Needed: Shot in the arm

There was hardly any investment in the mining sector despite the sector was opened up for 100 per cent FDI in February 2000. There is an urgent need to find out ways and means to attract private investment in exploration because government agencies have not been able to find resources which could prove economically viable for investment, writes A Shivkamal.

It was during the heights of the tussle between the Indian steel industry and iron ore exporters during 2007 with the former wanting a clamp on the overseas sales of the high grade ore contending that it would impact local metal production. But the iron ore exporters were in no mood to relent because China was fuelling exports of iron ore from India to an unprecedented scale. In an attempt to end the cold war between the two warring factions, the Indian Bureau of Mines (IBM) brought forth a study that not only stunned the iron ore and steel sector, but changed the way Indian mining industry started exploring mineral deposits.

The IBM study revealed that between 2000 and 2005, 215 million metric tonne (mt) of high grade (containing ferrous content in excess of 65 per cent per tonne) limps and fines were produced. However, during the same period, the total high-grade iron ore resources in the country went up by 533 mt to touch 1,933 mt from 1,400 mt.

Though 215 mt of high grade iron ore was mined at an average of 43 mt per year, there was an addition of 107 mt every year to the total reserves. The high grade iron ore constituted 13.21 per cent of the total reserves by the end of 2005 as against 12.25 per cent in 2000. This finding revealed that extensive mining and exports of iron ore was leading to depletion of reserves. On the contrary, such activities had led to discovery of fresh deposits.

"It was an eye-opener for the mining industry. Instead of having to fight the argument of the steel lobby, the mining sector had powerful data on its hands to strengthen the sector. This proved the age-old mining adage that extensive mining will lead to discovery of fresh deposits. Since then, Indian mining companies have changed their approach towards exploration of minerals. Several leading private sector mines are now on par with their western counterparts in using technology for exploration of minerals," points out Ashok G, Executive Director, SLN Mining Consultants.

According to a Federation of Indian Mineral Industries (FIMI) research paper, the apex body of the Indian mining industry, the minerals sector in the country can be broadly classified into three segments.

As much as 95 per cent of the bulk minerals like limestone and bauxite, and almost 30 per cent of iron ore are captive to industries for which they are raw materials. The balance quantity is extracted by a large number of concessionaires spread all over the country. With the exception of iron ore (which received a boost because of Chinese demand), these minerals are extracted to the extent of their requirements of the units to which they are captive. As the areas granted are much in excess of the requirements of the consuming units, exploration is the first casualty. Mining is selective and in most cases, the best grades are extracted, leaving low grades in the ground or stored separately.

In other cases, the ownership of mineral concessions is mostly with individuals, partnership firms or private limited companies. The units engaged in these minerals have less exposure to new mining and exploration techniques. They have limited production, mainly catering to the domestic industries. Mining is mostly manual or semi-mechanised. These are small and scattered depositsleases are for small areas where scientific mining is not possible. The minerals mostly extracted are traditional, low value and widely available in India and abroad. The sector is by and large fragmented and not exposed to stock exchanges.

The minerals and metals with which India is vitally concerned now and will be in future such as gold, lead, zinc, copper, nickel PGMs, and diamond have not yet been fully developed or their potential realised because of lack of state-of-the-art exploration technologies, high risk and size of the capital required, which are not available in India so far. A large number of the deposits discovered so far are chance discoveries.

Need for new outlook

According to FIMI, there is an urgent need to explore minerals/metals in which this country is deficient, for eg, gold, copper, nickel, platinum group of minerals as well as diamond, as the country extensively depends on imports now.

"In other minerals and metals such has lead, zinc etc, we may be self-sufficient now but, looking at our growing requirements, will have to import in future. These are the minerals for whose exploration least attention seems to have been given. The Geological Survey of India (GSI) has undertaken extensive regional exploration but to exploit a deposit and to analyse its economic viability, one has to go for detailed exploration and analysis of the ore to choose appropriate technology," contends Dr TH Hanumanthaiah, a well-known geologist and retired professor of Geological Sciences.

In India, except Mineral Exploration Company (MECL), there is no agency which can undertake this kind of work. MECL itself is not adequately equipped to undertake this work. Out of various detailed explorations carried out by it and more than 75 reports brought out, not a single report has found acceptability of any entrepreneur.

The Working Group set up by the Union Ministry of Mines has come out with some solutions to encourage an entrepreneur to pay initially only 5-10 per cent of the cost of detailed survey and pay the balance over a period of time if the project sees the light of the day. "Detailed exploration is a specialised job undertake by exploration companies, popularly known as junior exploration companies," says Basant Poddar, Chairman South, FIMI. "Their exploration expertise is in most cases linked to a particular mineral or group of minerals. For exploration job, they bank on venture capital or hedge funds. Mineral rich countries such as the US, Canada, Australia, Brazil, South Africa, Chile, and Mexico do not want to spend tax payers’ money on a risky venture like exploration. These countries therefore encourage these private companies to undertake detailed exploration by providing various incentives and security of tenure besides priority in grant of concessions as well as freedom to sell."

The exploration work is extremely risky; if during an aerial survey, 1,000 anomalies are observed, it may be that only 100 anomalies are worth ground prospecting and it may again be that only one out of these 100 turns out to be worth economic exploitation. The government therefore do not prefer to spend the tax payers’ money on exploration because it does not want the tax payers’ money to be invested in risky and hazardous ventures like exploration.

India is one of the least explored countries in the world for minerals. As exploration was not encouraged, there was hardly any investment in the mining sector despite the fact that since February 2000, the sector was opened up for 100 per cent foreign direct investment (FDI). This therefore emphasises the need to find out ways and means to attract private investment in exploration because government agencies have not been able to find resources which could prove economically viable for investment.

Long term benefits

There are enormous long-term benefits if exploration is opened up for private junior exploration companies. The areas where exploitation of mineral resources (iron ore, bauxite, limestone, dolomite, manganese ore, chrome ore, etc) is taking place are widely known and have already been developed over the course of time. These mineral-bearing areas are already reaping the fruits of economic growth. The minerals/metals being talked about are of high value, scarce and deficient. There are the minerals/metals where junior exploration companies are interested. These are in areas which have not been adequately explored and are in the interior. According to FIMI, There will be a number of benefits if private investment is encouraged:

• Remote/tribal areas will be opened up, creating opportunities for large scale employment.
• Dormant resources will be exploited for nation’s long term benefit.
• As the metal content in the ores is low (low tenor ores), value addition will be near the mines (one cannot transport vast material excavated from the mines).
• Dependence on imports will be reduced and if sufficient quantity and quality is found, imports may dry up.
• New state-of-the-art technology will be imported and applied.
• There will be large inflow of capital (FDI).
• There will be revenue generation for state and Central governments.

Attracting private investment

India is way behind when it comes to investing on minerals exploration. On an average, India spends $5 million annually on mineral exploration while the same for mining giants, such as Australia and Canada are $600 million and $400 million, respectively. Consequently, the private sector investment in mining has plunged drastically. Big names of the mining world such as Rio Tinto, De Beers and BHP Billiton have reportedly spent undisclosed sums on mineral exploration in the country but are yet to be given even a single mining lease.

Many authorities have identified various conditions in a country for attracting foreign private investment in exploration and mining. However, almost all are reconciled on the important aspects of geological prospects, political stability, legal system and mineral regime.

"While everybody agrees and seems to be satisfied with the first three aspects (albeit not all are happy with the working of legal system which is extremely slow and painful), the mineral regime calls for a serious look. In order to attract private investment in mineral exploration, the most important requirements are: priority to the first applicant; seamlessness from reconnaissance permit (RP) to prospecting licence (PL) and then to mining lease (ML) provided the licensee has not breached the conditions of his licence; security of tenure; easy transferability (sale) of RP, PL and ML and time-bound decisions," says FIMI Secretary General RK Sharma.

Despite the opening of the minerals and metals sector for 100 per cent FDI since February 2000, no significant investment has come into this sector. The Government of India therefore constituted a High Level Committee on National Mineral Policy, popularly known as the Hoda Committee, in September 2005. This Committee submitted its Report in July 2006 and addressed the issues referred to in previous section and recommended far-reaching changes in Mines and Minerals (Development and Regulation) (MMDR) Act, 1957.

One of the far-reaching recommendations pertaining to the procedure for dispute resolution is, "The MMDR Act and rules be amended to enable the powers of the central government to be exercised by an independent tribunal so that appropriate arm’s length is maintained between the Ministry of Mines as a regulator and that Ministry as an involved party. The tribunals should have experts in mining administration and mining laws as members. Independence of the tribunal should be ensured by appointing members on the basis of the recommendations of a selection committee, with a high-level Chairman and outside experts serving on such a committee. Members of the tribunal should be given security of tenure by being appointed for a fixed term. Such an independent and dedicated tribunal will also ensure timely disposal of revision cases and will find better acceptability among the investors. Furthermore, the tribunal should also have jurisdiction for revising the orders of the Central Government," the Committee recommended.

A long time has since elapsed without any decision on this. In order to attract investment in non-ferrous metals mining and diamond and precious stone sector, it is very necessary that a decision on Hoda Committee recommendations is taken at the earliest. "Investment in the new areas of non-ferrous metals mining and diamond and precious stones will bring about economic development in hitherto neglected backward and tribal areas. Economic development in these areas will provide better opportunities to the educated and skilled workers, reduce migration to urban areas, sustain economic growth and reduce dependence on government jobs. But the will to take this initiative forward is missing," says PC Wodeyar, CEO, M&M Minerals, which has tied up with a leading multinational firm to channel FDI in mining in India.

In 2010, the Indian government announced an ambitious plan to tie-up with leading African miners to carry out extensive exploration, but nothing much has been heard after that.