Project on mining negotiation

Areas on which the negotiation is to be made to the Board of Directors

Demand for iron ore in the future

China is currently the largest consumer of iron ore, which translates to be the world's
largest steel producing country. It is also the largest importer, buying 52% of the
seaborne trade in iron ore in 2004. China had consumed 500 million tonnes of iron in the
month of July’10. China is followed by Japan and Korea, which consume a significant
amount of raw iron ore and metallurgical coal.

Consumption of iron ore is closely related to steel demand as about 98% of iron ore
produced is used in making steel.

Global Iron Ore Consumption to Exceed 1.7 Billion Tons by 2015, According to New
Report by Global Industry Analysts, Inc.

At present the biggest consumers of iron ore from NMDC is Japan and Korea. China also

procure the iron ore on spot basis.

The fuel i.e. coal is procured in the way:

 The Ministry of Coal has allotted two coal blocks – Shahpur East and

Shahpur West to NMDC in July 2007

 Blocks have been regionally explored

 Area

– Shahpur East: 6.93 sq km

– Shahpur West: 5.875 sq km

 Reserve

– Shahpur East: Total - 63.356MT (Proved: 53.606MT; Probable –

9.75MT)

– Shahpur West: Total – 52.676MT (Proved: 38.376MT; Probable –

14.3MT)
  Both blocks are for underground mining

 Coal block in shahdol, Madhya Pradesh

The world production for iron ore (global)

 World crude Iron production has witnessed an impressive growth during

the last decade from the level of 850mT during the year 2001 to 1,344 mT in

2008, resulting in a Compound annual growth rate (CAGR) of 8%

 However, the world crude Iron production on year to year basis has

witnessed a reduction for the first time in the past decade during 2008 when

production decreased by 1% to 1,330 mT from 1,344 mT in 2007

 2009 was an extraordinary year for iron ore miners. The steel market

crashed following the financial crisis that hit in September/October 2008. A

disaster was looming. Even towards the middle of 2009 most projections

indicated a further decline of 15 % following 2 % in 2008. During the second half

of 2009 the mood changed and the final figure was only 7 % down. This turn-

around is highly remarkable. The shift becomes even more dramatic when looking

at the details. Steel output outside China fell by 21 % in 2009 while China

recorded a 13.5 % growth. At over 500 Mt (million tons) of production China is

by far the leading steel producer. The implication for the future is clear: it is the

steel industry of China which drives global steel markets and hence the demand

for iron ore.

In July of 2010 iron ore imports by China, the largest buyer of such, rose for the

first time in four months, indicating steelmakers are restocking after depleting

inventories.

 The experience of the 2008-09 recession has indicated that industries

dependent on export are more susceptible to volatilities of the market

  . In 2008-09, domestic sales was 85% of total sales

 Export sales are about 3.5 mTpa and constitute about 15% of total sales

So, in other way we can say that we are not much affected by the reduction in demand of

iron and having much of iron ore mineral has enabled us to fulfill our domestic demand

and whenever required in the international market we can export to other countries and

with an edge over other countries and also command higher prices as the situation may

permit.

In order to meet increased demand, NMDC has plans to increase its production

capacity.

Where do we want to explore?

We want to explore in India as the demand of iron ore in the domestic market is

very high and doing mining in other countries means the high cost of logistics and

various other high costs. Whereas if we produce domestically, we can easily

satisfy the domestic demand and with the cash rich bags can go to other countries

for mining like we recently are in negotiation 2 mines in Russia. India's top iron

ore miner NMDC Ltd is looking to acquire two coking coal mines from Russia's

Kolmar for $400 million.

INCOME TAX INCENTIVES FOR MINING

The following are the benefits that we will get because of mining and these benefits
cannot be ignored. The stated tax benefits are on the basis of the Income Tax Act,
1961
 • Availability of tax holiday

• Mining companies in specified backward areas are eligible for a complete

tax holiday for a period of five years from commencement of production and a
partial tax holiday thereafter. The activities should begin in the period between
April, 1993 and March 31, 1998.

• Depreciation allowances

• The benefits of accelerated depreciation are available for tax purposes. As

a result, the total amount of depreciation which is allowable as a tax deduction
does not change but the company is allowed to make such deductions earlier in
the project’s life. Depreciation rates, in general, are given alongside.

Tubs, winding ropes haulage ropes, stowing pipes and safety lamps use in mines
and quarries are allowed 100 percent depreciation. Environment protection
equipment, pollution control equipment, energy saving equipment also qualifies
for 100 percent depreciation.

Expenditure of prospecting, extraction and production of minerals

• The expenditure incurred by an Indian company engaged in any operation

relating to prospecting for, or extraction or production of any mineral during the
five year period ending with the year of commercial production is allowed as a
deduction from the total income to the extent of one-tenth of the amount of such
expenditure.
• No deduction is allowed on expenditure on the acquisition of site and
other capital expenses on which depreciation is claimed.

Under the MMRD Act, the following rents, fees and royalties are to be paid.

• Prospecting Fee

The holder of a Prospecting License is required to pay annually, in advance, a

prospecting fee in respect of the ensuring year or part of the year at such rates and time as
may be fixed by the State Government, being not less than 50 paise and not more than 5
rupees per hectare of land. He or she is also liable to pay royalties at the rates specified in
Schedule II to the MMRD Act, in the case of minerals to be removed for commercial
purposes and on quantities removed in excess of those specified in Schedule III of the
Mineral Concession Rules of 1960.

• Surface Rent
 The lessee is required to pay for the surface area used for mining operations, at a rate not
exceeding the land revenue, as may be specified by the State Government in the Mining
Lease.

• Dead Rent

The holder of a Mining Lease must pay to the State Government annual dead rent at such
a rate as may be specified in the MMRD Act, for all areas included in the Mining Lease.

• Royalties

The holder of a Mining Lease is liable to pay royalties in respect of any mineral removed
or consumed by him or her from the leased areas at the rate specified in the MMRD Act.
The Central Government is empowered to increase or reduce the rate of royalty, but it
cannot increase the rate in respect of any minerals more than once during any three-year
period. The royalty is to be paid at such a time and in such a manner as the State
Government may prescribe.

These obligations and kinds of benefits enable us to look at the iron ore with a positive
side and understand it from the perspective of taxation.

Source: http://mines.nic.in/writereaddata/filelinks/9f224588_8.html

Cost benefit analysis

In crores
Estimated cost for Reconissance permit 15.56
Estimated cost for prospecting lease
Estimated cost for mining lease
a) Equipments 14.73
b) Manpower cost 163.7
c) Security Deposits 1.24
d) Other expenses 220
(including transportation,power,fuel)

Total 415.23

In Tonnes
Total expected production 112000000
Estimated price 6318

Total 70761.6
Profit 70346.37million

(Ignoring inflation cost)

Mineral exploration

Minerals play vital role in the development of any country as they are backbone of the
Industries. Rocks and Minerals also form important source materials for construction
purposes. Hence it is essential that these mineral treasures of the state are identified and
assessed so that their precise industrial utility is decided.

What is Exploration

 It’s the collection of processes that gather information about the presence
or absence of mineral deposits.

 The over-riding goal of exploration is to find deposits that can be worked

as profitable mining operations.

Stage 1: Reconnaissance Permit (RP)

RP is mineral concession granted for preliminary prospecting of a mineral

through regional, aerial, geophysical or geochemical surveys and geological
mapping. It involves:

 Reconnaissance Permit (RP) application for larger area of exploration

 RP Grant by respective state governments

 RP deed execution

 Reconnaissance Survey work under RP (Period of RP - 3 years)

Exploration Work
An application for a reconnaissance permit (for preliminary prospecting through surveys
or mapping which is given for maximum three years) in respect to Donimalai, Karnataka
in which the minerals vest is made to the Karnataka Government concerned in the
prescribed form and shall be accompanied by the prescribed fee.

Total area for which permit will be asked for around (2000-2500) square km @
Rs 5 per sq km as a non refundable application fee.

1) Checklists/Forms which are submitted with the permit are:

• Affidavit Stating No Mining dues and Income Tax due in the
State
• Company registration certificate (copy)
• Power of attorney of authorized person, who will sign the
application
• List of Board of Directors
• Resolution of the company for appointing the authorized signatory
• Attested copy of the Memorandum of Association and Article of
Association
• Year wise work schedule and expenditure
• Details of the financial and technical capability of the company
• Any other information desired by the applicant or DGM office.

2) After grant of reconnaissance permit, security deposit at the rate of Rs 20

per square km is deposited toward reconnaissance.
3) Since after two years, the area should be reduced to 1,000 square
kilometer or 50% of the area granted, whichever is less and at the end of
three years, area held under a RP should be reduced to 25 square kilometer,
time and planning to explore area is designed accordingly.
4) Team of geologists, geophysicist, engineers etc are employed for survey
and mapping.
 5) Broad scale analysis of geology, geochemical sampling and geophysical
data (mostly airborne and some ground investigations) is undertaken to find out
types of rocks and soil present etc.
6) As per the report of geologists, Donimalai has huge reserves of haemaite,
iron ore (average grade +65% Fe, SiO2 2.26%) with annual projected capacity of
4million tonnes per year and this will require open pit cast mining technique.
Soil type is laterite (rich in iron).
7) To cater logistics we will establish mechanized loading plant which will
connect mine by south western railways to nearest Chennai port.

EXPECTED BUDGET FOR RECONNAISSANCE PERMIT

(Overall Budget for 3 Years)

PARTICULARS EXPECTED COST (

In INR)
Application fee for Reconnaissance Permit ( Non 3500.00
refundable)

Reconnaissance Permit fee with Application Form 12500.00

(Rs 5 /-per Km)

Security Deposit ( for Reconnaissance Rs. 20/- per 50000.00

Km)

Salary to the Reconnaissance Expert Team (Expected 90000000.00

50 (Geologist, Geophysics , Engineers etc.) required)

Salary to the labor contractor ( Total 100 required) 15400000.00

Accommodation & Conveyance 3000000.00

Equipments for Reconnaissance 50000000.00

 5000000.00

Transportation ( for aerial examination of land)

Legal fee for state & central government 200000.00

Misc. Expenditure 2000000.00

Total 155666000.00

Ban on iron ore exports in Karnataka

Mr. R.K. Sharma, the secretary general of federation of Indian Mineral Industries (FIMI)
even told that the ban on export of iron ore has led to an adverse impact. And the
legitimate miners are being penalized for the work of illegitimate miners who had been
doing the illegitimate mining with the assistance from the bureaucrats and politicians.
This is hurting the fundamental right of doing business legitimately under the
Article 19 of the Constitution.

The biggest reason that can make us fight for dismantling the ban

Karnataka produces about 45 million tonne of iron ore per year. 15 million tonne is used
in the domestic market, in steel plants and the sponge iron making. What is being
exported is almost not required in the country. The exports are about 30 million tonne per
year that means about 2.5 million tonne per month on an average.

So will it be wise for the country’s economy to impose a ban on exports from Karnataka
and curb the chance to earn the foreign currency or just to be extra cautious and prevent
the illegal mining in the state.? The question though allows them to make a verdict but
answer in the favour of NMDC to get permission in mining

Prospective Licensing
As a second stage, assuming a successful Reconnaissance Survey, the Company will apply for a
Prospecting License ("PL") covering targeted or selected blocks of acreage within the area
covered by the RP. Once the PL is granted, the relevant deeds are executed and the Company is
permitted to conduct exploration activities during the term of the PL, generally up to a maximum
of five years.

Steps for Prospective Licensing:

1. An application for a Prospective Licensing (which is given for maximum five years) in
respect to Donimalai, Karnataka in which the minerals vest is made to the Karnataka
Government concerned in the prescribed form and shall be accompanied by the security
deposit.

2. Checklist:

• Affidavit Stating No Mining dues and Income Tax due in the State.
• Company registration certificate (copy).
• Power of attorney of authorized person who will sign the application.
• List of Board of Directors.

• Resolution of the company for appointing the authorized signatory.

• Attested copy of the memorandum of association and article of association.
• Year wise work schedule and expenditure.

3. The next step is mine development mainly involves building and accumulation of
several facilities, machineries and amenities required for extraction of iron ore from the
mine. This step includes the necessary infrastructure development for safe and
appropriate extraction operation. This step also stresses on the reclamation aspect that
would be required after completing the extraction process.

4. The extraction operation includes excavation of iron ore from the mine. This includes
the process of actual digging in the earths crust for the iron ore. This is a continuous
process that could go on for 3 years and depending on the amount of iron ore deposit in
the mine. The extraction process today involves optimum use of available latest
resources for systematic production of the iron ore.

5. Team of geologists, geophysicist, engineers etc are employed for survey and mapping.
The reports of the investigations are published in the form of geological reports which
are nominally priced for the benefit of mineral industry in the State.

• Exploration of Sulphide zones

• Survey and assessment of Ferrous minerals
 • Investigation of Ornamental stones
• Survey for lime and limestones
• Investigation for refractory minerals
• Exploration for precious and semi-precious minerals such as gold, silver platinum etc.,
• Enviornmental impact studies

As per the report of geologists, Donimalai has huge reserves of haemaite, iron ore (average
grade +65% Fe, SiO2 2.26%) with annual projected capacity of 4million tonnes per year
and this will require open pit cast mining technique. Soil type is laterite (rich in iron)

Application fees for Prospective licencing: Rs. 50 for first sq km and Rs. 10 for
additional kms. In our case it will sum up to Rs. 290.

Grant for mining lease:

We are applying for mining lease of 20 years. The site is Donimalai, Sandur, District Bellari,
Karnataka. This mine is 3km far from town. The minimum temperature of Donimalai is 12
degree Celsius, maximum 40 degree Celsius. The wind flows in SE to NW direction. Relative
humidity varies from 38% to 95%. The reserves found is 112MT(Million Tonne). The mining is
of Open Cast mining type.The mining area is 100square km. This ore will produce Doni
Lump(DL) of 67% iron(Fe) and Doni fine(DF) of 65% Fe.

Sandur lake

Dump
5.3km
area

Store

Mining
Training zone
Loadi centre and
Donimalai canteen
ng
town
point
Office
Convey
Ranjithpu or belt
ra railway
station
 Loading
point

Screening
Geology
plant Communi
centre
cation
Crushing tower
plant

Mining process diagram:

Mining Process Diagram
Developmental
activities

Drilling

Mining, loading,
Waste transportation
dumps

Crushing
 Screening

Fine ore stock Lump ore

pile stockpile

Loading and
dispatching
The various particles move out of the process are SO2, NOx, dust cloud,, noise,
vibration, metallic and non metallic waste, oil contaminated hazardous waste,
effluents oil and grease, used batteries.

The firm has adopted different measures for reducing the environmental pollution
like:

• The mining will be mechanized.

• The water will be injected during drilling.
• Bracing walls and ceilings will be made around mining area.
• Conveyers will be covered to prevent dust.
• Water sprinkling will be done at transfer points, roads, storage area,
dumping area, crushing plant, screening plant.
• Dust collectors will be attached with drills.
• Rubber screens and lining will be provided at transfer points.
• Trucks covered with tarpaulin sheets/ leak proof will be used.
• Instead of blasting, ripper dozers will be used.

Now, the waste generated during mining will be stored in dumping area and a
dumping dam will be constructed. This will be located in close valley, where flora
and fauna is not dense. To prevent seepage of waste like shale, laterite, bended
hematite quartzite (BHQ) ; check dams will be constructed around dumping dam
( 4 in south , 1 in north and 3 in west) .Approximate area would be 75 hectares
with height 120 meter and approximate waste would be 100 m tones.
Drainage:- The water used will be recycled and reused after processing. The
remaining water will be discharged to Doni spring or Narihalla ( Nallah). For
prevention of seepage of water, the dam will be constructed. This is 10 Km from
the mining area.

Air Quality : - The gases which will be emitted like SO2 and NOX will be of
density 4.11microgram/m3 and 10.45 microgram/ m3 respectively which are below
standard or maximum limit.

Manpower :- Total 1000 persons will be employed for mining in the respective
area. The unskilled and semiskilled workers will be hired on contractual basis with
wages of Rs. 100/- and Rs.150/- respectively. The shift of working will be of 8
hours. The contractual labor will be taken from local area only. There will be age
limit for men and women which will be of 18 years minimum age for both
category and maximum limit for men is 50 years and for women; it will be of 40
years. Overtime will be provided @ Rs.25 per hour and Rs.40/- for unskilled and
semi skilled workers respectively. In case of accidents, bad health ; treatment will
be provided at nominal cost in NMDC hospital only. Child care, education facility
will also be provided.

Water: It would be taken from Sandur Lake; which is near the mining zone.

Particulars Expected cost(Rs)

Application for grant of mining lease 5000.00
for mineral

Security deposit 12355000.00

Transportation cost to Chennai port 2.0/kg by rail
2.5/kg by road
Diesel cost 25.0/litre
Electricity cost 6.0/KWH

Employee Category No. of Pay scale Total CTC

employee per moth

Engineers 150 6000-9000 2250000.00

Supervisors 50 10000-15000 1100000.00

Assistant Manager 35 15000-20000 1050000.00

General Manager 25 25000-35000 750000.00

General Head 8 40000-60000 800000.00

Labors 700 100-150 87500.00

Total ( Per month) 6825000.00

Total cost per annum 81900000.00

Donimalai iron ore project Afforestation

· Planted 10,000 saplings with in mining lease area at Donimalai. 50,000 Agave
bulbs were planted on non-active waste dumps in Donimalai

Type of soil in Donimalai is red clay soil and sandy.

The type of trees that best suit this type of soil that have been identified are:

1) Agave trees- it is cultivated best in warm climates just like a cactus and
does not require much water, hence we have taken this tree. Kadasgarden
nursery is the nursery from where we will be buying it. It sells it for $7 and
we will be buying it for $4
2) Eucalyptus trees- it is best suited for any type of soil and especially for a
clay soil, as it is one of the fastest growing trees it will be better and
replantation would be quicker. They sell 20 seeds for $5 and we will buy it
for $3.8
 3) Kikar trees- grow in any type of soil and require less water to grow. We
will be buying it for $1.8

Donimalai iron ore mine 3,40,377 lakh trees 224 hectares

for 10 yrs

Below is the budget sheet for the number of plants needed along with the price per
tree. Our overall budget for plantation is Rs. 125,049,000

Pri t
Plant Quantity ce otal
1230000
Agave 70000 180 0
8217000
eucalyptus- seeds 22000 171 0
kikar tree 50000 85 4250000
9872000
grand total 0

In lakhs

Sr. Name of Years

No. Development
1 2 3 10- Total
Apr
1 Site 625 - - - 625
preparation
2 Alignment 313 - - - 313
and staking
 3 Trench-cum- 1536 400 - - 1936
mound
fencing
4 Digging of 5625 1125 - - 6750
pits and
refilling of
pits after
mixing farm
yard manure,
fertilizer and
insecticide
5 Cost of farm 2700 550 - - 3250
yard manure
including
carriage
6 Cost of 1800 360 - - 2160
plants
including
carriage
7 Cost of 250 300 - - 550
fertilizer
including
application
8 Cost of 200 200 - - 400
insecticides
including
application
9 Weeding and 2719 1813 1813 - 6345
soil working
10 Irrigation 2000 2000 - - 4000
during stress
period
Grand Total 26329

Names of the NGO

 1. Bhumi Putra Mandal: Against deforestation and Local environment and health.
2. Friends of earth: Against deforestation and ecological imbalance.
3. Donimalai yuva mandal: Concerned with employment only, other issues are secondary
for them.

Issues related to Environment

Issue raising parties: Friends of earth, Bhumi Putra Mandal and Donimalai yuva mandal

Our arguments:

Air Pollution:

1. Instead of blasting, ripper dozers will be used.

2. The gases which will be emitted like SO2 and NOX will be of density
4.11microgram/m3 and 10.45 microgram/ m3 respectively which are below standard
or maximum limit.
3. Dust collectors will be attached with drills.
4. Trucks covered with tarpaulin sheets/ leak proof will be used.
5. Conveyers will be covered to prevent dust.
6. The water will be injected during drilling.

Water Pollution:

1. Water sprinkling will be done at transfer points, roads, storage area, dumping area,
crushing plant, screening plant.
2. The water used will be recycled and reused after processing. The remaining water will be
discharged to Doni spring or Narihalla (Nallah). For prevention of seepage of water, the
dam will be constructed. This is 10 Km from the mining area.
Noise Pollution:

1. Instead of blasting, ripper dozers will be used.

2. The water will be injected during drilling.
Land Deforestation:

1. The waste generated during mining will be stored in dumping area and a dumping
dam will be constructed. This will be located in close valley, where flora and fauna is
not dense. To prevent seepage of waste like shale, laterite, bended hematite quartzite
(BHQ) ; check dams will be constructed around dumping dam (4 in south , 1 in north
and 3 in west) .Approximate area would be 75 hectares with height 120 meter and
approximate waste would be 100 m tones.
2. The top-soil, wherever extracted should be used immediately for plantation work, and
where it can’t be used immediately should be stacked separately, to be used later for
rehabilitating mined out areas and dumps. The overburden dumps should not be
created on steep hill slopes but on plain or moderately sloping ground and should be
created in layers of moderate thickness of say 8 to 10 m, and each upper layer should
be formed leaving a terrace at the outer edge of the lower layer. The individual layers
may have slopes at angle of repose of the dump material but the overall angle of slope
by this method of formation in layers would come down to around 28 degrees making
it easier for erosion control and revegetation of the dumps. Construction of check
dams in gullies and rivulets will help in checking erosion and down wash of silt.
3. The availability of modern techniques and technology can restore an ecosystem
damaged by mining in a span of only 5 years. Apart from it10,000 saplings will be
planted.

Issues related to Local development and Employment

Issue raising parties: Donimalai yuva mandal, Friends of earth, Bhumi Putra Mandal
Our arguments:

1. We need 500-700 people for mining purpose. Our motive is to hire mostly from
the local region but that will depend on the skill of the labour.
2. NMDC as a responsible citizen of the country always looks for the development
of the country and specifically the region of our operations. Since inception our
projects were entirely altruistic and we have been working towards the socio-
economic development of the region we are running schools and hospitals.
3. We want to create added value in the country.
4. Working with the UN Development Programme (UNDP), NGOs and local
communities to put together a sustainable development plan.

Issues related to Wild Life Protection

Issue raising parties: Friends of Earth, Bhumi Putra Mandal

Our arguments:

1. According to wild life census of 2008 it was found that there are four-horned
antelopes, sloth bears, leopards, jackals, peacocks and common langurs which are
being slowly and steadily relocated to five different national parks of Karnataka state.

Issues related to Health

Issue raising parties: Friends of Earth, Bhumi Putra Mandal

Our arguments:
1. There will be free health check up camps on every month in the hospital in which
following parameters will be examined and cured:

• Social, medical and occupational history

• Detailed clinical examination of all the organ system.
• Chest X-ray
• Audiometry
• Vision screening test
• Urine analysis
• Random Blood Sugar (RBS)
• Pulmonary function test (PFT)
• ECG