South West Pinnacle Exploration Ltd Management Discussions.
Minerals are valuable natural resources being vital raw-material for the core sectors of economy. There is huge demand of minerals in view of the rapid urbanisation and protected growth in manufacturing sector.
India is blessed with ample resources of number of minerals and its strategic location enables convenient exports to developed as well as the fast-developing Asian markets. India currently produces around 95 minerals both metallic and non-metallic put together.
However, India is yet to assess its true potential of its resources, leading to the country heavily importing major minerals, to the tune of seven times of its domestic production, as per the Federation of Indian Mineral Industries (FIMI).
Government of India is giving lot of thrust to improve infrastructure across the country, whichin turn will substantially increase the demand of cement and steel. This will drive growth in exploration and mining activities in near future.
DRILLING AND EXPLORATION INDUSTRY IN INDIA
The Companys main business is drilling and exploration and other related services.
India is the 3 largest producer of the coal production. The coal production during the FY 2017-18 stood at 453 milliontones. India has the fifth largest estimated coal reserves in the world standing at 319 billion tones. India contributed around 11 % of the worlds coal production.
Similarly, India has large reserves of iron ore, chromite, zinc, silver bauxite etc. India ranks fourth in terms of iron ore production globally and has around 8% of the worlds deposit of iron ore yet we remain laggards in exploration.
The trade deficit due to the import of commodities like gold, diamond, iron ore, coal and manganese was about INR 3 lakh crores in 2018. Even though these commodities have significant resource potential in India, yet there has been no significant mineral exploration or reported mineral discovery for almost a decade. In stark contrast, the global mineral sector has continued to witness significant growth and investment.
Thus, India has vast scope of drilling & exploration with so many natural resources available.
Your Company has significant scope for drilling & exploration in various sectors/verticals as summarized below:
a) Drilling & Exploration of Coal & Minerals
Looking at the countrys requirement, the GOI has started auctioning coal blocks to the private sectors which has thrown open large opportunities for us. We see similar thing happening in other mineral sectors too viz. iron ore, chromite, zinc, silver, bauxite & Kimber linting. The auctioning of blocks in these minerals will further enhance the opportunities for us. Besides, the Finance Minister, Government of India, had announced during his Interim Budget speech of 2019that the government will increase spending on exploration of coal and lignite by 20% in the coming financial year.
b) Oil & Gas Exploration
There will be opportunities in offing in exploring unconventional oil & gas resources e.g. Shale gas, geo-thermal besides conventional oil and gas. To promote exploration activities, the GOI has recently advised the State Governments to facilitate arranging environmental clearances for speedy start of the activities.
c) Aquifer mapping & Hydro geological services
Drinking water is most precious thing in life. India is having less than 1% of drinking water resources to cater to 16% of world population. Looking at the precarious situation of drinking water in India, Indian government is taking various measures to conserve the drinking water as much as possible on the one hand and to reduce the consumption of drinking water on the other hand by adopting various measures. This is throwing lot of opportunities for us. Aquifier mapping is one such area where we are having good potential of business.
To give further impetus to the area, our government has created a separate ministry named as Jal Shakti Mantralya and accordingly the activities of Aquifier mapping and hydro geological services will get a good boost.
d) Infrastructure projects
The Government of India is giving lot of thrust to improve the infrastructure. For creation of infrastructure, steel and cement are the two most essential ingredients. Accordingly, the demand for steel and cement is bound to increase, which in turn will help in driving growth in exploration and mining activities. The improvement in infrastructure also throws open lots of scope for exploration and mining of copper in the coming years.
Ambitious target of the government to become the five trillion USD economy in the next five yearsthrows open ample opportunities in this segment. The connectivity of village panchayats through optical fiber network, smart city projects and many such initiatives to strengthen our countrys infrastructure will give us good business in coming years.
e) Seismic projects
Looking at the urgency to increase the exploration and mining activities, Government of India has now started promoting coal, oil and gas exploration through Seismic technology. The Ministry of Petroleum and Natural Gases, Government of India, has recently announced the Open Acreage Licensing Policy (OALP) in Oct, 2018 and has awarded various blocks to players in the field viz. Indian Oil Corporation, Cairns India, ONGC, BPCL etc.
The objective of OLAP is to increase Indias indigenous oil and gas production by maximizing the potential of undiscovered hydrocarbon resources in India thus reduce dependence on imports and save the colossal foreign exchange for better purposes.
OALP is part of the strategy to make India a business and investor friendly destination and cut import dependence by 10% and to double existing oil production from current 80 million metric tons to about 150-155 million metric tons by 2022.
The current Government is very serious in implementing OLAP. It has already awarded 21 blocks to Oil India. In addition to this Cairns India , ONGC, IOC, and BPCL have also been awarded blocks in sizable numbers and many more are in the offing in near future. Under OALP, Government will conduct auction of oil and gas blocks twice a year. Presently, the installed capacity of industry to conduct such activities is hardly 25% in our countrys present requirement.
Based on the plans of the Government and limited players in the field with a limited capacity, we strongly believe that in next five to ten years there will be lot of scope of services like seismic, drilling and field development. This way our equipments/ asset utilisation will also improve which in turn will reduce the operating cost and improve the profitability
a) The volatility in raw material prices may sometimes affect the profitability of a particular project.
b) Many a times environmental clearances take time longer than expected thus may delay the project implementation schedule adversely. Recent advisory of GOI to State Governments for facilitating such clearances on fast track mode is a welcome step and we hope that such a step would mitigate this threat to a large extent.
c) Being in tendering business, stiff competition is inherent, which may sometimes affect the bottom line in some projects.
d) In operational sites at remote locations, sometimes we face local unrest which may cause delay in execution of projects.
e) Any change in Government policy with regard to environmental and mining/exploration laws may have an impact on the companys operations.
The outlook of the industry in general & your company in particular is quite bright. There are various positive moves by the Government & other related agencies which make the outlook even brighter as summarized below:
a) Government of Indias new renewed impetus to explore the coal, oil and gas through Seismic technology will give a boost to the exploration business in the near future.
b) With more and more focus on farming & drinking only and due to very limited availability, the Government of Indias initiatives to conserve and preserve the water consumption, the aquifer mapping projects would get more impetus in the times ahead.
c) Boost in infrastructure spending by the Government would fetch good amount of business for companies like us.
d) Various measures taken by the GOI including the successful implementation of GST has contributed positively in case of doing business, ease of compliances in this regime would go a long way in improving the overall performance of your company
RESPONSIBILITY FOR THE MANAGEMENT DISCUSSION AND ANALYSISREPORT:
The Board of Directors have reviewed the Management Discussion and Analysis prepared by the Management, and the Independent Auditors have noted its contents. Statement in this report of the Companys objective, projections, estimates, exceptions, and predictions are forward looking statements subject to the applicable laws and regulations. The statements may be subjected to certain risks and uncertainties. Companys operations are affected by many external and internal factors which are beyond the control of the management. Thus the actual situation may differ from those expressed or implied.
The Company assumes no responsibility in respect of forward looking statements that may be amended or modified in future on the basis of subsequent developments, information or events.
|By order of the Board|
|For South West Pinnacle Exploration Limited|
|Chairman & Managing Director|
|Place : Gurugram|
|Date: 14th August, 2019|