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Executive Summary

Orissa Iron Ore Briefing Note

Astra Mining Ltd

31.01.11

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Table of Contents

1.0 ORISSA: THE CURRENT ‘STATE’ OF PLAY .................................................................................. 3

1.1 OVERVIEW ........................................................................................................................................................... 3

2.0 ORISSA IRON ORE: GEOLOGICAL OVERVIEW ........................................................................... 4

3.0 ORISSA IRON ORE: MINING PERSPECTIVE ................................................................................ 5

3.1 MINING POLICY ................................................................................................................................................... 5

3.2 INDUSTRY STRUCTURE ...................................................................................................................................... 6

3.3 RISKS ASSOCIATED WITH IRON ORE MINING IN ORISSA .............................................................................. 6

3.4 RECENT IRON ORE MINE CLOSURES IN ORISSA ............................................................................................. 7

4.0 ORISSA IRON ORE: LOGISTICS AND INFRASTRUCTURE ....................................................... 7

4.1 RAIL, ROAD CONNECTIVITY AND BOTTLENECKS ........................................................................................... 7

4.2 PORT INFRASTRUCTURE, BOTTLENECKS AND EXPANSION PLANS .............................................................. 8

5.0 ROAD AHEAD ....................................................................................................................................... 8

INTRODUCING SALVA RESOURCES - COMPANY BACKGROUND ................................................... 11

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1.0 Orissa: The Current ‘State’ of Play

1.1 Overview

Orissa is known for its rich mineral deposits and abundant source of water (both in the form

of rivers as well as an extensive coastline). In fact, the state boasts 16.9% of the total

mineral reserves of India. However, there is fairly heavy concentration of iron ore, chromite,

graphite, manganese, nickel ore, coal and bauxite in particular.

Industries in Orissa can be divided into four categories- cottage, medium, large scale and

large scale heavy industries. Since the state is rich in forest resources, it has prompted the

growth of forest based industries.

With over 25% of India's iron ore reserves, Orissa accounts for over 10% of India's steel

production capacity and has a crucial raw material advantage in the iron and steel industry.

Further, the presence of seaports in the state makes exports and imports cost effective and

more competitive. The state government has signed Memoranda of Understanding (MoUs)

with 45 companies for establishing steel plants of various capacities in the iron-ore rich parts

of the state, indicating the heightened investor interest in the state.

Figure 1: Geological Map of Orissa (Source: Geological Survey of India)

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2.0 Orissa Iron Ore: Geological Overview

India’s richest and biggest deposits are mostly confined to Banded Iron Formations (BIF) of

Precambrian age. The iron ore group covers the Mayurbhanj, Keonjhar, Sundargarh and Jajpur

districts of Orissa and is the major high grade iron ore deposit of Eastern India.

Figure 2: Geological Map of North Orissa – Singhbhum Craton showing Iron Ore Group (Source: Beukes et al., 2003)

The iron ore deposits from Orissa are divided into five geographic belts: 1. Bonai – Keonjhar belt, 2.

Gorumahisani – Badampahar –Sulaipet belt, 3. Tomka – Daitari belt, 4. Gandhamardhan belt and 5.

Hirapur belt. The iron ore from these deposits is of various types, as hard massive, soft laminated

and powdery blue dust though lateritic ore occur at places in the upper profile.

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The Mayurbhanj, Keonjhar, Sundargarh and Jajpur districts from Orissa bear the major high grade

(+60% Fe) hematite deposits. According to information available from the Director of Geology and

Director of Mines, Orissa, the state has 5306 MT of iron ore deposits, of which 3000 MT belong to

leasehold areas and the remaining 2306 MT belongs to freehold areas, thus making it worthwhile to

explore for iron ore in the state. Keonjhar is the leading district with a resource base of around 3574

Mt.

3.0 Orissa Iron Ore: Mining Perspective

Because of the abundant mineral resource base and its strategic proximity to major iron ore

consumers in the world market, Orissa offers an excellent investment opportunity for mining

companies and iron and steel manufacturers.

3.1 Mining policy

The Government of Orissa is in the process of finalizing a separate mining policy which will

focus more on the non-ferrous sector than on ferrous minerals. Existing mineral based

Figure 3: Geological Map of the Horse-shoe shaped synclinorium (Jamda – Koira basin), Western Iron Ore Group. (Source: Ghosh and Mukhopadhyay, 2007)

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industries are covered under the Orissa Industrial Policy -2007, whose salient features are as

follows:

The promotion of the development of infrastructure via the Public Private

Partnership (PPP) mode to support sustainable investment in the field of mining

and mineral processing.

Strengthening of regulatory and institutional arrangements for the

implementation of environment laws, and the formulation of a Rehabilitation and

Resettlement Policy.

Strengthening of arrangements for industrial promotion and investment

facilitation at various levels

As a matter of policy, only low and medium grade ore (up to 64% Fe) fines and temporary

surplus high grade iron ore (+67 % Fe), particularly from Bailadila (Chhattisgarh) are

permitted to be exported.

3.2 Industry structure

The iron ore industry in Orissa is vastly fragmented. Except for a few industry giants, mining

in the districts of Mayurbhanj, Keonjhar and Sundargarh are dominated by small and

marginal players with leasehold areas as small as 1.2 hectares. These small players generally

cater to the needs of domestic industry and export surplus iron ore to China, mainly via

Paradip port. Across districts, Keonjhar has the majority of the small mining players,

particular in the region of Barbil, while Jajpur has the least. Production wise, Essel Mining is

the biggest producer of iron ore.

3.3 Risks associated with Iron ore mining in Orissa

Most of the mineral deposits in Orissa are located in forest land which is inhabited by tribal

populations, who are heavily dependent on the forest for their livelihood and are least

adaptive to social and economic changes. The forest cover in Orissa constitutes 31.4% of

the total area. This has resulted in significant protests and several social hurdles in land

acquisition activity. Availability of skilled human resources in these remotely located sites

can also be a potential showstopper for the project in the absence of local skilled

population. Another major hurdle is to obtain all the regulatory approvals for

commencement of on- site activities. This whole process is often arduous and time

consuming causing major delays in project commission resulting huge cost implication to

the project proponents. However, the Government of India is in the process of amending

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legislation to facilitate quicker and more transparent granting and development of mining

concessions.

Apart from above mentioned risks, there are also minor operational and regulatory risks

involved with iron ore mining in Orissa. Recent moves to ban iron ore exports from Orissa

are also a cause of concern.

3.4 Recent Iron ore mine closures in Orissa

Till November 2010, government of Orissa has so far suspended the operation of 246 mines

for violation of statutory norms. This has been considered a step taken to crack down

prevailing illegal mining activities. The operation of these mines has been suspended due to

various reasons including pending environmental clearance, pending forest clearance, non-

approval of Mining Plan by Indian Bureau of Mines (IBM), non-payment of Net Present

Value (NPV) for diversion of forest land for mining activities and want of no-objection

certificate from the State Pollution Control Board (SPCB).

Despite of all odds, domestic consumption of iron ore for the period of 2005-09 grew at

compounded annual growth rate of 13.9% while the exports for the same period grew at

compounded annual growth rate of 10.3%. The pace of growth of the steel industry in Orissa is

likely to be faster in coming years.

4.0 Orissa Iron Ore: Logistics and Infrastructure

After beneficiation process iron ore fines and lumps are transferred to the mine stocking area;

thereafter it is transferred to the trucks/ trailers either to the nearest railway siding or directly to the

destination. However, most of the iron ore transits from mine area to port/ steel plants take railway

route.

4.1 Rail, road connectivity and bottlenecks

Districts of Sundargarh, Keonjhar and Mayurbhanj are well connected with Paradip port and

steel plants in Durgapur, West Bengal. However, rail freight for exporting iron ore is charged

higher making logistics cost sometimes significantly high compared to road transport. It

does not only disturb iron ore pricing for short term, but also deters mine owners from long

term planning.

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Also freight traffic has low average speeds leading to longer travel time creating congestion

and reducing throughput at port. Lower axle load and the heavy penalty on overloading the

rakes are other pain areas in rail transportation.

Orissa is well connected by national and state highways. However, road does not constitute

significantly to the iron ore transportation as compared to rail transportation. Most of the

highways are narrow and congested while some of the state highway or connecting roads

are not even two lanes. Apart from number of lanes, overall condition of roads is generally

poor.

4.2 Port infrastructure, bottlenecks and expansion plans

Orissa has a long coast line of 480 km, with Paradip as the major all weather port. The port

has its own railway system and connected to East Coast Railways. It is also connected to

NH-5A and State Highway 42.

However, modernization of all machinery and mechanization of jetty is the need of the

hour. Mechanical cargo handling systems are over utilised and in dire need of capacity

enhancement and up gradation which affects overall port productivity. Also the draft at

Paradip port is 12.5 m, which is not sufficient to accommodate cape size vessels.

The plan by the port is to deepen the approach channel to 18.7m and to extend the existing

iron ore berth from 155 m to 205 m to be completed with the same dredging project. There

are also plans to install two 20 tonnes shore cranes.

Dhamra and Gopalpur are the greenfield port projects in Orissa, which will shift some of the

existing iron ore traffic from Paradip port. Whereas Dhamra has just commenced its trial

operation in September 2010, Gopalpur is expected to be operational by2012.

Port of Dhamra is among few of the deep draft port of India which can handle cape size

vessels. With these modern port infrastructure in place and development of Paradip port,

existing bottlenecks in the logistics will be a thing of past.

5.0 Road Ahead

Orissa is endowed with a range of high-grade minerals. But, these are not being exploited properly.

With around 85% of its population living in the rural areas and mostly depending upon agriculture

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and allied activities for their livelihood, it is imperative to alleviate its status quo. However, over a

recent past a lot of positive changes in the rural pocket have been observed. Be it literacy rate (both

for male as well as female), Gross State Domestic Product, State income, per capita income or the

development of roads, transport and communication networks; substantial improvement is evident

in all the spheres.

The iron and steel industry of Orissa has played a major role in bringing the industrial boom in the

state. With only two steel plants till 1995, marginal growth was achieved between 1995 and 2000.

But from 2000 onwards the steel industry in the state witnessed a rapid growth in iron and steel

sector. Today Orissa hosts around 143 iron and steel plants with a combined capacity of 12.3 Mt

which is nearly 16% of the total steel capacity in India. The steel industry in Orissa consumes nearly

11 Mt of iron ore, most of the demand is fulfilled by the mines located in Orissa only.

The iron ore mines in Orissa compare favorably with Australian iron ore mines in terms of cost of

operation. Presence of generally high grade iron ore reduces over all costs of operation for Orissa

iron ore miners as beneficiation and blending does not have to be carried out. Most of the ore that is

mined is direct shipping ore, thus reducing operating costs. The infrastructure for export of iron ore

from the mines in terms of road network, railway infrastructure is provided by the state itself and

hence transport infrastructure does not have to be built from scratch as is required in Western

Australia. The port of Paradip is open to all for export of iron ore and thus infrastructure costs for

development of iron ore export are very low when compared to Western Australia. This results in

FOB costs of iron ore being low. Depending upon the scale of operations the FOB cost at Paradip

Port generally tend to be around US$ 60 / tonne. This will however vary depending upon the scale

of the mining operations, transport logistics and several other variables which impact mining cost.

With a planned investment of USD $ 456 billion on the infrastructure development in the current 5

year planning period (2007-12) and projected 10 % growth in domestic demand in near future, iron

ore mining in Orissa is set to achieve new industry heights in coming years.

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Disclaimer:

Astra Mining Ltd (Customer) hereby acknowledges and agrees that Salva makes no representation or warranty, express or implied, as to the truth, accuracy, relevance, completeness or usefulness of the goods or services, whether oral or written; communicated to the Customer, and that Salva shall have no liability, in negligence or otherwise as a result of the Customer’s use of or reliance upon the Information.

Salva accepts no responsibility for any interpretation, opinion or conclusion that the Customer may form as a result of examining the goods or services.

The Customer acknowledges that any opinions expressed by Salva are based on the knowledge and approach of the persons forming the opinion at the date that the opinion was formed and may have ceased or may in future cease to be appropriate in light of subsequent knowledge or attitudes.

Subject to any applicable legislation affecting the right of Salva to limit its liability, Salva shall not be liable in any way whatsoever to the Customer or to any other person or entity for any loss or damage howsoever caused which the Customer or any other person may suffer whether or not such loss or damage arises as a result of the goods or services or any defect in those goods or from the failure or omission on the part of Salva (or any of its representatives, agents or employees) to comply with any obligation at law.

Salva Rwith spExecutithe stud

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REFEREN

List of Ta

Table 1: GTable 2: IrTable 3: MTable 4: WTable 5 : MTable 6: CTable 7 OTable 8: STable 9 StTable 10: Table 11: Table 12: Table 13: Table 14: Table 15 :Table 16: Table 17: Table 18:

List of Fig

Figure 1: OFigure 2: Figure 3: MFigure 4: Figure 5: GBeukes etFigure 6: Iron Ore GFigure 7: GAcharya, Figure 8 : in the pre

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Generalized st ron ore resouMajor iron ore Working and n Mining leases Capital cost eperating cost Steel companteel capacity Integrated St Pig Iron Prod District wise Sponge iron Iron Ore Volu Logistics cos Greenfield an Karara Iron o FOB cost Ori

gures

Orissa ………… District map Major iron or Geological M Geological Mt al., 2003) .... Geological M Group. (Sourc Generalized G S., 2008) ...... Cross sectionvious figure.

STRUCTURE

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tratigraphic surces of Orisse resource be non working s in major ironstimates ......t estimates ...nies operating and productteel Plants inducers in Oris distribution o producers in ume‐ Paradipst summary ..nd Brownfiel ore mine projeissa Greenfie

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sequence of Na .................aring district mining areasn ore produci........................................g in Orissa ....ion in Orissa n Orissa ........sa ................ of sponge iro Orissa .........p Port (Mt) .......................d capital costect ...............ld and Brown

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AILWAYS /RO

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matite) ..........ological Survehbhum Crato....................ped synclinorhyay, 2007) ..stern limb of H.................... eastern limb 8) ................

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Generalised g– Daitari basin S. 2008) .......: Major iron o: Domestic co: Manual min: Mechanized: Dry Screeni: Wet screeni: Wet screeni : Washing an: General pro: Flow of Iron: Value Chain: Railway Map: Value Chain: Road Map o: Paradip Por Paradip Port : Gindalbie p

geological man) showing sp..................... ore producersonsumption ving ...............d iron ore minng process, Irng process, irng with scrub

nd gravity sepcess flow of I

n Ore in and an Analysis‐ Rap of Orissa ...n Analysis‐ Ro of Orissa ........rt‐ Satellite Vt Layout ........ project map ..

ap of the Tompread of BIF w....................s in 2010, Oris vs. Exports .......................ning .............. ron ore ........ ron ore ........bbing, iron orparation, iron ron Ore Suppround Orissaail Logistics ......................oad Logistics ....................iew ......................................................

mka – Daitari with fault bou....................ssa ...................................................................................................................re ................. ore .............ply Chain .....a ...............................................................................................................................................................

belt from Sounded Iron Or........................................................................................................................................................................................................................................................................................................................................................................

outhern Iron Ore deposits. (S........................................................................................................................................................................................................................................................................................................................................................................

Ore Group Source: ................... 3................... 3.................. 3.................. 3.................. 3.................. 4.................. 4.................. 4.................. 4.................. 5.................. 5.................. 5................... 5.................. 5.................. 5.................. 6.................. 6.................. 6

31 37 38 39 39 41 42 42 43 54 55 56 57 58 59 61 62 68

SALVA RESOURCES



Page 11

Introducing Salva Resources - Company Background

Salva Resources is a global provider of key technical and commercial services for exploration,

mining and investment companies. These services extend across the entire project development

timeline:

Exploration Management

Geological Modelling

Mine Planning

Site Safety Management

Resources Marketing

Due Diligence and other commercial services.

With offices in Brisbane, Kolkata and Jakarta, Salva Resources has a thorough understanding of

commodities marketing activities. Specializing in coal, our marketing team has dedicated

experience in coking and thermal products, logistics, trade finance, sales and agency contracts,

price and volume negotiations and revenue forecasting.

Salva Market Analytics (SMA) comprises a team of six analysts based in Kolkata, providing up-to-

date data, news, views and analysis of developments in the Indian steel, power, coal and

infrastructure sectors. SMA is led by an experienced industry analyst from Australia, and monitors

all projects and developments in these industries and forecasts the likely implications.

Current Projects

Salva Market Analytics is currently delivering the following projects:

A comprehensive review of Indian port and rail infrastructure for 2010-15 for a global coal

producer;

An in-depth study of Indian thermal coal demand, domestic production and imports – along

with identification of infrastructure constraints and high/low scenarios - for 2010-20 for a

major European utility;

A global analysis of seaborne thermal coal trade over the next 20 years, based on individual

country forecasts, for one of the largest coal ports in the world;

SALVA RESOURCES



Page 12

Our Recent Achievements

Salva Resources’ Market Analytics team successfully completed the following projects in Q3 2010:

Technical assessment of coal seam quality for Australian producer to upgrade product from

thermal to semi-soft coking coal via selective mining;

India market study, customer segmentation and market development services for a major

global mining company (for new African coal assets);

Forecast of Indian thermal, coking and PCI import demand on an annual basis out to 2020

for a major North American coal producer;

Development of an Indian thermal coal import demand model for a large European utility;

Detailed review of Indian steel making technologies and transition taking place for an

international client;

Detailed review of Indian coal import infrastructure for a major European trading house;

India thermal coal import demand forecast -2015, grade wise and country wise for a major

Japanese trading house;

For more information on Salva Resources’ technical and commercial capabilities, contact Jitendra

RoyChoudhury (Manager - Analytics) on +91 (33) 4004 4144 or [email protected].

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