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Mining for lessons PDF Print E-mail
Monday, 19 September 2011 00:00
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Given that every fifth diamond in India comes from Rio Tinto and all of the UK-Australian mining firm’s diamonds from its Australian operations (54% of the Canadian ones as well) are sold to Indian customers, it’s not surprising that more Indians know the company for its diamonds—the famous pink Argyle diamonds are a Rio Tinto brand and, in the auctions that have just begun, the top 50 are expected to fetch anywhere between $60-80 million. Yet, Rio Tinto offers valuable lessons for India, and not just for its mining operations and technology, as a group of journalists, including yours truly, discovered last week in a trip sponsored by the miner to western Australia.

 

It’s obviously not possible to take readers for a tour of Rio’s amazing operations in such limited space, but suffice it to say they include bringing the land back to the original condition (right down to the different types of tree species) it was in before they began mining, as well as controlling the mining operations in 1,400-km away Pilbara from a Network Operations Centre (NOC) in Perth. That’s right, the NOC controls the loading and unloading of Rio’s ores in the Dampier port, successful pilots have been run for having driverless trucks and trains and, even today, through its sensors and cameras at various mining sites, the NOC is able to direct trucks on where to load/unload their cargo, decide on their maintenance schedule and even decide on how to mix (and then direct the operations) different lots of ore to get a uniformly consistent grade of ore, from the iron content to the sulphur and what have you. The operations are very very Avatar (remember the movie?) in the techy sense and, when that was mentioned at one of the presentations, Rio Tinto’s India chief said he hoped the similarity ended there and that the world’s ore didn’t become Avatar’s unobtanium!

What’s best, instead, is to use the learnings from Rio Tinto to address some of the popular perceptions about mining in India. So, for instance, many political parties, especially after the mining scam in Karnataka, are of the view that captive mining licences should be given to steel plants who can convert the ore into steel from where the country gets more profits and more taxes, as compared to a situation in which merchant miners get the mines.

For the record, Rio Tinto staffers dispute the tax angle and show that, over a period of time, mining companies give as much if not more taxes than steel firms do. Sure, mining firms pay a lot less royalty than the excise duty steel firms pay but, since they have much higher profits, and profitability, than steel producers, the state gets a lot more through corporate taxes. In 2009-10, Rio Tinto points out, mining firm NMDC gave 47% or so of its revenue to the government as compared to around 12% for steel PSU SAIL.

The important thing, you understand when you see Rio’s operations, is that the captive/non-captive argument is a static one and misses the woods for the trees. To begin with, with 14 bn tonnes of iron ore, India’s current reserves are enough to last another 60 years at even double the current levels of steel capacity. But 60 years is not that long, so that’s not a convincing argument for commercial mining where, like it or not, exports do get favoured. The clincher really is the sharp increase in ore reserves with good mining practices that, more often than not, professional mining firms bring to the table. In 1980, India had 11.5 bn tonnes of iron ore reserves and Australia 15 bn; in 2005, India was 13.8 bn and Australia 40 bn! Not surprising when you consider that, in 2010-11, Australian miners invested $5.9 bn in new exploration and $56 bn in new capital expenditure on existing mines—the $174 bn Australia had invested in mines in April 2011 was a 31% hike since October 2010!

The reason for this is simple: just as a steel plant, or any other for that matter, has a vested interest in keeping its production constant or raising it over the years, the mining firm needs to husband its resources by finding new deposits and being able to work the mine for longer periods. Since finding new deposits is not that easy, mining firms have to mine the ore more intensively. In 1960, Australian miners used to mine up to depths of 100 metres, today they go up to 600 metres. In the Marandoo mine we visited in the Pilbara, production was around 8-9 mn tonnes a year, but the mine had enough reserves to produce for another 2-3 years—now that the mine has got permission to mine below the water table, it will ramp up annual production to

15 mn tonnes (it has an ‘extra’ 150 mn tonnes of reserves now).

Interestingly, Rio Tinto has been prospecting for diamonds in India and, as compared to the 12 kimberlites (rock formations in which diamonds may be present) discovered by various government organisations in India between 1980 and 2004, Rio Tinto has found 22 kimberlites between 2000 and 2003.

More interesting is the way the Australian government has approached the issue of local people whose lives depend on the land being used by the miners—Aboriginees in the case of Australia and Scheduled Tribes (STs) in the case of India. Obviously, solutions have to differ from one country to the next, and the fact that Australia’s population is a fraction of India’s has to be kept in mind. Unlike India’s 26% of profits for local groups’ diktat, Australia leaves it to mining firms to negotiate with locals who, at the end of day, control access to the land the miners want. Rio Tinto, the company says, gives Aboriginees 2.5% of its annual profits, 10.5% of its staffers are Aboriginees and, in the last one year, $800 mn worth of contracts (of the total investment of $13 bn) were awarded to Aboriginee companies (or JVs they’d formed with non-Aboriginee firms who had the necessary expertise). What the state did do, though, was to encourage the Aboriginees to organise themselves into groups which are assisted by top consultants/lawyers in their negotiations with the miners.

It cannot be anyone’s case that the Aboriginees in the case of Australia, or the STs in India, have living standards (mortality and morbidity) that are on par with the rest of the population. And after 18 years of Aboriginee contracts, just 2.5% of Rio’s middle-managers are Aboriginees, but then, after 60 years of reservations, just 3.5% of managerial jobs in India are with STs. Since the old way hasn’t worked for India, whether in terms of getting more ore finds or bettering the conditions of STs in forest areas, it may not hurt to look at the paths others are using.

 

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