Indo Gold Mines Pvt Ltd

STM PROJECT REPORT Study of Gold Mining&Exploration Companies

Submitted to:Prof. Anshuman TripathySubmitted By: Abhimanyu Chundawat(u113061)SECTION BPGDM I

QUESTIONS FOR THE PROJECT REPORT

1. Compare and Contrast the business model of your organization (ex: Air Deccan) with:a. An International Organization with a similar Business Model (ex: South West Airlines)b. A Domestic Organization with a similar Business Model (ex: Indigo)c. A Government Organization within the same industry (ex: Air India).Reference:i. B1 - Page Case Study on Air Deccanii. Reading - What Is Strategy by Michael E. Porter - Activity System Map of South West Airlines on Page 14

2. Prepare an Activity System Map for both a Low Cost Organization (ex: South West Airline or Air Deccan) as well a Diversified (ex: Full Service Airlines) Organization operating in the Industry/ Sector selected by you.Reference:i. Reading - What Is Strategy by Michael E. Porter - Activity System Map of South West Airlines on Page 14ii. Reading - Can You Say What Your Strategy Is by David Collis and Michael Rukstad - Activity System Map of Edward Jones's on Page 6

3. Identify the leading Organizations Low Cost Providers (ex: Low Cost Air Carriers) as well as the leading Organizations with Diversified Product/ Service Providers (ex: Premium Air Carriers or Business class airlines) for India and for the 5 Continents (Asia, Europe, Africa, North America and South America). Document the Vision, Mission, and Objectives of these companies (ex: airline companies) and identify the key attributes of success for each of these organizations/ industries (ex: International Carriers). Is it in line with the various readings shared with you? Evaluate the Mission statement as per the suggestions given in the website (http://www.strategicmanagementinsight.com/mission-statements/microsoft-mission-statement.html). Prepare the Strategy Statements in line with the article on 'Developing the Strategy - Vision, Value Gaps, and Analysis' by Robert Kaplan, David Nortan, and Edward Barrows and identify the Value Proposition and Strategy Sweet Spots in line with the article on 'Can You Say What Your Strategy Is' by David Collis and Michael RukstadReference:i. Reading - Developing the Strategy - Vision, Value Gaps, and Analysis by Robert Kaplan, David Nortan, and Edward Barrows (Page 3 & 4)ii. Reading - Can You Say What Your Strategy Is by David Collis and Michael Rukstad - Activity System Map of Edward Jones's on Page 5 and 7iii. Various examples of Mission Statements -http://www.missionstatements.comiv. Example of Evaluation of a Mission Statement -http://www.strategicmanagementinsight.com/mission-statements/microsoft-mission-statement.html&http://www.strategicmanagementinsight.com/tools/mission-statement.html

4. Conduct a External as well as Industry Environment Analysis for the industry in which the company (PESTEL and Porter's 5 Force Analysis) is operating. Identify the strategy of the company's closest competitor? Who are the complementors (company's offering complementary products or services) of the organization?Reference:i. Reading - The Business Environment of India - A New Mandate for Reformii. Reading - The Five Competitive Forces That Shape Strategy by Michael Porter

5. Write within 750 words each of the following:i. Comment on the History, Evolution, Growth Rate, Profitabilty Rate & Future of the Industry in which the Organization is operating. How has it been for Organization as well?ii. Size of the Industry across the world and the country where the organization is operatingiii. Key success factors for any organization operating within the Industry and how is your organization performing on those criterias.

Scoring1. 4 marks2. 4 marks3. 4 marks4. 8 marks (4+2+2)5. 10 marks (4+3+3)

1. Compare and Contrast the business model of your organization (ex: Air Deccan) with:a. An International Organization with a similar Business Model (ex: South West Airlines)b. A Domestic Organization with a similar Business Model (ex: Indigo)c. A Government Organization within the same industry (ex: Air India).

Ans 1. International organization with similar business model is Miranda Gold Corp. Domestic organization with similar business model is Indo Gold Mines Pvt Ltd (IGMPL) and government organization within same industry is Mineral Exploration Corporation Limited. Business models will be compared and contrasted on following points:Key partners, key activities, key resources, value propositions, customer relationships, channels, customer segments, cost structure, revenue stream.Key partners:Deccan Gold Mines Limited (DGML): Its key partners are suppliers and contractors who are working with it in field of exploration. Geomysore Services Pvt. Ltd. is its partner.Miranda Gold Corp.: It is an American company and its main partners are joint venture partners such as (i)Prism Resources Inc is a Canadian precious metal explorer and developer focused on Latin America and headquartered in Vancouver, British Colombia. n January, 2013, Miranda announced the acquisition through lease of the Cerro Oro project in Colombia and an agreement in principle with Prism Resources Inc. ("Prism') to earn an interest in the project..(ii)Agnico-Eagle Mines Limited ("Agnico") is a mining company listed on the Toronto Stock Exchange.In February 2013, Miranda and its wholly owned Colombian subsidiary announced a Strategic Alliance with Agnico, for precious metal exploration in Colombia. Under the terms of the alliance, Agnico and Miranda share 70:30, respectively, in generative exploration expenditures with exploration activities conducted by Miranda. The alliance is for a period of three years and is renewable thereafter by mutual consent.(iii)Montezuma Mines Inc. is a subsidiary of CMQ Resources, a mineral exploration company focused principally on the exploration of its Montezuma property in Nevada, on the advancement of its earlier stage exploration property Vasquir, also in Nevada, and the Kuusamo property in Finland.(iv)Red Eagle is a gold exploration and development company. Red Eagle has a 70% interest in the Pavo Real property in Colombia and must fund US$4,000,000 in qualifying expenditures over a four year period, followed by either completing a positive feasibility study within the following eight years or by annually funding $1,000,000 in exploration and development during the next 10 years.Indo Gold Mines Pvt Ltd (IGMPL):Indo Gold Mines Pvt Ltd (IGMPL) has its registered office in Bangalore, Karnataka State.It was formed by a joint venture between IGL and Metal Mining India Pvt Ltd (MMI), a privately-owned Indian company, with IGL and MMI holding 70% and 30% respectively. Bengal Exploration Ltd. is its another partner.Mineral Exploration Corporation Limited (MECL): a number of foreign companies have joined / are joining hands with MECL to expand their activities in India under the ongoing liberalization process in Mineral Industry.

Key activities:Deccan Gold Mines Limited (DGML): Established in 2003 by promoters with deep roots in the exploration and mining sector, Deccan Gold Mines Limited(DGML) is the first and the only gold exploration company listed on the Bombay Stock Exchange Limited (BSE).DGML brings to India, a wealth of international technical know-how and experience in the gold exploration and mining sector. Since its establishment, DGML has actively pursued gold exploration activities in all of its exploration prospects that resulted in identification of probable gold resources at several locations. DGML now has a large portfolio of exploration prospects in the States of Karnataka, Andhra Pradesh and Rajasthan.

Miranda Gold Corp.: Miranda Gold Corp. (TSX-V: MAD) is a gold exploration company concentrating its generative efforts in Nevada's Cortez Gold Trend and Colombia. Currently, they control 17 different properties - 13 in Nevada, four in Colombia. Six of the Nevada projects lie within the Cortez Trend. Seven of their properties are currently being advanced through alliances or exploration funding agreements. They apply a joint venture business model whereby they create strategic partnerships with other mining companies with the ultimate goal of having them fund the expensive drilling that is needed to test exploration theories on their properties. This allows them to apply their expertise and aggressively seek out other opportunities in the area, while lowering the risk of exploration and increasing value for their shareholders

Indo Gold Mines Pvt Ltd (IGMPL):Its exploration activities are spread across geographies. With the establishment of holdings it has ventured into, South Korea , Germany, India and countries of west Africa.

Mineral Exploration Corporation Limited (MECL): Dedicated service of MECL in mineral exploration over three decades has resulted in updating mineral inventory of various minerals manifold and setting up of a number of mineral based industries and Companies in India. Since inception till date, it has completed over 1213 projects of detailed mineral exploration, mine development and 1,42,778 million tonnes of mineral reserves have been established. The exploration inputs are 7.72 million metres of drilling, 2.53 million metres of geophysical logging, 5382 sq.km. of detailed geological mapping and topographical survey and 0.25 million metres of exploratory & developmental mining. Beside this more than 181 projects on remote sensing and environmental studies have also been completed. MECL has made noteworthy contributions in development of the nation by exploration of coal, lignite, base metals, gold, bauxite, limestone etc. and has achieved several distinctions.MECL has explored 42 blocks/ deposits of Gold in Andhra Pradesh, Karnataka, Jharkhand and Kerala states & proved 45.35 million tonnes of reserves through 136350 m of drilling & 27951 m of mining and associated geological work. The underground gold mining at Chigargunta by erstwhile BGML and open cast mine at Uti by HGML have been developed on the basis of MECL data. The gold deposit at Dona in Kurnool Dist. of Andhra Pradesh was explored in detail by MECL which resulted in establishing 7.77 million tonnes of reserves containing more than 2 grams per tonne of gold

Key resources: For all the above four companies key resources are skilled professionals and technology.

Value propositions

DGML is the only listed gold exploration company in the country and the value proposition it provides to customer is information about reserves. This reduces the risk of producer company.

Miranda Gold Corp.: The team has 35 years of combined Nevada-based mining exploration experience and involvement in over 50 million ounces of gold discoveries in the Carlin and Cortez Trends in Nevada and so they know and understand Carlin-type geology, a very important key to Miranda Gold's future success.

Indo Gold Mines Pvt Ltd (IGMPL):It is among the few gold exploration companies in India and thus provides customers with options. It has also diversified in new geographies and other minerals.

Mineral Exploration Corporation Limited (MECL): It is the only organisation both in Government and in private sector, possessing entire spectrum of mineral exploration facilities under one roof. It provides systematic exploration of minerals, to bridge the gap between the initial discovery of a prospect and its eventual exploitation.

Customer relationships & customer segments

All the four companies are into B2B segment

Deccan Gold Mines Limited (DGML): Since it is a new entrant and into exploration phase with aim of entering into production later, it currently does not have any customers.

Miranda Gold Corp.: It follows joint venture model where it enters into partnership with other companies which are later producing from the explored fields. Thus, in a sense its partners become its customers.

Indo Gold Mines Pvt Ltd (IGMPL): Same is the case with this company.

Mineral Exploration Corporation Limited (MECL): Since it is a diversified exploration agency it has customers across spectrum ranging from public to private to international companies. It takes contractual exploration on behalf of public sector undertakings, state governments and private sector entities.

Cost structure & Revenue Stream:

Deccan Gold Mines Limited (DGML): Its cost structure consists of expenses for exploration, employee expenses, finance costs, other expenses whereas since it is still in exploration phase its revenue stream from production has not started. All revenues come from other sources such as equity. This industry has long gestation periods before which it starts to bear returns.

Miranda Gold Corp.: Its cost structure consists of administrative costs, exploration and project activity costs, asset acquisition cost and amortization cost. The Companys projects are at the exploration stage and have not yet generated any revenue from production. It receives proceeds from marketable securities.

Indo Gold Mines Pvt Ltd (IGMPL): Its cost structure consists of operating activities such as exploration and evaluation of mining properties, investing activities related to the acquisition of exploration and evaluation assets. The Companys projects are at the exploration stage and have not yet generated any revenue from production

Mineral Exploration Corporation Limited (MECL): Its cost structure consists of operating activities such as exploration and evaluation of mining properties, investing activities related to the acquisition of exploration and evaluation assets. This company earns revenues from operations. It takes contracts from public and private companies and that is the main source of revenue. It also gets revenues from marketable securities.

2. Prepare an Activity System Map for both a Low Cost Organization (ex: South West Airline or Air Deccan) as well a Diversified (ex: Full Service Airlines) Organization operating in the Industry/ Sector selected by you.Ans.2.A diagram showing how a company's strategy is delivered through a set of supporting activities is called activity system map. Gold mining and exploration industry is raw material based industry which is highly capital intensive and most of the expenses are in exploration and production process. Low cost organization taken up for study is Doray Minerals Limited and diversified organization is Newmont Mining Limited.Activity System Diagram for Low Cost Organization:

Headquarter Perth,West Australia

ProductGold ore Services Industrial,commercial

TechnologyAdvanced&improving l

Customer relationshipB2B, Convenient,SpecifiedlocationMarketingB2B marketing

Value&CultureIntegrity&Best practices Business customers

Ownership Private

Environmental Certifcate As per Australian Standard

HeadquarterColarado, U.S.A.Activity System Diagram for Diversified Organization:

ProductGold ore,silver ore Services Industrial,commercial, consultancy

TechnologyAdvanced&improving l

Customer relationshipDirect,trustedadvice, consultationMarketingB2B marketing

Value&CultureInnovation,creativity,excellence Business customers

Ownership Private

Environmental Certifcate ISO14001:2004

3. Identify the leading Organizations Low Cost Providers (ex: Low Cost Air Carriers) as well as the leading Organizations with Diversified Product/ Service Providers (ex: Premium Air Carriers or Business class airlines) for India and for the 5 Continents (Asia, Europe, Africa, North America and South America). Document the Vision, Mission, and Objectives of these companies (ex: airline companies) and identify the key attributes of success for each of these organizations/ industries (ex: International Carriers). Is it in line with the various readings shared with you? Evaluate the Mission statement as per the suggestions given in the website (http://www.strategicmanagementinsight.com/mission-statements/microsoft-mission-statement.html). Prepare the Strategy Statements in line with the article on 'Developing the Strategy - Vision, Value Gaps, and Analysis' by Robert Kaplan, David Nortan, and Edward Barrows and identify the Value Proposition and Strategy Sweet Spots in line with the article on 'Can You Say What Your Strategy Is' by David Collis and Michael Rukstad

Ans 3. Companies in various geographies-India:Low Cost Providers- Deccan Gold Mines Limited (DGML)Diversified Product/ Service Providers- Mineral Exploration Corporation Limited (MECL)

Africa:Low Cost Providers- WitsGoldDiversified Product/ Service Providers-AngloGold Ashanti

North America:Low Cost Providers- Miranda GoldDiversified Product/ Service Providers- Newmont Mining

Australia:Low Cost Providers- Doray Minerals Pvt. Ltd.Diversified Product/ Service Providers- Newcrest Mining Limited

Asia:Low Cost Providers- China Gold International Resources CorpDiversified Product/ Service Providers- Allied Minerals.

South America-Low Cost Providers- Orosur Mining Inc.Diversified Product/ Service Providers- South American Gold Corp.

India-Deccan Gold Mines Limited (DGML)Vision- DGML's aim is to use the best mix of Indian and Australian expertise and provide capital to make big discoveries of gold deposits in the under explored gold-rich terrains of India and fuel the redevelopment of the Indian gold mining industry.There is no mission statement and objectives given as such by the company. But we can infer it from their vision statement that they want to capitalize Indian and Australian expertise in tapping unexplored territory of the country.

Mineral Exploration Corporation Limited (MECL)Mission- To provide high quality, cost effective and time bound geo-scientific services for exploration and exploitation of minerals.The company is not talking about vision and objectives separately. This is not in line with our readings.

Evaluation

Does it include?Does it mention values like?

CustomersProducts/ServicesMarketsCitizenshipTeamwork

NoYesNoNoNo

TechnologyConcern forsurvivalPhilosophyExcellenceIntegrity

NoNoNoNoNo

Self-conceptConcern forpublic imageEmployees

NoNoNo

Customer or product-oriented?

Product-oriented

Suggested mission statement- To provide high quality, cost effective, time bound, sustainable geo-scientific services using state of art technology for exploration and exploitation of minerals and providing value to customers.

Africa:Wits Gold-Aim- To deliver long-term value by concentrating on three equally important aspects- Project development, acquisition and exploration. The company is not talking about vision and objectives separately.

Evaluation



NoYesNoNoNo


NoNoYesNoNo


NoNoNo


Service-oriented

AngloGold Ashanti-Vision- To be the leading mining company.Mission - We create value for our shareholders, our employees and our business and social partners through safely and responsibly exploring, mining and marketing our products. Our primary focus is gold and we will pursue value creating opportunities in other minerals where we can leverage our existing assets, skills and experience to enhance the delivery of value

Evaluation



YesYesYesNoNo


NoNoYesNoNo


NoYesYes


Customer-oriented

Mission statement is holistic covering most aspects required from a mission statement.

North America-Miranda Gold-The company does not talk about vision, mission and objective. Its focus is on creating shareholder wealth through the discovery of new gold deposits.

Newmont Mining-Vision- We will be the most valued and respected mining company through industry leading performance.Mission- We will build a sustainable mining business that delivers top quartile shareholder returns while leading in safety, environmental stewardship and social responsibility.

Evaluation



YesYesNoNoNo


NoYesYesYesNo


NoNoNo


Customer-oriented

Australia-

Doray Minerals Limited-Mission- To create superior shareholder value through the discovery, acquisition and development of world-class mineral deposits using best practice.Strategy- The Companys strategy is to use its considerable exploration experience to identify, acquire and develop projects in areas of major gold endowment with the potential to host significant gold deposits. On behalf of its shareholders, Doray is aiming to both capitalise on improved sentiment in the global gold market through the re-evaluation of areas previously identified during less favourable gold market conditions and to expand out from known areas to seek new gold discoveries with the aim of increasing shareholder wealth.

Evaluation



YesNoNoNoNo


YesNoNoNoNo


NoNoNo


Customer-oriented

Newcrest Mining Limited-Strategy- Newcrest pursues a strategy of delivering competitive shareholder returns by optimizing performance at each phase of the mining value chain, building a portfolio of gold opportunities to convert into operating mines and harnessing technical expertise across a wide range of leading edge mining formats and technologies.

Evaluation



YesYesNONoNo


YesNoNoNoNo


NoNoNo


Product-oriented

Asia:

China Gold International Resources Corp-Mission- As the overseas flagship company of China National Gold Group Corporation, the vision of China Gold International Resources Corp. Ltd. is to become a leading gold and by-product non-ferrous mining company by producing quality reserves from existing mines, updating and discovering new resources through exploration rights and selectively acquiring additional high quality assets. China Gold International Resources Corp. Ltd. is committed to achieving maximum shareholder value through growth, stability, low cost and responsible operations.

Evaluation



YesYesNoNoNo


NoNoNoNoNo


NoNoNo


Customer-oriented

Allied MineralsObjective- Allied Minerals companys objective is to discover, explore and develop properties with heavy gold mineralization.It does not talk separately about vision and mission.

South America-Orosur MiningVision- Our vision is to provide shareholder value by running successful gold production operations in South America.Objectives- To maximize the Companys free cash flow in the four years to 31 May 2016. We will do this by targeting San Gregorio production at between 60,000 to 70,000 ounces per annum from our existing reserves at an average cash cost of US$ [810] per ounce. To the extent available, pay dividends to shareholders of at least one-third of the Companys free cash flow from January 2014. To carry out sufficient work to extend the life of the San Gregorio mine to maintain in future years a minimum of four years of life. To advance our existing projects at Anillo, Pantanillo and Talca in Chile to commercial assessment. To monitor the progress of our farmed out projects to obtain the maximum value for them and To have sufficient cash on our balance sheet and to be generating cash so that when, as we expect, the difficult market for funding exploration projects results in their prices reducing to a reasonable level, we are in a position to acquire new projects in South America that have real potential and low risks at realistic prices. If we do not find the right projects, then there will be additional cash that can be returned to shareholders.

Strategy has not been talked about separately.

South American Gold Corp.-Strategy- To target historic Gold and Silver mining districts that we consider underexplored focusing on acquiring properties that we believe offer larger scale open-pit or higher-grade underground mining potential, and add value through exploration, development or joint-venturesMission- To deliver superior leverage to Gold and Silver through the acquisition, exploration and development of significant mineral deposits in Latin America, Mexico, United States and Southeast Europe.

Evaluation



NoYesYesNoNo


NoNoNoNoNo


NoNoNo


Product-oriented

4. Conduct an External as well as Industry Environment Analysis for the industry in which the company (PESTEL and Porter's 5 Force Analysis) is operating. Identify the strategy of the company's closest competitor? Who are the complementors (company's offering complementary products or services) of the organization?Ans. External as well as Industry Environment Analysis for the industry in which the company is operating is best presented by PESTLE analysis and Porters 5 force analysis wherein PESTLE deals with macro factors and Porters analysis reflects conditions within the industry.Deccan Gold Mines Limited operates in metals and mining industry. PESTLE analysis is examination of the external macro environment in which an industry functions. These factors are generally beyond the control or direct influence by a business in the industry. But they have significant impact on any business running in the industry

PESTLE analysis of mining industry in terms of gold mining and exploration is as follows-Political:Government of a country has huge impact in the gold industry. Unlike other industries government imposes royalty just to mine the gold. And the rate of this royalty affects greatly the competitiveness of the industry. Also many policies of the government always try to control both supply and price of the gold by hoarding or dishoarding the gold. First of all, government pursues the policy of hoarding gold in order to encourage miners to mine new gold (Montana River Action, n.d.). And when the demand for gold pushes the prices, the government dishoards it to keep the price down (Goldprice.org, 2005). E.g. taxes imposed by government on imports of gold have direct impact upon demand of gold.Economic:The state of the economy of the world has even greater impact on the gold prices than any policies by government. In fact economic condition can easily override any control by government to keep the gold price in check. Gold prices have inverse relation with the economy (Cunha, 1999). When the economy is in good conditions investors put their money on stocks and bonds. And when stock market falls due to bad economy, panicked investors sell their stocks and invest heavily in gold thereby causing price rise (Amadeo, 2009). Almost every recession period had affected positively on gold price.

Sociological:Social factors can be said as main driving factor for the popularity of the gold, as the jewellery comprises the most major share in human consumption of the gold. E.g. in India gold jewellery is important part of marriages.

Technological:Gold apart from being only popular for social purposes is also one of the most sought after material for technological purposes. It is most malleable, ductile and highly bacteria resistant material known to man (Azomaterials, 2001). Gold has very high uses in wide range of industries from Bio-Medical, Catalysis, Dental, Environmental, Fuel Cells, Electronics, Nanotechnology, Photography, Space etc. Every year new industrial uses are discovered which in future can shift the consumption of gold more towards industry than social purposes.Legal Analysis:Before mining for gold, compliance with local governmental laws are necessary in which a prospector wishes to mine. e.g. in India mining rights are divided between centre and states according to the Seventh Schedule of the Constitution. Centre has also passed acts such as Mines and Minerals( Development and Regulation) Act,1957 and policies such as National Mineral Policy,1993.

Environmental:Environment and gold mining does not go well with each other. Gold mining is very toxic waste producing industry. It is responsible for Arsenic and Lead toxic pollution. Environmental phenomenon like earthquake also pose high danger to mining industry. According to geoscientists deep gold mines are most seismically active regions of the world and can cause cave-ins

Porters 5 forces analysis:

Porters five forces is a framework that explains five forces that influences an industry. These different sources shapes up the competition present in the industry. (Porter, 1979).These five forces in context of Gold Industry are:Threat of New Entrants: The main barrier to entry is financing. All precious metal industry including the most prominent metal gold is highly capital intensive. Even before the gold mine starts its first production, major investment is required for exploration, mine construction, heavy mining equipment etc. Therefore the threat of new entrants is relatively low.Power of Suppliers: The primary resource a gold mine needs is land which is available in large amount in the world. So the only supply problem remains is the governments permit to mine the land. Issues like environmental risks posses difficult challenges in securing governments approval.Power of Buyer: Buyers power is high in the gold industry as the gold is a commodity based product. Therefore gold mined by one company is not very different from the gold mined by another. Hence buyers will always favor companies that provide lower prices or favorable contract terms.Availability of Substitute: Currently the threat from substitutes is relatively low. Substitutes for gold include other precious metals like silver, platinum, diamonds etc. Although their acceptance level is lower than gold. Gold currently holds the advantage of world currency as all over world it is used as investment. But as other precious metals like diamond gain popularity they may become more threatening substitutes.Competition Rivalry: Gold companies do not compete on price as market forces determine the price. But the main competition between them is for land. The long term survival of a precious metal company depends upon its reserves amount. And the only way to expand reserves is to continuously explore for economic feasible mining areas. Therefore gold companies invest heavily in exploration as the first one to discover is given first preference to mine by the governments.

The closest competitor of Deccan Gold Mines Limited(DGML) is Indo Gold Ltd which established Indo Gold Mines Private Ltd. in 2004 to undertake exploration for gold in India, in joint venture with an Indian company, Metal Mining Private Ltd. holding the mineral rights. The strategy of Indo Gold Ltd. is to primarily focus upon exploration activities and now it has diversified to various geographies such as South Korea, West Africa by establishing subsidiaries over there. Thus its strategy is to look for opportunities in various geographies.

Since DGML is primarily in exploration phase the complementors are contractors and suppliers. This also include transportation companies and companies supplying capital equipments.

Q5. Write within 750 words each of the following:i. Comment on the History, Evolution, Growth Rate, Profitabilty Rate & Future of the Industry in which the Organization is operating. How has it been for Organization as well?ii. Size of the Industry across the world and the country where the organization is operatingiii. Key success factors for any organization operating within the Industry and how is your organization performing on those criterias.

Ans.5 (i) According to experts, the Indian gold mining history could be between 6000 to 8000 years old. There are several known old gold workings in the Kolar, Hutti, Gadag, Wynad goldfields and elsewhere. It appears though that Wynad was responsible for the great gold boom of 1880 when 33 companies with an aggregate capital of over 4,000,000 sterling pounds were floated in the London market, reports an article by the Bharat Gold Mines Ltd.Until recently, the greenstone belts of the Dharwar Craton in Karnataka hosted India's only two major gold mines, at Kolar and Hutti. The Kolar mineralised system is 8 km in strike and 2 km wide. The mine is now shut down, after producing 800 tonne of gold from 50 million tonne of ore, at an average grade of 16g/t of gold. The Hutti mine has produced 100 tonne of gold from its underground operations since 1898. Its mineralised system is 4 km in strike and 1 km wide. The Hutti ore body is currently being mined at a depth in excess of 800 meters.The GSI lists several belts through out the country with known gold mineralisation. Some of these in the Southern region alone are the Ramigiri- Penakacherala schist ,the Jonnagiri Schist belt, the Gadwal schist belt, the Kadiri greenstone belt, the Nellore tectonic belt, the Cuddapah basin, the Shimoga- Dharwar schist belt, the Gadag schist belt, the Hutti Maski schist belt and so on.In the world, oldest known gold artifacts were found in theVarna NecropolisinBulgaria. The graves of the necropolis were built between 4700 and 4200 BC, indicating that gold mining could be at least 7000years old.Bronze agegold objects are plentiful, especially in Ireland and Spain, and there are several well known possible sources.Romansusedhydraulic miningmethods, such ashushingandground sluicingon a large scale to extract gold from extensive alluvial deposits, such as those atLas Medulas. Mining was under the control of the state but the mines may have been leased to civilian contractors some time later. The gold served as the primary medium of exchange within the empire, and was an important motive in theRoman invasion of BritainbyClaudiusin the first century AD, although there is only one known Roman gold mine at Dolaucothiin west Wales. Gold was a prime motivation for the campaign inDaciawhen the Romans invaded Transylvaniain what is now modernRomaniain the second century AD. The legions were led by the emperor Trajan, and their exploits are shown onTrajan's Columnin Rome and the several reproductions of the column elsewhere (such as theVictoria and Albert MuseuminLondon). Under the Eastern Roman Empire Emperor Justinian's rule, gold was mined in the Balkans, Anatolia, Armenia, Egypt, and Nubia.During the 19th century, numerousgold rushesin remote regions around the globe caused large migrations of miners, such as theCalifornia Gold Rushof 1849, theVictorian Gold Rush, and theKlondike Gold Rush. The discovery of gold in theWitwatersrandled to theSecond Boer Warand ultimately the founding of South Africa. Talking about growth rate of mining industry in general in India though its share in GDP has remained flat at 2% for last 15 years but there has been an increase in base commensurate with growth in GDP of the country. Also the profitability has increased as reflected by growth in volume and profit of large mining companies such as NMDC etc. However, the contribution of gold mining is 0.99% of total metallic mineral production in the country. The growth rate for gold mining industry is low as presently gold is produced only by Hutti mines.Geologically, the Indian terrain lends itself to the potential for large discoveries. It is very similar to the geological structure of Western Australia and Africa which have largest proven reserves of gold and with the new technologies such as 3 D computer visualization and modeling tools the future is bright provided there is increase in exploration expenditure.According to a study undertaken in Western Australia by the Department of Treasury and Finance a couple of years ago, if mineral exploration investment were to increase by $100m (and be maintained for five years), then the projected cumulative benefits over the next twenty years for the state would be $10.4 billion in investment, $45.8 billion in export revenue, $32 billion in gross state product, $1.7 billion in State Government Revenue, and creation of several thousand new jobs with most of these in theregional areas. Thus , we can see that gold mining and exploration has high profitability and good future if investments in exploration are made.

DGML is a recent entrant in this field and its operations are in exploration domain. It must be appreciated that exploration companies, have long gestation periods between exploration and discoveries, to which DGML is no exception. This gestation period has been further impacted by the delays in grant of permits by the Government authorities. It is pertinent to note that exploration companies by their very nature will not generate mining revenues until commencement of mining operations. Thus looking from financial aspect it made loss to the tune of 106 lacs in 2013. However, DGML now has a large portfolio of exploration prospects in the States of Karnataka, Andhra Pradesh and Rajasthan and it has identified probable gold reserves at various locations which augurs well for future.

Ans. 5 (ii) . Size of the gold mining industry across the world is measured according to production criteria as well as economic contribution. In 2012, companies put out a total of 2,700 tons of gold,accordingto the US Geological Survey. Over the past few decades, gold mining has become a truly global industry. Currently, there are 90 countries that mine the precious metal and the top 20 producing nations provide more than 75 percent of the worlds gold each year. China, Australia, U.S.A., Russia, South Africa,Peru, Canada, Indonesia, Uzbekistan and Ghana are the top ten producing countries. The key growth areas for mining in recent years include China and Mexico: Chinese gold production increased by almost half (47%) between 2007 and 2012 and Mexican production rose by 118% over the same period.Other countries have seen declines in their production, notably South Africa, where the 2012 mine productionfigure of 178 tonnes compared to 270 tonnes in 2007.The economic contribution of gold mining is assessed by reference to the GVA. The GVA of gold mining can be estimated using one of two approaches. The first is the income approach which involves calculating the sum of operating profits, depreciation and amortisation and employee costs. The second is the production approach which is derived as the value of sales of gold less the cost of intermediate consumption or the cost of inputs and raw materials directly attributable to that consumption. Both have been used. Extraction and refining of gold generate a significant economic contribution. It is estimated that gold mining in the worlds top 15 producing countries generated US$78.4 billion of direct GVA in 2012. This contribution is significant; it is equal to the entire national economic output of Ecuador or Azerbaijan, countries with populations of 15 million and 9 million people respectively, or 30% of the GDP of Shanghai. Economic data from national governments and multilateral institutions do not provide the level of granularity needed to assess gold minings economic contribution so it is necessary to estimate the direct GVA of gold mining using financial accounting information for large gold mines. In summary, the key components of the analysis are gold mine production and costs which are used to estimate revenue, operating profits (before tax), depreciation, amortisation and labour costs. These components are combined to estimate GVA.

The Hutti Gold Mine Limited, a public sector company, was the major producer of primary gold in India. It accounted for almost entire production while a nominal quantity was reported by Manmohan Mineral Industries (P) Ltd. The production of gold ore at 4710 kgs in the year 2012-13 decreased by 4 % as compared to that in the previous year. The recovery of gold bullion in the current year was also decreased by 28% as compared to that in the previous year due to more attention towards development works of the mines owned by HGML. The production of Gold primary in 2012-13 was 1588 kgs. There were four mines reporting production of gold during the year under review. Three public sector mines are located in Karnataka and one private sector mine is in Jharkhand.

Ans. 5 (iii) The most important success factors in the gold mining and exploration industry are: 1. Access to highly skilled workforce: To be successful in the industry, companies need access to skilled labour. 2. Profitable mineral deposits is pre-requisite to be successful. There are many places in the world which have huge reserves but most of them fail at feasibility criteria.3. Access to finance as this is highly capital intensive industry.4. Successful industrial relations policy: Maintaining harmonious industrial relations is crucial to contain costs and meet targets. 5. Economies of scope: The ability to undertake work at a number of sites simultaneously provides a buffer against losing a contract at a particular site. 6. Securing large contracts: Firms that are able to secure long-term contracts to mine large resource deposits ensure ongoing revenue and profit generation.

The Deccan Gold MinesLimited Company is into gold exploration stage of mining which is highly speculative in nature and subject to several operational risks. These risks include exploration and mining risks, delays in approvals to undertake exploration activities, delays in grant of appropriate mineral concession licences, actual resources differing from estimates, operational delays and the availability of equipment, personnel and infrastructure.The Company is also dependent on key personnel and subject to actions of third parties, including the staff, other contractors and suppliers.The Companys operations are also subject to government laws and regulations, particularly environmental andland acquisition regulations.The Companys future revenues from product sales will be affected by changes in the market price of gold which is affected by numerous factors which are beyond its control. These include international supply and demand, the level of consumer product demand, international economic trends, currency exchange rate fluctuations, the level of interest rates, rate of inflation, global or regional political events and international events as well as a range of other market forces.In the absence of cash flow from operations, the Company may have to rely on capital markets / private equityinvestment to fund its operations. The Companys ability to raise further funds will depend on the success ofexisting operations. Although the Company has been successful in the past in obtaining financing through thesale of equity securities, there can be no assurance that additional funding will be available, or available underterms favourable to the Company in future. Failure to obtain such additional finance may require the Companyto reduce the scope of its operations.Established in 2003 by promoters with deep roots in the exploration and mining sector, Deccan Gold Mines Limited (DGML) is the first and the only gold exploration company listed on the Bombay Stock Exchange Limited (BSE).DGML brings to India, a wealth of international technical know-how and experience in the gold exploration and mining sector. Since its establishment, DGML has actively pursued gold exploration activities in all of its exploration prospects that resulted in identification of probable gold resources at several locations. DGML now has a large portfolio of exploration prospects in the States of Karnataka, Andhra Pradesh and Rajasthan. Thus, we see that DGML is performing well considering it is new entrant in the industry and the limitations it has to work in.

Indo Gold Mines Pvt Ltd

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