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Mining, Metals, Minerals!
05 OCT 2024
GREENEDGE WEALTH
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2002-10 = Glorious decade
2012-20 = Lost decade
2021-30 = Better decade?
Copper Aluminium Crude Oil
12,000 10,200 10,710 4,000 3,600 200
9,880 3,200
10,000 8,550 2,800
3,000 2,650 150 145 120
8,000 111
6,000 7,735 2,000 100 79
2,200
4,000
4,450 4,650 1,000 1,350 1,400 1,400 50 72
2,000 3,070 36
40 32
- - -
2008 2009 2010 2016 2020 2022 2022 2024 2008 2009 2010 2016 2020 2022 2022 2024 2008 2009 2010 2016 2020 2022 2022 2024
Gold Silver
47
3000 2650 50
2500 40
1820 1950 32
2000 28
30
1500
980 1550 1650 20 18
1000
1060 18
500 10 14 15
720 10
0 -
2008 2009 2010 2016 2020 2022 2022 2024 2008 2009 2010 2016 2020 2022 2022 2024
Energy density, surface density, EROEI!
Energy Return / Energy
Energy stored per KG Land for 600 MW power plant
Invested (EROEI)
Wood 20 MJ Coal / Gas 400 acre Nuclear 70x
Coal 30 MJ Nuclear 550 acre Hydro 35x
Diesel 46 MJ Solar 6000 acre Coal / O&G 30x
Natural Gas 53 MJ Wind 50,000 acre Solar / Wind 4.0x
Li-Ion 0.5 MJ Ethanol / Bio 3.5x
Battery
Common framework to evaluate!
Demand outlook Production volumes Selling price Efficiency gains
• Reserves • Global demand / • Improved
supply technology
• Environment
End market analysis
Clearances • Cost curve of • Manpower
largest productivity
• Capacity producers!
• Mine ageing
Coal – Our “swadeshi” pride
• Despite the focus on renewables, ~70% of India’s electricity is produced by coal fired thermal plants (FY24).
How
• India is the 2nd largest producer & consumer of coal; Approx 90% of the needs of thermal power sector are fulfilled
important is by domestically mined coal (mainly by Coal India).
Coal?
• Govt control ensures power plants get coal at Rs15/kg even when international prices are Rs20-30/kg.
• Thermal power sector went through multiple problems over 2013-22 including banking NPAs. Also, govt focused
What lead to too much on solar sector over 2015-19, until it realized the Chinese dominance in the sector.
hopeless
2015-22? • ESG narrative was gaining traction across the world. Europeans were shutting down coal fired power plants. IEA
announced in 2018 that Coal demand has peaked
• Years of under-investment in thermal power and the inability of solar & wind sector to scale up meaningfully
Why does created situation of power shortages by 2022. Govt has revived capex in thermal power sector and announced an
addition of 80GW over next few years.
2022-30 look
bright? • This itself ensures 6-8% volume growth for coal. Recently, efforts are on to convert coal (highly polluting) into
methane gas (40% less polluting) and use the gas for industrial purpose. This can create additional demand.
Coal – Producers & equipment providers
Coal India – India’s monopoly producer
• Significant efforts to increase
mining output to ensure 5-7%
volume growth
• Operating efficiencies to ensure
200-300bps margin improvement
• Stock at 7x FY26 earnings
Eimco Elecon Sarda Energy Isgec Heavy Engg
Business: Mining, Metals, Power
Business: Mining equipment (UG coal), Business: EPC, Products, Sugar,
Generation
piling rig (construction) Ethanol
Key focus area: Huge coal block will
Key focus area: 70% revenue from Key focus area: Improvement in EPC
now be used for captive consumption at
Coal sector, 45% from spare parts margins & working capital
SKS Power
Growth: Strong orders from Coal India, Valuation: Trades at 70% discount to
Growth: EBITDA can grow from 800cr
huge upside from piling rig Thermax, re-rating possible
to 3000cr+ over 4 years
Oil & Gas – Our own “Mahishashur”
• Almost 99% of transport sector still runs on oil & gas (trucks, cars, 2W, airplanes, ships).
How
• India imports 88% of its oil requirement and ~50% of its gas requirement. Thanks to cheap Russian Oil, our
important is dependence on middle-east has declined from 70% to 35%.
O&G?
• Govt control ensures power plants get coal at Rs15/kg even when international prices are Rs20-30/kg.
• Like coal, there was a narrative that the whole world will move to EVs and oil demand will stagnate or decline and
What about prices will correct to $60-65 range for good. We are already seeing deceleration in adoption rate of EVs
ESG & EV
threat? • Situation in India is even better, since we import 88% of oil and 50% of gas needed. Thus India can consumer
ever ounce of additional oil & gas that is produced by ONGC, Reliance, Vedanta & OIL India!
• For various reasons, ONGC & OIL India witnessed stagnant production over 2009-23! Thanks to coaxing &
Why does support from government, we have started seeing record exploration efforts & improved mining technology.
2022-30 look
bright? • India is also building gas infrastructure across the country – the gas grid, CNG stations, pipelines, import &
storage terminals – all this will ensure huge growth of gas-based economy by 2030.
Oil & Gas – the large value chain
Oil India – The most efficient PSU!
Production
Business: Exploration (50%), refining FY14-24 = 0.7% CAGR
(40%), Investments FY24-30 = 7.0% CAGR
Rich reserves & efficient: 70% of Efficient pipeline & refinery: Captive
blocks are in category 1 basins. usage ensures best-in-class utilization
Global best F&D and RRR ensures Valuations: Cashflow & profits can
growth visibility and profitability double by FY30, stock is at 11x FY25
earnings
Roto Pumps Usha Martin Kirloskar Pneumatic
Business: +ve pumps for oil drilling, Business: Wire ropes for O&G, mining Business: Compressors for O&G as well
pulling & transport (30% of business) (40% of revenue) as CNG stations
Key focus area: Downhole pumps & Key focus area: New factory started; Key focus area: Large gas packages,
mud-motors; spare parts (45% of sales) valued added products in US & MENA CNG stations, cold chain, etc
Growth: 20-25% revenue CAGR for few Growth: 15% CAGR is possible; cheap Growth: 20% CAGR is possible, but
year possible; reasonable valuations valuations due to brother selling shares. valuations are no longer cheap
Metals – Iron & Steel
• Iron Ore – India has abundant reserves and NMDC & Lloyd Steel are the top two mining companies
Inputs to
• Manganese Ore – Is in short supply in India and MOIL & Sandur Manganese are the top two players
steel making
• Coking Coal – Is almost absent in India and we import from Indonesia & Australia
• Chinese over-capacity kept prices low and debt laden balance sheets led to record bankruptcies over 2014-18!
Painful years Govt support in form of tariff protection ensured stability & huge wave of consolidation (JSW, Tata, JSL).
of 2013-19
• Subdued demand and suppressed global prices of iron ore and manganese ore ensured that the mining
companies also never bothered to increase their production.
• Govt has become serious about increasing India’s steel production from 120 tons in 2022 to 300 tons by 2030.
Companies like JSW & Tata Steel are on a capex spree since the past few years.
The boom of
2022-30 • There is intense pressure on mining companies to increase the output to support the increased steel production.
Govt is ensuring ease of environmental clearances, usage of modern mining techniques, etc.
Metals – Iron & steel – Raw material suppliers
NMDC – The largest iron ore company!
India’s largest and globally the lowest cost
producer of iron ore (Production cost of Rs1 per kg)
Vision to increase production from 45 mn to 100
mn tons by FY30
Cash reserves of ~14,000cr, dividend yield of ~4%,
valuations at 12x depressed earnings (export
duties in FY23 & FY24)
MOIL – The fastest growing mining company
India’s largest and lowest cost producer of
Manganese Ore (Approx Rs2-3 per kg) and EMD.
Vision to increase production from 17 lac to 35 lac
tons by FY30
Cash reserves of ~1,200cr, valuations at ~10x on
FY26e (huge import substitution opportunity)
Metals – Aluminum & Copper
• Aluminum – the need for light-weighting is ensuring increased usage of this metal in construction, aviation and
electric vehicles!
The metal of
future! • Copper – it is the best conductor of electricity. Increasing electrification of homes, offices, vehicles, the transition
to renewables, the advent of data centers & semi-conductors, etc is leading to demand resurgence here!
• Aluminum – China has lot of smelters, but don’t have enough bauxite reserves! Suppliers like Indonesia & Guinea
Peculiar want to have local manufacturing! India has enough bauxite to meet its own requirement & export.
supply
situation • Copper – Global supplies are tight due to lack of new mining discoveries. India doesn’t have much reserves so we
have to import the ore and process it here. But India’s downstream industry has started flourishing.
• India’s aluminum & copper consumption is slated to go up massively over next 10 years. To keep up pace,
companies like Nalco, Vedanta, Hindustan Copper are expanding capacities.
The boom of
2022-30 • The global prices will remain supportive due to the benign demand-supply situation, thus benefiting the Indian
players.
Metals – Aluminum & Copper – Integrated players
Nalco – Pure play on aluminum! Vedanta – Aluminum + Copper + Zinc + O&G
Special situation via de-merger
Unique global situation: China’s cost structure are rising due
1) Vedanta Aluminum
to scarcity of Bauxite (60% of world’s production); Alumina
2) Vedanta Power
prices will remain benign for many years
3) Vedanta Base metals (zinc, silver, copper)
4) Vedanta O&G
Integrated players to benefit: Nalco has bauxite & coal mine,
5) Vedanta Iron & Steel
refinery and smelter – global cost leadership
Growth: Global cost leadership; SOTP can be 50% higher than
Growth: Captive coal will give margin upside (FY26 onwards),
CMP of Rs500; past promoter actions haven’t been minority
new smelter (FY27) & refinery will give revenue upside (FY29)
friendly
AIA Engineering Precision Wires Ram Ratna Wires
Business: Grinding media & mill liners Business: Copper winding wire for Business: Winding wire, ICT tubes,
for ball mills (Copper & gold) electrical, EVs, electronics, etc BLDC motors, copper foils
Key focus area: Conversion from forged Key focus area: High quality wire for Key focus area: Electrical &
media to high-chrome media electricity & auto sector electronic appliances
Growth: 10-12% revenue CAGR for few Growth: 10-15% revenue CAGR for few Growth: 20-25% revenue CAGR for
year possible; rich valuations year possible; reasonable valuations few year possible; rich valuations
Metals – Gold & Silver
• Demand from central banks – Just started reversing from 50 year low of 16% to about 20% (highest was 59%)
• Demand from jewelry sector – Steady growth due to Indian & Chinese consumers affinity to gold
Gold • Demand from investors – Lowest in many decades, especially in US & European portfolios
• Supply – Mining investments by gold companies is at decadal lows
• Demand from consumers – Static since more than a decade (ornaments & decorative items)
• Demand from investors – Static over 13 years due to no price appreciation
Silver • Demand from industry – Growing strong, due to growth in solar panels and electricity sector
• Supply – Static since a decade due to under-investments in mining; inventory in vaults of London are depleting.
• Gold loan companies like Muthoot & Manappuram have a strong positive correlation with gold prices.
Ancillary
plays • Hindustan Zinc is India’s largest producer of silver and also the 8 th largest in the world. But it seems fully valued.
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