Future of MDO in India.pptx

mdo

1. Future of Mdo in India

2. About MDO Privileged and Confidential 2 Mine Developers and Operators (MDOs) are mining specialists who operate on behalf of the mine owner against a fixed charge on a long-term basis MDO is a specialized operating leverage play and attracts limited competition , given the risks and reward involved. MDO projects offer multi-year revenue visibility which strengthens the overall order book and imparts diversification benefits to the appointed players. Apart from initial funding, MDOs also invest in technology for exploration of hidden mineral resources, innovative mining technology, specialized technologies for mining optimization in low-grade deposits, beneficiation, and metallurgical innovations, investments in innovative infrastructure solutions, community relationship management, and best work practices in Sustainable Development The MDO model was adopted in India because of limited resources which impacted production levels and also because sub-contracting mining operations to private players was a more capital-efficient way forward to improve production. Since the privatization and liberalization of the Indian markets, the government has made attempts to attract private participation in this sector MDOs are being increasingly adopted as the preferred model of coal mining operations in India due to the balance of autonomy it provides between private players and the PSUs. It is perceived as a more economically feasible mode of operation for both players. However, it is essential to note that the MDO model is not legally defined by the law and that the MDO model is not a law or rule yet in India

3. About MDO Privileged and Confidential 3 Particulars FY 2018 FY 2025 FY 2030 Mining contractors 10,000 16,000 20,000 Mine Developer and Operator (MDO) 3,800 17,000 34,500 Active Mine Management (AMM) 1,000 3,000 6,500 Total 14,800 36,000 61,000 Projected growth in Coal Sector (INR Cr.)

4. MDO Business Model Privileged and Confidential 4 Business Model In the Current Scenario, coal for merchant mining is not allowed to the private sector and the only available route for them to enter the sector is through the mine developer-cum-operator (MDO) route. The MDO contractor carries out the entire gamut of activities right from land acquisition, R&R, and mine planning to the development and operation of mine and coal extraction and coal transportation up to the owner's loading silo on behalf of the mine lease owners.

5. MDO Business Model Privileged and Confidential 5 Business Model In return, the mine owner pays a contractually agreed fixed mining fee . MDO projects offer multi-year revenue visibility which strengthens the overall order book and imparts diversification benefits to the appointed players. The working model mirrors the public-private partnership (PPP) concept, where private companies having state-of-the-art coal evacuation technology, develop coal reserves on behalf of PSUs for a specific period of time. The MDO model is fast catching up with the PSU that is struggling to meet rising demand from power producers and other industries. Effective project implementation of mining projects by the PSU has led to a shortfall in coal production, which has adversely affected power producers. The MDO is appointed under a Coal Mining Agreement ( CMA ). It is signed between the private entity and PSU . Usually, the contract period of such CMAs is envisaged to last up to the life of the mine During the project's operation period, the MDO undertakes coal excavation and transportation to depots in payment for a mining charge based on achieving a particular amount of coal produced as defined in the agreement . Ministry of Coal released the Common Guidelines for Mine Developer and Operator projects (the MDO Guidelines ) to clarify that the Draft Model Contract Agreement ( MCA ) was for the purpose of framing a standard contractual model for the development and operation of the mines to be adopted by State Governments and local authorities.

6. MDO Key Players Privileged and Confidential 6 Key Players The Indian coal market is slowly evolving from the mining contracting mode of operations to an MDO ecosystem. Thus, at present, there are only a handful of players who could single-handedly participate in the MDO tenders. Thus, in most of the tenders, it has been observed that players bid as consortiums. The players that participate in the MDO process currently are mentioned below: Adani Enterprises Essel Mining Sainik Mining Dilip Buildcon Thriveni Earthmovers Ambey Mining NCC Limited BGR Mining VPR Mining

7. MDO Financing Privileged and Confidential 7 Financing MDOs need to make significant upfront capex in equipment and infrastructure during the mine development phase, followed by recurring replacement capex for machinery every five years during the mine operation phase based on asset usage. Mine viability, associated cash flows and terms of payment in a supply contract are looked for financing coal mining projects. Lenders also look into factors like demand, prices, and transport arrangements . Customers to whom supplies would be made and the contracts entered also matter. The credit profile of the appointed MDOs during the mine development phase is perceived to be risky , owing to high capex and negative free cash flow . The credit profile is likely to improve gradually over the mine operating period as the cash flows are negative to low till the annual production reaches the peak production capacity, and thereafter turn positive. Given the high capex during the development phase, it becomes extremely important for the operator to achieve the envisaged strip ratio and/or operational efficiencies to recover the capex along with a reasonable return. The overall investment outlay is in the range of 8%-10% of project revenues over the MDO tenure. After the commencement of mining operations, it generally takes two to five years for the mine to achieve peak production capacity and EBITDA margins of 25%-30% Return ratios are likely to be moderate in the range of 11%-14% over the operating period , owing to high capital intensity The ability of an MDO to maintain the scheduled production timelines; maintain, or operate below, the stipulated strip ratio; and keep asset utilization at the optimum level are key monitorables

8. MDO Key Risks and Regulations Key Risks Despite the promising benefits, MDO projects are fraught with operational challenges with respect to delay or inability to achieve the peak production capacity, risk of an increase in strip ratio, variability in off-take, challenges in incremental land acquisition, and conflicts from inhabitants These impediments can spiral costs and weaken the financial metrics of appointed contractors. Key Regulations The waterfall of administrative and contractual actions which follow the certain regulations. Coal Mines (Nationalization) Act, 1973 – This Act determines the eligibility of coal mining in India Coal Mines (Special Provisions) Act, 2015 – It provides for the allocation of coal mines and the right, title, and interest in mine infrastructure - through public auction licensing and leasing of the coal mines and to discharge the prior allotment of blocks, under the Act inserted a new sub-rule i.e., Sub-Rule 10 under Rule 11 of the Coal Mines Rules 2014 to provide the Central Government the power to relax the provisions of Rule 11 for allotment of coal mines, in the public interest, after recording its reasons in writing Privileged and Confidential 8

9. MDO Key Risks and Regulations Mines and Minerals (Regulation and Development) Act, 1957 ( MMRD Act ) no person shall undertake reconnaissance, prospecting, or mining operations except in accordance with the terms and conditions of a reconnaissance permit or prospecting license, or mining lease granted under the Act (section 4 MMRD act) issue for operations undertaken for preliminary prospecting of a mineral through regional, aerial, geophysical or geochemical surveys and geological mapping can only be granted for a period up to 3 years (section 7 MMRD act) Mineral Laws (Amendment) Bill, 2020- o Section 4B-The Government prescribed the efficiency in the production of minerals o Section 8B-It provides that a new lessee can continue mining operations on the land in which operations were carried out by the previous lessee, for a two-year period. Privileged and Confidential 9

10. Operational Mines under MDO Privileged and Confidential 10 MDO Operator Name Location Mines Parsa Kente Colleries Limited Chhattisgarh Parsa East, Kanta Basan Dilip Buildcon VPR Consortium Jharkhand Pachhwara Central Pacchwara Coal Mining Jharkhand Pachhwara North Gangaramchak Mining West Bengal Barjora Montecarlo Barjora Mining West Bengal Barjora North Gangaramchak Mining West Bengal Gangaramchak, Gangaramchak Bhadulia West Bengal Khagra Joydev Resources West Bengal Khagra Joydev Sical Mining West Bengal Tara East and West Adani Enterprises Limited & GP-III Colleries Chhattisgarh Gare Palma III Rajasthan Colleries Limited Chhattisgarh Parsa BGR Mining & Infra Ltd Odisha Manoharpur & Dispide Manoharpur Sainik Mining & Allied Services Odisha Dulanga AMR India Ltd Telangana Tadecherla-l Develecto Mining Jharkhand Tubed Talabira (Odisha) Mining Odisha Talabira II & III Dilip Buildcon Odisha Siarmal OCP Bid Awarded PMPL- AMR Consortium Jharkhand Kotre Basantpur Pancho

11. Under Construction Mines under MDO Privileged and Confidential 11 MDO Operator Name Location Mines SIML- MRKR Jharkhand Chandargupt OC SMS Limited Chhattisgarh Ketki UG Essel Mining Madhya Pradesh Subhadra OCP JMS Mining Private Limited Ranchi Piparwar UG Rithwik AMR Jharkhand Chatti Bariatu Minsol India Pvt. Ltd West Bengal Chinakuri UG Vensar construction company Ltd. (VCCL) West Bengal Gopinathpur UG Ambey Mining Private Ltd. West bengal Itapara Open Cast Monte Carlo Jharkhand Hura Mining Bidding Stage Chhattisgarh Madannagr OC Chhattisgarh Pelma OCP Jharkhand Patratu ABC UG Jharkhand Kapuria UG Maharashtra Balabhadar OC

12. Under Construction Mines under MDO Privileged and Confidential 12 MDO Operator Name Location Mines Bidding Stage Jharkhand Parej East UG Jharkhand Sangamitra OC Maharashtra Durgapur Oc

13. Under Construction Mines under MDO Privileged and Confidential 13 MDO Operator Name Location Mines Bid Awarded PMPL- AMR Consortium KBP OC SIML- MRKR Chandargupt OC SMS Limited Ketki UG Essel Mining Subhadra OCP JMS Mining Private Limited Piparwar UG Rithwik AMR Jharkand Chatti Bariatu Bid Opened Madannagr OC Pelma OCP Project to be retendered Sangamitra OC Durgapur Oc Tender Invited/To be Invited Patratu ABC UG Itapara OC Kapuria UG Balabhadar OC Parej East UG