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.
|
|
Wednesday, 21 September 11
2ND ANNUAL SHALE GAS SUMMIT
2nd Annual Shale Gas Summit 31 October – 3 November 2011 JW Marriott Hotel, Hong Kong
According to a recent EI ...
Tuesday, 20 September 11
MTD INAUGURATES ITS COAL TERMINAL IN JAVA ISLAND
Press Release – MTD Group of Malaysia, one of prominent key players in the development of infrastructure in Malaysia, today inaugurated their ...
Tuesday, 20 September 11
DRY BULK MARKET LOSING ITS EDGE, RETREATING AT THE START OF THE WEEK - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
After a surge during the past couple of weeks, which saw Capesize earnings boosted and the BDI (Baltic Dry Index) reaching levels of year high and c ...
Monday, 19 September 11
CHINA IMPORTS MORE THAN 10 MMT INDO COAL IN AUGUST 2011
COALspot.com - Indonesian coal exports dropped 1.642 million tons in August compared to July exports. Indonesia exports 29.662 million tons of coal ...
Monday, 19 September 11
INDOMOBIL ENTERING INTO COAL MINING BUSINESS
COALspot.Com- PT Indomobil Sukses Internasional Tbk, part of, one of Indonesia's largest conglomerates, to enter into mining industry ac ...
|
|
|
Showing 5071 to 5075 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Holcim Trading Pte Ltd - Singapore
- Grasim Industreis Ltd - India
- VISA Power Limited - India
- Thiess Contractors Indonesia
- Interocean Group of Companies - India
- Eastern Coal Council - USA
- Kapuas Tunggal Persada - Indonesia
- South Luzon Thermal Energy Corporation
- Meralco Power Generation, Philippines
- Asmin Koalindo Tuhup - Indonesia
- Romanian Commodities Exchange
- Global Coal Blending Company Limited - Australia
- Mjunction Services Limited - India
- SMC Global Power, Philippines
- SN Aboitiz Power Inc, Philippines
- Siam City Cement - Thailand
- Timah Investasi Mineral - Indoneisa
- Sree Jayajothi Cements Limited - India
- Renaissance Capital - South Africa
- Parliament of New Zealand
- Rio Tinto Coal - Australia
- Kalimantan Lumbung Energi - Indonesia
- Lanco Infratech Ltd - India
- Sojitz Corporation - Japan
- Mintek Dendrill Indonesia
- Therma Luzon, Inc, Philippines
- Metalloyd Limited - United Kingdom
- Bhushan Steel Limited - India
- Edison Trading Spa - Italy
- Sinarmas Energy and Mining - Indonesia
- Karaikal Port Pvt Ltd - India
- Bharathi Cement Corporation - India
- Bhatia International Limited - India
- Krishnapatnam Port Company Ltd. - India
- Coalindo Energy - Indonesia
- Mercuria Energy - Indonesia
- International Coal Ventures Pvt Ltd - India
- Coal and Oil Company - UAE
- Madhucon Powers Ltd - India
- IEA Clean Coal Centre - UK
- Barasentosa Lestari - Indonesia
- Tamil Nadu electricity Board
- Maharashtra Electricity Regulatory Commission - India
- Price Waterhouse Coopers - Russia
- Carbofer General Trading SA - India
- Cement Manufacturers Association - India
- Bukit Baiduri Energy - Indonesia
- Electricity Generating Authority of Thailand
- Borneo Indobara - Indonesia
- Xindia Steels Limited - India
- Jorong Barutama Greston.PT - Indonesia
- CNBM International Corporation - China
- Electricity Authority, New Zealand
- Siam City Cement PLC, Thailand
- Latin American Coal - Colombia
- Thai Mozambique Logistica
- Manunggal Multi Energi - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- SMG Consultants - Indonesia
- New Zealand Coal & Carbon
- Bank of Tokyo Mitsubishi UFJ Ltd
- TeaM Sual Corporation - Philippines
- CIMB Investment Bank - Malaysia
- Aboitiz Power Corporation - Philippines
- OPG Power Generation Pvt Ltd - India
- Australian Coal Association
- Samtan Co., Ltd - South Korea
- Bhoruka Overseas - Indonesia
- Chamber of Mines of South Africa
- Central Electricity Authority - India
- Gujarat Sidhee Cement - India
- PTC India Limited - India
- Global Business Power Corporation, Philippines
- Africa Commodities Group - South Africa
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Banpu Public Company Limited - Thailand
- Energy Link Ltd, New Zealand
- Heidelberg Cement - Germany
- Videocon Industries ltd - India
- Altura Mining Limited, Indonesia
- Alfred C Toepfer International GmbH - Germany
- Jaiprakash Power Ventures ltd
- Indian Oil Corporation Limited
- Billiton Holdings Pty Ltd - Australia
- ICICI Bank Limited - India
- Tata Chemicals Ltd - India
- Georgia Ports Authority, United States
- Kohat Cement Company Ltd. - Pakistan
- Kobexindo Tractors - Indoneisa
- GVK Power & Infra Limited - India
- Independent Power Producers Association of India
- Simpson Spence & Young - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Anglo American - United Kingdom
- Orica Mining Services - Indonesia
- Indogreen Group - Indonesia
- Essar Steel Hazira Ltd - India
- Goldman Sachs - Singapore
- Ambuja Cements Ltd - India
- Kumho Petrochemical, South Korea
- Baramulti Group, Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Minerals Council of Australia
- Directorate General of MIneral and Coal - Indonesia
- Riau Bara Harum - Indonesia
- Kideco Jaya Agung - Indonesia
- Kepco SPC Power Corporation, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Sarangani Energy Corporation, Philippines
- Pendopo Energi Batubara - Indonesia
- Indian Energy Exchange, India
- Binh Thuan Hamico - Vietnam
- McConnell Dowell - Australia
- Bahari Cakrawala Sebuku - Indonesia
- Bukit Makmur.PT - Indonesia
- Parry Sugars Refinery, India
- London Commodity Brokers - England
- GMR Energy Limited - India
- GAC Shipping (India) Pvt Ltd
- ASAPP Information Group - India
- Semirara Mining and Power Corporation, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Semirara Mining Corp, Philippines
- Port Waratah Coal Services - Australia
- Directorate Of Revenue Intelligence - India
- Chettinad Cement Corporation Ltd - India
- Vedanta Resources Plc - India
- Malabar Cements Ltd - India
- Dalmia Cement Bharat India
- Sindya Power Generating Company Private Ltd
- Eastern Energy - Thailand
- The Treasury - Australian Government
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Coastal Gujarat Power Limited - India
- Orica Australia Pty. Ltd.
- Karbindo Abesyapradhi - Indoneisa
- White Energy Company Limited
- Gujarat Mineral Development Corp Ltd - India
- Mercator Lines Limited - India
- Kaltim Prima Coal - Indonesia
- Star Paper Mills Limited - India
- Meenaskhi Energy Private Limited - India
- Petron Corporation, Philippines
- Miang Besar Coal Terminal - Indonesia
- Medco Energi Mining Internasional
- Ministry of Finance - Indonesia
- Bangladesh Power Developement Board
- Ministry of Transport, Egypt
- Marubeni Corporation - India
- Savvy Resources Ltd - HongKong
- Maheswari Brothers Coal Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Australian Commodity Traders Exchange
- Attock Cement Pakistan Limited
- Bulk Trading Sa - Switzerland
- Rashtriya Ispat Nigam Limited - India
- Power Finance Corporation Ltd., India
- Globalindo Alam Lestari - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Petrochimia International Co. Ltd.- Taiwan
- Salva Resources Pvt Ltd - India
- Standard Chartered Bank - UAE
- Indo Tambangraya Megah - Indonesia
- India Bulls Power Limited - India
- PowerSource Philippines DevCo
- Central Java Power - Indonesia
- Trasteel International SA, Italy
- Cigading International Bulk Terminal - Indonesia
- Ministry of Mines - Canada
- Indika Energy - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Sakthi Sugars Limited - India
- Larsen & Toubro Limited - India
- Merrill Lynch Commodities Europe
- Iligan Light & Power Inc, Philippines
- The University of Queensland
- GN Power Mariveles Coal Plant, Philippines
- Ceylon Electricity Board - Sri Lanka
- LBH Netherlands Bv - Netherlands
- Wilmar Investment Holdings
- Pipit Mutiara Jaya. PT, Indonesia
- Kartika Selabumi Mining - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Singapore Mercantile Exchange
- MS Steel International - UAE
- Agrawal Coal Company - India
- Intertek Mineral Services - Indonesia
- Uttam Galva Steels Limited - India
- San Jose City I Power Corp, Philippines
- Wood Mackenzie - Singapore
- Commonwealth Bank - Australia
- Antam Resourcindo - Indonesia
- Global Green Power PLC Corporation, Philippines
- Energy Development Corp, Philippines
- Vizag Seaport Private Limited - India
- PNOC Exploration Corporation - Philippines
- Indonesian Coal Mining Association
- Deloitte Consulting - India
- European Bulk Services B.V. - Netherlands
- Toyota Tsusho Corporation, Japan
- Ind-Barath Power Infra Limited - India
- Sical Logistics Limited - India
- Formosa Plastics Group - Taiwan
- Planning Commission, India
- Aditya Birla Group - India
- Straits Asia Resources Limited - Singapore
- Economic Council, Georgia
- IHS Mccloskey Coal Group - USA
- Bayan Resources Tbk. - Indonesia
- Oldendorff Carriers - Singapore
- Jindal Steel & Power Ltd - India
- Posco Energy - South Korea
- PetroVietnam Power Coal Import and Supply Company
- The State Trading Corporation of India Ltd
- Makarim & Taira - Indonesia
|
| |
| |
|
