2. ABOUT MDO
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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
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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
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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.
Securing
Clearances
Ensuring
Mines
Acess
Physical
possession
of
land,
Implementing
rehabilitation
Resettlement
Equipment
handling
Maintenance
and
coal
production
5. MDO BUSINESS MODEL
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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
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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
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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
o 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
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9. MDO KEY RISKS AND REGULATIONS
Mines and Minerals (Regulation and Development) Act, 1957 (MMRD Act)
o 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)
o 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 o Section 4B-The Government prescribed the efficiency in the production of minerals
o 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.
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10. OPERATIONAL MINES UNDER MDO
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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
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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
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MDO Operator Name Location Mines
Bidding Stage Jharkhand Parej East UG
Jharkhand Sangamitra OC
Maharashtra Durgapur Oc
13. UNDER CONSTRUCTION MINES UNDER MDO
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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
