On the Coal Face

By Diana Milne, Editor

RAK Minerals and Metals Investments has embarked on a multi-billion dollar global shopping spree buying up mines across the world. And as managing director Madhu Koneru reveals, the strategy is paying off.

“The next place that we're looking to go to in the next couple of years is South America, it's rich in iron ore and coal so we'll be focussing on those areas”
-Madhu Koneru, Managing Director of RAK Minerals and Metals Investments

Volatile oil prices and a surge in demand for coal has created lucrative investment opportunities for RAK Minerals and Metals Investments (RMMI).

The company, set up by the Ras Al Khaimah Investment Authority (RAKIA) in 2005 and co-owned by the industrial minerals giant, Trimex Group, may not be the best known name on the UAE business scene. But when it comes to its achievements to date – the numbers speak for themselves. This year alone it will invest US$1billion dollars in acquiring mines across the world. This will lead to a global asset base worth US$4 billion.

But, says the company’s Managing Director Madhu Koneru, who is also executive director of Trimex International, the group is not focussed solely on its profit margin. Ensuring the welfare of the workers at the mines it acquires is a key part of its strategy – not just in terms of corporate social responsibility but also to maintain a stable workforce. Indeed, Koneru says he believes that implementing this strategy is one of the biggest challenges that mining companies currently face. “One of the big challenges that companies like RMMI face is that the mines they run are in very remote and underdeveloped places. How you deal with the people in these areas is very important.

“Out of the money that you make from the mine, a%age of this has to go into corporate social responsibility. And if you don’t do that you can face all sorts of issues such as workers striking.

Koneru goes so far as to say that he believes implementing corporate social responsibility strategies is in fact more challenging than the mining process itself. “Handling a mine is very easy. There’s no rocket science in that. You drill it, remove the raw materials, process them and sell them. But dealing with the people at the mine head is very sensitive. They want you to make them understand how building a railway track or doing mining in their area will help them and their children in the future.”

But overcoming such challenges is one of the reasons why RMMI has become so successful in such a short space of time. The company does not shy away from acquiring mines in challenging areas including Armenia, where earlier this year it invested US$200 million in the acquisition of the TSCC Armenia. This covers three mining complexes spread across north and south Armenia and under the terms of the deal RMMI will also establish a concentrate plant in the country. Koneru says he believes Armenia holds a great deal of untapped potential for RMMI – largely due to the fact that few of its rivals to date have been willing to invest in the country.

“Because of the political relationships they have with its neighbouring countries, European and American companies are not keen to invest in Armenia. It is also a country that has not been developed for a number of years because it is landlocked,” explains Koneru.

To overcome the logistical challenges of transporting materials and equipment to and from Armenia, the Ras al Khaimah government acquired 50% of the nearest port – Poti in Georgia. It will be utilising the port to do most of its exports when it starts production in Armenia.

RMMI has faced similar infrastructural challenges in Australia where it has invested in mines in remote areas on the country’s east and south east coasts. To overcome these challenges, Koneru says the company plans to build a railway or port facilities. “We will do a similar thing to what we are doing in Indonesia right now which is to put up a railway track or a new port facility. Ras Al Khaimah has always been an industrialised city in this part of the world. It handles close to 80 million tonnes of bulk raw materials for the cement factories so the company has the expertise to build something over there.”

As part of its strategy to invest in mines on each continent, RMMI has acquired a mine in Indonesia and earlier this year announced it was investing US$ 250 million in a Congo-based copper mine. “We have invested US$50 million in acquiring the mine and we are investing another US$200 million in building the smelter,” says Koneru. “We have been doing a lot of exploration there and it’s going fantastically,” he enthuses.

The next region it hopes to target is South America, and Koneru says the company is currently seeking out possible investment opportunities there. “The next place that we’re looking to go to in the next couple of years is South America,” he says. “It’s rich in iron ore and coal so we’ll be focussing on those areas. We are trying to look at some opportunities in Colombia and Brazil. We’re just shopping right now.”

But this is no ordinary shopping trip. Once it has chosen the right spot, RMMI will invest millions of dollars in a mine there – a project that will be years in the making. The company has every reason, however, to be confident of high returns on its investments. Globally, energy needs are set to increase by 55% by 2030 with the usage of fossil fuels, dominated by coal, estimated to grow by 84%.

JPMorgan recently revised its 2008 global coal price forecast to US$90 per metric ton – an increase of almost 62% from its 2007 prices. Meanwhile, the analysts suggest that demand for metals such as copper, nickel, zinc and iron, could double or even triple over the next 25 years. The situation is helped by the surge in oil prices earlier this year and a drop in the productivity of oil fields which has prompted many developing countries to turn to coal for fuel. This has led to particularly strong increases in demand from China and India, which Koneru says has boosted the building of power plants within both countries, as well as in the Middle East. There will be a lot of demand for coal coming up from power plants that are being built in India and in the Middle East,” he says.

Koneru also believes that his company is insulated from the effects of the credit crunch on demand for metal as a component in consumer goods, by the fact that it focuses primarily on copper.

“Whether the economy is up or down, copper is always going to be used,” says Koneru. “Unlike other metals such as lead or zinc which are directly related to consumer products, copper is related to infrastructure. So the resources which we have acquired are a very long term investment.”

Part of the profits gleaned from these projects will be invested back into developing the infrastructure of the emirate of Ras al Khaimah. The RAK government, through the Ras al Khaimah Investment Authority (RAKIA) has embarked on an ambitious plan to develop the emirate into the focal point for industrial activity in the UAE.

To date it has established a thriving limestone and aggregates mining industry. Describing the relationship between the establishment of RMMI and the RAK government’s vision to develop the emirate, Koneru says: “RAK was very particular about developing the emirate and it needed to invest a lot of money in building infrastructure there. The raw materials needed for that are very expensive and copper and coal are not available locally so the government decided to go out and invest in it. That can be directly or indirectly hedged to the emirate,” he goes on to say. “If we invest in a coal mine in Indonesia and we are selling coal to China, whereas the RAK government is buying it from South Africa at a higher price, they are at least making money from the Indonesia and China deal. That is how the cost of infrastructure will be indirectly hedged.”

RMMI hopes to enter into partnerships with other Middle Eastern companies which also want to develop mining industries. “We are being approached by various other companies within the region to do partnerships because the whole Middle East region now wants to invest in natural resources,” he notes. “They have traditionally invested in oil and gas but now they want to invest in mining also. Everyone has seen the value of natural resources because of the cost of infrastructure and what they are paying. We are negotiating, we are talking to some people, we are trying to do some co-investments but nothing has come to the finalisation stage.”

Judging by RMMI’s achievements to date, however, there is little doubt that these agreements will be finalised. And while Koneru is keen to remain cautious about the future of the company, increased demand for coal and a surge in demand for copper means that RMMI could be sitting on a gold mine.

Madhu Koneru obtained a Bachelor degree in commerce from the Delhi University and started his career with the Trimex Group in 1992 as a trainee. Three years later he was appointed General Manager and became the company’s Executive Director in 1996. During this time he has also been a member of the Boards of Directors of Al Ghanem Industrial Company, Kuwait, and TJ Shipping and Logistics. In his role as Managing Director of RMMI on behalf of Trimex, Koneru is focused on building RMMI into a world-leading mining solutions provider in the metals and minerals industry. Koneru is a YEO, India member, a Charter Member of the Indus Entrepreneurs in Dubai and a member of the Indian Business and Professional Council in Dubai.
In 2007 he won the Asian Business Award Middle East for ‘Young Asian Achiever of the Year’. He has also been instrumental in facilitating bilateral initiatives between the Governments of Dubai and Ras Al Khaimah and India.

About RMMI

RMMI was established in 2005 as a joint venture with the Ras Al Khaimah Investment Authority (RAKIA) and the Trimex Group. RMMI’s mandate is to extend Ras Al Khaimah’s long-term investment strategy in minerals and metals.

RMMI’s mission is to become a leading mining solutions provider in the metals and minerals industry through strategic, long-term investments across the entire mining value chain – from geological exploration, mining and processing to trading and logistics.

The company is backed by the extensive experience of both RAKIA and Trimex. RAKIA’s mandate is to underpin the investment attractiveness of Ras Al Khaimah, United Arab Emirates, which has a long history in mining and has produced about 100 million tonnes per year of limestone and aggregate in the last 30 years. With 25 years of experience in the business, Trimex  specialises in mining, research and development, processing, shipping, logistics and marketing. Trimex benefits from its extensive regional experience and global reach – shipping close to 4 million tonnes of various cargoes all over the world.

Although still a relatively young company, RMMI has emerged as a highly successful investment arm of RAKIA and is now a fully-fledged Middle East mining company, currently managing 23 licenses in Indonesia, Congo and Armenia and recently investing in Australia. RMMI will invest approximately US$1 billion during 2008 towards building an asset base exceeding US$4 billion.