We welcome article submissions from experts in the areas of coal, mining,
shipping, etc.
To Submit your article please click here.
|
|
|
Tuesday, 13 September 11
CAPITAL COSTS OF INDIAN COAL MINING PROJECT - AN ANALYST VIEW
.jpg) By Mr Dipesh Dipu, Director - Consulting (Mining), Deloitte Touche Tohmatsu India Private Limited
The coal mining sector that has been opened partially through captive mining route has seen allocation of 208 coal blocks to private sector, government-owned power generation and other downstream companies. These coal blocks, however, have had limited success in terms of operationalisation on time and at budgeted costs. These have led to serious concerns for coal supplies for power generation sector in India.
One of the key concerns for the development of the coal mines in India has been the quantum of capital required which is the determinant of expected returns from investment perspective and the viability of the project in terms of affordability of power so generated. The capital costs for coal mining projects typically include costs of land, capital equipment and infrastructure to support mining and logistics. Project costs also include capitalised expenses for clearances and approvals that help the mining project take off.
Elements of Capital Costs
Cost of land typically means the cost of acquiring surface rights for coal bearing land for which allocation has been made by the appropriate authority. The recent social concerns that have generated a lot of debate in the country centre on the cost of land which the companies are willing to pay for acquiring surface rights. The recent trends indicate that the land values head northwards since the time of announcement of a project, which makes it challenging to estimate the cost of land. In states that have vast coal resources, the land acquisition issues have been observed to be acute. In Talcher and IB Valley coalfields of Orissa, for example, there are a large number of coal blocks proposed with massive capacities. In these coalfields, it may therefore be expected that land costs will be relatively higher for the coal mining projects. Costs of mining equipment largely dominate the project costs, although due to higher costs of land acquisitions, its proportions are likely to be revised downward. The costs of equipment, typically, are functions of geological characteristics, technology, mine design and requirement of coal processing. Equipment costs also include costs of electricity supply features, drainage systems, environmental management systems, surveillance systems and several others. The costs of construction of coal handling plants and railway siding are parts of support systems for evacuation of coal and if the coal project is relatively farther from the nearest railhead, the costs will be higher. For pit-head power project, the costs include the conveying system from mine to the coal handling system of the power project.
Key Determinants of Capital Costs
Technology is a key determinant of capital cost. Underground coal mining and surface (or opencast) mining has different requirements. In the underground mining methods, there are variants such as bord and pillar, longwall, shortwall and variants for thick seam mining such as horizontal slicing and inclined slicing; sub-level caving and others. The accesses to coal seams are made either through inclines (surface drifts) or vertical shafts, each of which may have substantially different capital cost. In surface mining methods, equipment selection largely determines the project costs - shovel-dumper combinations, dragline, bucket wheel excavators are mostly used in India. The geo-technical parameters like dip and strike length, inclination of seams, thickness of overburden layer, and stripping ratio are indicators of specifications of equipment required, which, in turn, indicate the capital costs.
Equipment selection, therefore, is at the core of the determination of capital costs. In surface mining, the equipment selection takes into account the geological features such as partings between coal seams and expected bench heights. These impact the selection of size of shovels and matching dumper sizes. In such cases, the natural economies of scale need not work and hence, the capital costs per tonne of production versus capacity or size of excavators is a non-linear function.
Apart from the excavators and hauling equipment, capital cost of surface mines also depend on size and number of drilling machines, which, in turn, are dependent on the hardness of the rock. For blasting, the use of site mix slurries or site mix emulsion explosives can eliminate the need to maintain a magazine at mine project and thus, lower the capital costs. Relatively softer rock formation, such as those of lignite, the drilling blasting processes may be replaced by continuous mining system as bucket wheel excavator. Rock fragmentation and the requirement of crushing (including secondary crushing and sizing) will determine the additional equipment required that have a direct bearing on capital costs.
Hydrological characteristics of mine indicate the requirement of drainage and pump capacities. These may be significant where the water tables are high and may have large capital costs required to keep the working faces prevented from being inundated.
Estimates
According to estimates, investments needed in surface coal mining in India are in the range of INR 1500-2100 (approximately US$ 31.65 - 44.30) per tonne of rated capacity. For example, investment in a one million tonne per annum capacity mine is expected to be INR 210 crore (approximately US$ 44.295 million). This estimation is based on a stripping ratio of 4:1 and appropriate adjustments can be made for projects that have higher or lower stripping ratios. This, however, is as good as only an estimate and for the purpose of evaluations and investment decision making purposes, nothing can substitute a detailed plan, including equipment selection and fleet size determination.
For underground mining, the estimates are in the range of INR 1900-2800 (approximately US$ 40.07 - 59.05) per tonne of rated capacity. These are estimated for project that are shallow (within 150 meters depth) and are worked with semi-mechanized bord and pillar mining methods.
Business models change contribution to capital costs
At a high level, project costs remain more or less unchanged, irrespective of ownerships and financing pattern. However, for the project developers, the project costs are not nearly as significant parameters as are the equity investments and returns thereof. The business models now being contemplated and implemented substantially reduces the equity investment and causes the owner of the coal mine to focus on alternative investments such as, those in power generation capacity building. Contract mining is fast catching up in India as the preferred mode for development and operations of mines. The business model of hiring contract mining companies for overburden removal and even mineral winning is not a recent innovation. There are a number of new projects being planned through contract routes. Even the traditional mining companies like, the Coal India Limited and SCCL have been contracting out their mining operations. The scope of work in many cases involves the contract mining company to use their own equipment to carry on mining activities, which reduces the capital expenditure requirement of the coal mine owner.
In a total outsourcing model, the owners contract out all the processes including statutory approvals and clearances, land acquisition, mine development and operations. The recently floated tenders of a few state government owned power utilities are proponents of this model. The prospective bidders for the contract mining projects are expected to conduct their own geo-technical assessments, study the feasibilities and bid for the long term contract. The owner pays for all of these as the coal is mined and delivered to the owner. This model reduces the capital expenditure required by the owner for the coal mine development to nearly negligible.
Other business model is that of equipment leasing, which reduces the initial capital cost substituting the same by a more manageable lease rentals. The finance and operating types of leases help the mining project to have substantially lower cash outflows at the beginning of the project and help match the revenues with the costs when the mine starts the production of coal.
Capital Cost Management
Costs form a part of the decision-making process and cannot be used as a stand-alone decision-making tool. For this reason, there are several frameworks that can be used as a decision-making tool for surface and underground mining projects. These frameworks incorporate thinking obtained from viewing costs as a holistic entity. Strategic Cost Management (SCM) provides the thinking behind viewing costs as a strategic issue. Life Cycle Costing (LCC) suggests making use of the Net Present Value (NPV) approach to account for the use of the capital equipment. The LCC approach incorporates a tool into the framework that ensures that the cost of technology (capital) is accounted for over its lifetime.
Costing is the processing of expenditures to calculate their cost to each project. A typical and an ideal cost management profile is given below:
 |
As costs increase, performance gets impaired. When cost reduction is periodically initiated, it often results in a temporary cull of capabilities, directly impacting on future ability to deliver performance. Where cost reductions are achieved, performance often recovers temporarily, only for focus on proactive cost management to be lost, and for costs to begin to increase again. Without specific cost management action, this cycle can continue indefinitely.
It must be observed that the ability to influence project success and enhance value is greatest at the start of project evaluation and rapidly declines as a project advances towards implementation. In the same instance, the cost of change dramatically increases throughout each project evaluation stage. This suggests that the quality of the decision making in the early stages of project evaluation, primarily focused at capital costs, is critical to an optimal project outcome.
Cost Escalations and Indices
In coal mining projects, capital costs are dynamic and are inflated when the projects get delayed. Cost indexes provide a means of adjusting out-dated capital and operating cost information for the effects of inflation due to such delays. They are based on statistical averages of costs for specific items and time periods. There are the composite indexes for capital and operating costs for each of surface and underground coal mining and coal processing (preparation) operations, which are calculated taking into account several projects done in the past as well as taking economic indices into account. Indexes for specific cost centres, e.g., labour, equipment, transportation, fuel, explosives, tires, electric power, natural gas, and industrial chemicals are available, which are being used by the industry and the regulators to allow prudent escalations in the capital and the operating costs.
The above analysis was originally published on Infraline.
The views and opinions / conclusion expressed on this analysis is purely the writers’ own.
About Dipesh Dipu
Dipesh Dipu works as Director with Deloitte in the Energy and Resources consulting practice of the firm and anchors the Firm’s initiative in the mining and metals sectors. He is a mining engineering graduate from Indian School of Mines and is a Chartered Financial Analyst (CFA).
He has also done executive program in business management from Indian Institute of Management Calcutta. Dipesh has recently been awarded the Abheraj Baldota Gold Medal for the Young Mining Engineer of the Year 2007 by the Mining Engineers’ Association of India in recognition of his contributions in the improvement of mining industry in India.
If you believe an article violates your rights or the rights of others, please contact us.
|
|
Thursday, 25 January 24
THE RED SEA ESCALATION IMPLICATIONS ON GLOBAL SEABORNE TRADE - MARIA BERTZELETOU
In recent days, discussions have intensified about the potential impact on the seaborne trade and ton-miles due to the evolving dynamics of market ...
Thursday, 25 January 24
RED SEA SHIPPING DISRUPTIONS KEEP GEOPOLITICAL PREMIUM FOR COMMODITIES - FITCH RATINGS
Shipping disruptions and re-routing away from the Red Sea will maintain the geopolitical premium in the main commodity markets, including for oil a ...
Friday, 19 January 24
INDONESIA TARGETS 710 MLN METRIC TONS COAL OUTPUT IN 2024 AFTER RECORD 2023 - REUTERS
Indonesia, a major thermal coal exporter, aims to produce 710 million metric tons of coal in 2024, its mining minister said on Monday, after postin ...
Friday, 19 January 24
DRUMMOND COLOMBIA COAL OUTPUT ROSE 7.1% IN 2023 - REUTERS
Coal production from miner Drummond’s Colombia operations rose 7.1% in 2023 to 29.5 million metric tons, while exports declined by 2.6% to 27 ...
Friday, 19 January 24
CHINA'S 2023 COAL OUTPUT HITS RECORD HIGH - REUTERS
China’s coal output reached a record high in 2023, data from the statistics bureau showed on Wednesday, amid an ongoing focus on energy secur ...
|
|
|
Showing 51 to 55 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- TNB Fuel Sdn Bhd - Malaysia
- Kapuas Tunggal Persada - Indonesia
- Bhoruka Overseas - Indonesia
- Rio Tinto Coal - Australia
- Cement Manufacturers Association - India
- Bayan Resources Tbk. - Indonesia
- Trasteel International SA, Italy
- Semirara Mining Corp, Philippines
- Attock Cement Pakistan Limited
- Aditya Birla Group - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Oldendorff Carriers - Singapore
- Ministry of Transport, Egypt
- Eastern Energy - Thailand
- Videocon Industries ltd - India
- European Bulk Services B.V. - Netherlands
- Salva Resources Pvt Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- Leighton Contractors Pty Ltd - Australia
- Energy Link Ltd, New Zealand
- Neyveli Lignite Corporation Ltd, - India
- Minerals Council of Australia
- Therma Luzon, Inc, Philippines
- San Jose City I Power Corp, Philippines
- Electricity Generating Authority of Thailand
- Bhatia International Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- ASAPP Information Group - India
- Planning Commission, India
- MS Steel International - UAE
- International Coal Ventures Pvt Ltd - India
- Globalindo Alam Lestari - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Georgia Ports Authority, United States
- The University of Queensland
- Gujarat Sidhee Cement - India
- Singapore Mercantile Exchange
- Karbindo Abesyapradhi - Indoneisa
- Central Java Power - Indonesia
- Global Coal Blending Company Limited - Australia
- Deloitte Consulting - India
- Indonesian Coal Mining Association
- London Commodity Brokers - England
- VISA Power Limited - India
- CNBM International Corporation - China
- Sical Logistics Limited - India
- Bulk Trading Sa - Switzerland
- Formosa Plastics Group - Taiwan
- Ind-Barath Power Infra Limited - India
- Indian Energy Exchange, India
- Petrochimia International Co. Ltd.- Taiwan
- PowerSource Philippines DevCo
- Ambuja Cements Ltd - India
- Standard Chartered Bank - UAE
- Krishnapatnam Port Company Ltd. - India
- Bukit Asam (Persero) Tbk - Indonesia
- Chettinad Cement Corporation Ltd - India
- Mercuria Energy - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Ministry of Mines - Canada
- PNOC Exploration Corporation - Philippines
- Parliament of New Zealand
- Timah Investasi Mineral - Indoneisa
- India Bulls Power Limited - India
- Interocean Group of Companies - India
- IHS Mccloskey Coal Group - USA
- GVK Power & Infra Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Tamil Nadu electricity Board
- South Luzon Thermal Energy Corporation
- Mintek Dendrill Indonesia
- Binh Thuan Hamico - Vietnam
- New Zealand Coal & Carbon
- Tata Chemicals Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Jaiprakash Power Ventures ltd
- Xindia Steels Limited - India
- Bangladesh Power Developement Board
- Cigading International Bulk Terminal - Indonesia
- Merrill Lynch Commodities Europe
- Kumho Petrochemical, South Korea
- Gujarat Electricity Regulatory Commission - India
- Wilmar Investment Holdings
- Economic Council, Georgia
- Bukit Baiduri Energy - Indonesia
- Meralco Power Generation, Philippines
- Africa Commodities Group - South Africa
- Straits Asia Resources Limited - Singapore
- Siam City Cement - Thailand
- Vijayanagar Sugar Pvt Ltd - India
- Star Paper Mills Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Karaikal Port Pvt Ltd - India
- PTC India Limited - India
- Riau Bara Harum - Indonesia
- Altura Mining Limited, Indonesia
- Thiess Contractors Indonesia
- SMC Global Power, Philippines
- Eastern Coal Council - USA
- Bukit Makmur.PT - Indonesia
- Iligan Light & Power Inc, Philippines
- Malabar Cements Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- SMG Consultants - Indonesia
- Essar Steel Hazira Ltd - India
- Energy Development Corp, Philippines
- Australian Coal Association
- Maheswari Brothers Coal Limited - India
- Wood Mackenzie - Singapore
- Aboitiz Power Corporation - Philippines
- Dalmia Cement Bharat India
- Latin American Coal - Colombia
- Banpu Public Company Limited - Thailand
- Borneo Indobara - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Goldman Sachs - Singapore
- Medco Energi Mining Internasional
- Bahari Cakrawala Sebuku - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Posco Energy - South Korea
- Sakthi Sugars Limited - India
- The Treasury - Australian Government
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Manunggal Multi Energi - Indonesia
- Coal and Oil Company - UAE
- White Energy Company Limited
- Indian Oil Corporation Limited
- TeaM Sual Corporation - Philippines
- Metalloyd Limited - United Kingdom
- Intertek Mineral Services - Indonesia
- Independent Power Producers Association of India
- OPG Power Generation Pvt Ltd - India
- GAC Shipping (India) Pvt Ltd
- Bank of Tokyo Mitsubishi UFJ Ltd
- Global Green Power PLC Corporation, Philippines
- Pendopo Energi Batubara - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Semirara Mining and Power Corporation, Philippines
- The State Trading Corporation of India Ltd
- Petron Corporation, Philippines
- GMR Energy Limited - India
- Samtan Co., Ltd - South Korea
- ICICI Bank Limited - India
- Kartika Selabumi Mining - Indonesia
- Commonwealth Bank - Australia
- Vedanta Resources Plc - India
- Rashtriya Ispat Nigam Limited - India
- Sarangani Energy Corporation, Philippines
- Savvy Resources Ltd - HongKong
- Ministry of Finance - Indonesia
- Bhushan Steel Limited - India
- LBH Netherlands Bv - Netherlands
- Australian Commodity Traders Exchange
- Electricity Authority, New Zealand
- Renaissance Capital - South Africa
- Port Waratah Coal Services - Australia
- Anglo American - United Kingdom
- Meenaskhi Energy Private Limited - India
- SN Aboitiz Power Inc, Philippines
- Indo Tambangraya Megah - Indonesia
- Jindal Steel & Power Ltd - India
- Chamber of Mines of South Africa
- Baramulti Group, Indonesia
- Mjunction Services Limited - India
- Kobexindo Tractors - Indoneisa
- Uttam Galva Steels Limited - India
- IEA Clean Coal Centre - UK
- Toyota Tsusho Corporation, Japan
- Directorate General of MIneral and Coal - Indonesia
- Simpson Spence & Young - Indonesia
- Lanco Infratech Ltd - India
- Romanian Commodities Exchange
- Power Finance Corporation Ltd., India
- Larsen & Toubro Limited - India
- Kideco Jaya Agung - Indonesia
- Bharathi Cement Corporation - India
- Coastal Gujarat Power Limited - India
- Kaltim Prima Coal - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Antam Resourcindo - Indonesia
- Vizag Seaport Private Limited - India
- McConnell Dowell - Australia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Agrawal Coal Company - India
- Jorong Barutama Greston.PT - Indonesia
- Indogreen Group - Indonesia
- Kepco SPC Power Corporation, Philippines
- Barasentosa Lestari - Indonesia
- Grasim Industreis Ltd - India
- Carbofer General Trading SA - India
- Heidelberg Cement - Germany
- Global Business Power Corporation, Philippines
- Edison Trading Spa - Italy
- Price Waterhouse Coopers - Russia
- Sojitz Corporation - Japan
- Sree Jayajothi Cements Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Central Electricity Authority - India
- Sindya Power Generating Company Private Ltd
- GN Power Mariveles Coal Plant, Philippines
- Coalindo Energy - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Orica Mining Services - Indonesia
- Orica Australia Pty. Ltd.
- Madhucon Powers Ltd - India
- Directorate Of Revenue Intelligence - India
- CIMB Investment Bank - Malaysia
- Mercator Lines Limited - India
- Miang Besar Coal Terminal - Indonesia
- Siam City Cement PLC, Thailand
- Parry Sugars Refinery, India
- Gujarat Mineral Development Corp Ltd - India
- Indika Energy - Indonesia
- Thai Mozambique Logistica
- Makarim & Taira - Indonesia
- Marubeni Corporation - India
|
| |
| |
|
