ICR presents a case for responsible reporting across the mining supply chain.
The importance of mining, in times of sustainability reporting, is rising in stature. The rise of mining output is not waning but growing and the share of construction mineral ore in all of this still remains close to 50% of the entire extractive output.
It is estimated that the global combined extractive output in mining is going to grow to 167gt in 2060, from the 2019 statistics of 92 gt. Out of this 27% is biomass, 15% is fossil fuel, 9% is metal ores and the balance is non-metallic minerals, bulk of which goes to the construction industry. While sustainability considerations would be driving most of the future growth, most notably, metals will be needed for electric storage batteries (eg. for electric cars), which require aluminium, cobalt, iron, lead, lithium, manganese and nickel but also for other relevant technologies, including those used for the production of wind turbines and solar panels; far greater amounts of metals are needed for clean energy production than the traditional energy production from fossil fuels. Thus the growth in metals for sustainability will offset the drop in extraction that would stem from growth in recycling.
An overview of the mining sector
Mining for non-metallic minerals, from where the construction industry sources all its inputs, perhaps falls under the ASM (artisanal and small-scale mining), which has still remained labour intensive and suffers from safety issues all across, the developed world and developing, all have the similar challenges to grapple with. Efforts to increase automation, mechanisation and digitisation also come with the fair share of demands from the local community, which can hardly be neglected. While Large Scale Mining (LSM) is moving towards mechanisation and automation with minimum labour resources, the focus is increasingly shifting towards partnerships on supply chains that connect local procurement partners and the community at large to the external markets.
One of the significant developments has been the shift towards battery-electrification of mobile equipment in the mines to the complete automation of all mining equipment with Net zero targets in focus. There are man-less mines in existence already where underground operations are being orchestrated through battery-electric equipment remotely connected through control systems. The partnerships between mining companies and the mining equipment OEMs is ensuring a smooth transition in this area that will take the use of fossil fuels in mines to a negligible proportion (mostly as consumables) in the near future. This however calls for a skills inventory crossover, that would need larger hand holding with the local government and other institutions as well as the local communities.
Sustainability in mining
The goals of sustainable development in mining would include transparency as a key theme between a large pool of actors that constitute and connect the upstream to the downstream supply chain partners (supplier, trader, smelter refiner, component producer, contract manufacturer, end user, intermediaries, agents and transporters). This would also entail collaboration with governments and across the supply chain to support a circular economy to minimise inputs to waste from the mining process and to increase the reuse, recycling and repurposing of raw materials and products to improve sustainable consumption. The traceability systems also ensure that the level of information that is shared and disclosed along the value chain. They illustrate the chain of custody, which is the sequence of stages and custodians the product is transferred to through the supply chain.
The transparency of reporting across the entire supply chain is at the core of this and this has two parts:
- Minimise resource use and waste (use of water, energy, land and chemicals and minimise production of effluent, waste and chemicals) and also purpose waste rock
- Incorporate life cycle thinking (extend responsible sourcing to all suppliers and collaborate to connect the consumer with sustainable raw materials).
India-centric big picture
India as a country has progressed well in SDG Reporting and Sustainable Development in the mining sector that accounts for 2.5% of the country’s GDP. Many of the key companies of the sector are SOEs. India is abundant in natural mineral resources and the country is one of the world’s main producers of iron ore and bauxite. India is the third largest producer of coal, behind the US and China. In construction related extractive minerals, India is the world’s second largest producer. Section 135 of India’s Companies Act on CSR and Regulation for large public companies to produce Business Responsibility Reports, makes it imperative for Large Mining companies (both metallic and non-metallic extractive ones) to be part of the SDG reporting, that cover diverse range of sustainability areas including GHG gas emissions, energy use, stakeholder engagement and labour and human rights.
In 2011, the Indian Ministry of Corporate Affairs issued the National Voluntary Guidelines on the Social, Environmental and Economic Responsibilities of Business (NVGs). Building on the NVGs, a new guidance entitled the National Guidelines on Responsible Business Conduct (NGRBC) was released in 2018. The new guidance integrates the ‘Respect’ pillar of the United Nations Guiding Principles and the UN Sustainable Development Goals.
Following other countries, India is also on the path of developing sustainability guidelines for the end-to-end supply chains in the mining sector. This will only ensure stakeholder participation for safety and sustainability in all four stages: profiling, reservation, exploration and departure. For future growth in mining, that will entail coal, iron-ore, bauxite and limestone extraction as the top four mining categories, it is an absolute necessity that focus on SDG reporting is carried through beyond the voluntary reporting mandate to encompass the aspirations of the communities and investors who would be the major beneficiaries of such initiatives. Without their blessings, the growth in these sectors would be mired by distrust and lack of transparency, which remains to be one of the dampeners for sustainable growth in mining.
Kesoram to boost cement capacity to 15 MT in next 3-4 years
The firm’s overall outlay would be between Rs 350 and Rs 500 crore
Kesoram Industries Ltd, a B K Birla Group subsidiary, announced that it plans to increase its cement production capacity to 15 million tonnes (MT) from 11 MT.
Kesoram, which has demerged its tyres and rayon businesses, is on course to make a profit in the current fiscal year (FY).P Radhakrishnan, whole-time director & CEO, told the media that they have chosen to increase cement capacity to 15 MT in phases over the next 3-4 years, up from 10-11 MT.
The overall outlay would be between Rs 350 and Rs 500 crore.He said that the company’s financials would improve in the next quarters as debt reduce and low-cost funds refinance. He added that in 2022, they will turn profitable on a net basis.
Radhakrishnan said they are always attempting to reduce their interest cost to enhance the financial situation. This year, they want to discharge the debt of Rs 500-600 crore and refinance a portion of the total existing debt (Rs 300-400 crore) with low-cost funds to reduce interest costs.With high-cost Optionally Convertible Debentures (OCDs) and Non-Convertible Debentures (NCDs), the business has an outstanding debt of Rs 1650 crore, down from over Rs 2000 crore a year earlier.
The B K Birla group firm also stated that it is shifting its product mix to include more value-added cement, which would increase its EBITA by another Rs 150 crore in the next two years, bringing it to over Rs 950 crore yearly.
An offcial stated that they’re always adding mixed cement to their inventory and plan to increase this to 80% in two years from currently 50%.Kesoram planned to increase capacity by one million tonnes by de-bottlenecking and then add a kiln to the existing facility to decrease capital expenditures.
After weighing all possibilities, the firm will shortly begin accepting fixed deposits, which would help the company get closer to its target of Rs 200 crore.
Cement demand to rise mid-to-high single digits in medium-term
Capacity utilisation to fall to 65% in cement industry: Fitch Ratings
Fitch Ratings told the media that it believes a sustained gross domestic product (GDP) growth, the government’s thrust on infrastructure and affordable housing, and revival of corporate capex will underpin the growth in the cement industry.
It expects India’s cement demand to increase by mid-to-high single digits over the medium term after an estimated mid-teen rebound in FY22.The cement industry’s utilisation will drop to 65% from 70%, estimated in FY22, as faster new capacity additions will outpace demand growth.
It will temper cement producers’ pricing power, and the industry will consolidate further.
Fitch Ratings said Adani Group’s aggressive approach to cement capacity expansion after it acquired Holcim Indian business. It will result in increasing the competition in the industry.
The increased prices by cement producers will not fully counter the energy prices due to the Russia-Ukraine war.
It said that the cement producers’ per tonne margin in FY23 will stay much below the pandemic level in FY21 when low energy prices increased profit despite having low demand.
Major cement industries reduced financial leverage since FY20 to support financial flexibility despite lower profitability and plans for higher capital expenditure (capex) expansion.
Fitch Ratings added that the impact of inflationary pressure on cement demand from the Russia-Ukraine war had been limited, but downside risks might increase if macroeconomic conditions deteriorate significantly.
Adani Group’s Holcim acquisition doubles India Inc’s deal to $19.1 billion
The sale was worth roughly $7.965 billion a year earlier in May 2021
The $10.5 billion acquisition of cement major Holcim by Adani Group has more than doubled India Inc’s deal value to $19.1 billion in May 2022, with 190 deals. The sale was worth roughly $7.965 billion a year earlier in May.
Mergers and acquisitions, a private equity landscape, and public market activity such as IPOs are all part of the deal.
According to the Grant Thornton Bharat report, the overall transaction value decreased by 59% in May compared to April due to the $40 billion merger agreement between HDFC Bank and HDFC that was struck in April.
Adani Group and Holcim signed a formal deal last month to buy a 63.11% share in Ambuja Cement, which has a 50.05% holding in ACC, as well as a 4.48% direct investment in the company. The deal should be completed in the second half of 2022.
Apart from the Adani-Holcim agreement, the Grant Thornton study included Reliance and Bodhi Tree’s $2 billion investment in Viacom18 in May. In addition, 13 more high-value purchases worth more than $100 million totalled $5.1 billion in the month under review.
In terms of volume, there were 190 deal transactions in May, up from 120 in the same month the previous year. In addition, volume climbed by 3% over the prior month.
Shanthi Vijetha told the media that start-up, e-commerce, and IT dominated the transaction volumes for the month, while manufacturing, media and entertainment, and energy topped the overall value.
In May 2022, there were roughly 40 merger and acquisition transactions worth $11.9 billion, with more than a fourth of them coming from the startup sector, which saw 11 agreements for $70 million.
Furthermore, the research stated that in May, private equity investments reached new highs in terms of value and number, totalling $7.2 billion across 150 agreements, representing a 169% increase in value and an 81% increase in deal volume.