to significant transaction costs and time delays. • GMDC has entered into Joint ventures and turn-key contracts for value added services. Correctly estimating the manpower requirements and adjusting the current man-power strength is a challenge for the Corporation. Outlook GMDC's strategic thrust is outlined by expansion of activities on three fronts, namely, venturing into value added services; increasing the geographical reach, and diversifying operations in other sectors such as power generation. The future goals of GMDC are as below, • To develop value addition plants for minor minerals available with GMDC to cater to the needs of downstream industry in Gujarat. • To set up a Wind Power Plant of 50 MW • Investment in advance mining technology to increase productivity, enhance safety and reduce environmental pollution for sustainable growth • Setting Up world class International Centre for Mining Safety and Automation- iCEM and Entrebrneurship- iCREATE with various national and international, industry and academic partner • Exploration of Business Opportunity in Beach Sand Mining • Collaborate with State PSUs outside Gujarat Risks and Concerns GMDC has to sustain its leadership position in the State by growing at an appropriate rate and at the same time improve its operational efficiency. Though GMDC's growth strategies are built upon the inherent strengths of the Corporation, various activities undertaken to achieve the goals make the Corporation susceptible to various risks. It has to be recognized and realized that risks are not merely the hazards to be avoided but in many cases offer opportunities which create value ultimately leading to enhancement of shareholders' wealth, and ensuring sustainability of operations. Operations of mining companies have a high impact on the environment. Mining companies are therefore required to ensure the rectification and restoration of mined areas, and that some of the revenue/costs of the mining go towards strengthening of environmental resources and ecosystem resilience in adjoining areas. GMDC is actively undertaking activities to ensure sustainable development. However, increasing environmental concerns may lead to higher costs. Internal Control and its adequacy GMDC has put in place all the necessary internal controls adequately. The company has an in-house Internal Audit Department and internal check procedures on the purchase of items such as stores, chemicals, machinery. Similar checks and procedures are also devised for sale of goods. The company has appointed Internal Auditors for various Projects and Head Office, who are required to submit periodical reports to the top management. The company also avails services of professional Chartered Accountants for physical verification of assets. Moreover, GMDC being a Government Company also undergoes a supplementary audit by C & AG. Cautionary Statement Statements in the Management Discussion and Analysis Report, describing the Corporation's objectives, projections and estimates, contain words or phrases such as will, aim, believe, expect, intend, estimate, plan, objective, contemplate, project and similar exbrssions or variations of such exbrssions, are forward-looking and progressive within the meaning of applicable laws and regulations. Actual results may vary materially from those exbrssed or implied by the forward looking statements due to risks or uncertainties associated therewith depending upon economic conditions, Government policies and other incidental factors. Readers are cautioned not to place undue reliance on these forward looking statements. |