‘Bidders for iron ore mines need a 360-degree strategy’

With States set to auction iron ore mines, bidders need to do a 360-degree assessment and work out a comprehensive strategy.

“A mining concession is an opportunity and commitment over a long period. Bidders, more so in the current Indian environment and legal framework, need to strategise,” Anjani Agrawal, Partner and Leader – Metals and Mining, EY, told BusinessLine .

With very few benchmarks and leading best practices yet available, it is critical that bidders do an in depth analysis of their bid strategy,” he added.

According to Agrawal, who is also the author of EY’s ‘Mineral concessions framework: Imperatives for success’, all risks and their potential impact need to be assessed with a robust mitigation plan. “Bidders need to identify deal breakers early. A deep understanding of the competitive intensity of the target mine is a critical enabler of success.”

“Game theory can help. A comprehensive due diligence that includes the technical, legal and financial matters is called for,” said Agrawal.

“Since infrastructure plays a critical role in value creation of a mineral, a bidder must evaluate its current state, development plans, timelines, as well as the trajectory of future demand on the same infrastructure over a longer term. Assurance on future taxes and levies can be garnered as far as possible,” he added.

The volatility of prices of commodity minerals and their end-use products have increased over the recent years, making forecasting a complex exercise. The realisable value of any mining project is the most critical driver for a business case, but it is also the most difficult to estimate.

“Therefore, bidders should try to use modern financial risk evaluation and modelling techniques. The effort on financial analysis should be bolstered to match the sophistication on the technical side,” Agrawal said.

The new regulatory framework opens up new opportunities for the sector to grow in India. The auction-based mining lease seems to be a significant step to bring in the much-needed transparency.

“There are a few areas that need re-evaluation from a risk-sharing perspective to make them workable for success. The report deals with some of the key ones. We recommend the policy makers and mining companies continue to proactively engage and co-develop approaches that work for balanced benefit of all stakeholders keeping sustainable growth as the key goal. It is then, that the mining sector will become an important lever and contributor to overall national wealth and well-being,” he added.

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