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.
|
|
Sunday, 16 April 23
CHINA JUGGLES FOUR MAJOR ECONOMIC CHANGES IN 2023 - WOOD MACKENZIE
Change is afoot in China. Economic growth is slowing, while rising political tensions between China and the US, coupled with global supply chain re ...
Sunday, 16 April 23
CHINA'S MARCH COAL IMPORTS JUMP TO 3-YEAR HIGH - REUTERS
China’s coal imports surged in March to their highest in any month over the past three years as utilities increased purchases on expectations ...
Sunday, 16 April 23
OPEC KEEPS WORLD OIL DEMAND GROWTH OUTLOOK UNCHANGED
The OPEC Reference Basket (ORB) declined in March by $3.43, or 4.2%, m-o-m to average $78.45/b. The ICE Brent first-month contract fell by $4.33, o ...
Sunday, 16 April 23
CHEAPER SPOT LNG PRICES TEMPT SOME ASIAN BUYERS AMID SUPPLY GAINS - REUTERS
Cheaper spot prices for liquefied natural gas (LNG) are luring price-sensitive buyers back in Asia, with China and India recording rising imports i ...
Tuesday, 11 April 23
COAL USE CLIMBS WORLDWIDE DESPITE PROMISES TO SLASH IT - AAP
The burning of coal for electricity, cement, steel and other uses went up in 2022 despite global promises to phase down the fuel that is the bigges ...
|
|
|
Showing 106 to 110 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Pipit Mutiara Jaya. PT, Indonesia
- Sarangani Energy Corporation, Philippines
- Miang Besar Coal Terminal - Indonesia
- Africa Commodities Group - South Africa
- Timah Investasi Mineral - Indoneisa
- Orica Australia Pty. Ltd.
- Planning Commission, India
- MS Steel International - UAE
- Kapuas Tunggal Persada - Indonesia
- Rio Tinto Coal - Australia
- Tamil Nadu electricity Board
- Kalimantan Lumbung Energi - Indonesia
- Jaiprakash Power Ventures ltd
- Kideco Jaya Agung - Indonesia
- Commonwealth Bank - Australia
- ICICI Bank Limited - India
- Meralco Power Generation, Philippines
- Holcim Trading Pte Ltd - Singapore
- Coal and Oil Company - UAE
- Lanco Infratech Ltd - India
- Intertek Mineral Services - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Siam City Cement PLC, Thailand
- Maharashtra Electricity Regulatory Commission - India
- Energy Link Ltd, New Zealand
- Edison Trading Spa - Italy
- Anglo American - United Kingdom
- Petrochimia International Co. Ltd.- Taiwan
- Romanian Commodities Exchange
- New Zealand Coal & Carbon
- McConnell Dowell - Australia
- Binh Thuan Hamico - Vietnam
- GAC Shipping (India) Pvt Ltd
- Global Green Power PLC Corporation, Philippines
- Interocean Group of Companies - India
- LBH Netherlands Bv - Netherlands
- SMC Global Power, Philippines
- Maheswari Brothers Coal Limited - India
- Eastern Energy - Thailand
- Gujarat Sidhee Cement - India
- South Luzon Thermal Energy Corporation
- Australian Commodity Traders Exchange
- Electricity Generating Authority of Thailand
- Baramulti Group, Indonesia
- Sree Jayajothi Cements Limited - India
- Bukit Baiduri Energy - Indonesia
- Ministry of Finance - Indonesia
- Indo Tambangraya Megah - Indonesia
- Kartika Selabumi Mining - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Directorate Of Revenue Intelligence - India
- Standard Chartered Bank - UAE
- Xindia Steels Limited - India
- Indian Oil Corporation Limited
- Cigading International Bulk Terminal - Indonesia
- Videocon Industries ltd - India
- Eastern Coal Council - USA
- London Commodity Brokers - England
- Cement Manufacturers Association - India
- Central Electricity Authority - India
- Globalindo Alam Lestari - Indonesia
- Power Finance Corporation Ltd., India
- Bayan Resources Tbk. - Indonesia
- Straits Asia Resources Limited - Singapore
- Agrawal Coal Company - India
- Indonesian Coal Mining Association
- Deloitte Consulting - India
- Krishnapatnam Port Company Ltd. - India
- AsiaOL BioFuels Corp., Philippines
- Mercuria Energy - Indonesia
- Thiess Contractors Indonesia
- Chettinad Cement Corporation Ltd - India
- Salva Resources Pvt Ltd - India
- Oldendorff Carriers - Singapore
- SN Aboitiz Power Inc, Philippines
- Thai Mozambique Logistica
- Ambuja Cements Ltd - India
- CIMB Investment Bank - Malaysia
- Meenaskhi Energy Private Limited - India
- CNBM International Corporation - China
- Simpson Spence & Young - Indonesia
- Trasteel International SA, Italy
- Samtan Co., Ltd - South Korea
- Goldman Sachs - Singapore
- Ministry of Mines - Canada
- Gujarat Electricity Regulatory Commission - India
- Ministry of Transport, Egypt
- Price Waterhouse Coopers - Russia
- India Bulls Power Limited - India
- Semirara Mining Corp, Philippines
- Global Business Power Corporation, Philippines
- Rashtriya Ispat Nigam Limited - India
- Tata Chemicals Ltd - India
- OPG Power Generation Pvt Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Renaissance Capital - South Africa
- Siam City Cement - Thailand
- Aboitiz Power Corporation - Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Chamber of Mines of South Africa
- Bhoruka Overseas - Indonesia
- Kaltim Prima Coal - Indonesia
- Marubeni Corporation - India
- Riau Bara Harum - Indonesia
- GVK Power & Infra Limited - India
- Billiton Holdings Pty Ltd - Australia
- Ceylon Electricity Board - Sri Lanka
- Neyveli Lignite Corporation Ltd, - India
- Minerals Council of Australia
- Antam Resourcindo - Indonesia
- IEA Clean Coal Centre - UK
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Parry Sugars Refinery, India
- Formosa Plastics Group - Taiwan
- IHS Mccloskey Coal Group - USA
- Uttam Galva Steels Limited - India
- Economic Council, Georgia
- Indika Energy - Indonesia
- SMG Consultants - Indonesia
- Toyota Tsusho Corporation, Japan
- Borneo Indobara - Indonesia
- Mintek Dendrill Indonesia
- Wilmar Investment Holdings
- Posco Energy - South Korea
- Banpu Public Company Limited - Thailand
- Australian Coal Association
- Barasentosa Lestari - Indonesia
- Medco Energi Mining Internasional
- Iligan Light & Power Inc, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Sinarmas Energy and Mining - Indonesia
- Metalloyd Limited - United Kingdom
- The University of Queensland
- Asmin Koalindo Tuhup - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Orica Mining Services - Indonesia
- Bulk Trading Sa - Switzerland
- Larsen & Toubro Limited - India
- Mjunction Services Limited - India
- Energy Development Corp, Philippines
- Port Waratah Coal Services - Australia
- Sical Logistics Limited - India
- Parliament of New Zealand
- PNOC Exploration Corporation - Philippines
- PTC India Limited - India
- Pendopo Energi Batubara - Indonesia
- Bhushan Steel Limited - India
- Savvy Resources Ltd - HongKong
- Georgia Ports Authority, United States
- Leighton Contractors Pty Ltd - Australia
- Therma Luzon, Inc, Philippines
- Singapore Mercantile Exchange
- Heidelberg Cement - Germany
- Vizag Seaport Private Limited - India
- Madhucon Powers Ltd - India
- White Energy Company Limited
- Indian Energy Exchange, India
- Vedanta Resources Plc - India
- Latin American Coal - Colombia
- PetroVietnam Power Coal Import and Supply Company
- Carbofer General Trading SA - India
- Vijayanagar Sugar Pvt Ltd - India
- Sojitz Corporation - Japan
- Star Paper Mills Limited - India
- Electricity Authority, New Zealand
- Ind-Barath Power Infra Limited - India
- Central Java Power - Indonesia
- Wood Mackenzie - Singapore
- PowerSource Philippines DevCo
- The State Trading Corporation of India Ltd
- Essar Steel Hazira Ltd - India
- ASAPP Information Group - India
- The Treasury - Australian Government
- San Jose City I Power Corp, Philippines
- Bhatia International Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Mercator Lines Limited - India
- Alfred C Toepfer International GmbH - Germany
- Bukit Makmur.PT - Indonesia
- Attock Cement Pakistan Limited
- Independent Power Producers Association of India
- International Coal Ventures Pvt Ltd - India
- Sindya Power Generating Company Private Ltd
- GMR Energy Limited - India
- Coalindo Energy - Indonesia
- Bharathi Cement Corporation - India
- Bangladesh Power Developement Board
- Dalmia Cement Bharat India
- Makarim & Taira - Indonesia
- VISA Power Limited - India
- Karaikal Port Pvt Ltd - India
- TeaM Sual Corporation - Philippines
- Indogreen Group - Indonesia
- Kobexindo Tractors - Indoneisa
- Kepco SPC Power Corporation, Philippines
- Aditya Birla Group - India
- Jorong Barutama Greston.PT - Indonesia
- Global Coal Blending Company Limited - Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Sakthi Sugars Limited - India
- Coastal Gujarat Power Limited - India
- Jindal Steel & Power Ltd - India
- Altura Mining Limited, Indonesia
- Semirara Mining and Power Corporation, Philippines
- Malabar Cements Ltd - India
- Petron Corporation, Philippines
- Merrill Lynch Commodities Europe
- Kohat Cement Company Ltd. - Pakistan
- Grasim Industreis Ltd - India
- Kumho Petrochemical, South Korea
- European Bulk Services B.V. - Netherlands
- Manunggal Multi Energi - Indonesia
|
| |
| |
|
