India to woo mineral explorers with upfront payment

Mining secretary Balvinder Kumar says the payment will be either 0.5% of the value of recoverable resources or 10 times the monthly retention fee for the explorer


The mines ministry is trying to raise the share of mining and quarrying in the country’s GDP by at least one percentage point, a target set by mines minister Piyush Goyal in July. Photo: Bloomberg
The mines ministry is trying to raise the share of mining and quarrying in the country’s GDP by at least one percentage point, a target set by mines minister Piyush Goyal in July. Photo: Bloomberg

New Delhi: To give a boost to mineral exploration, the government has devised a new scheme for rewarding exploration companies with an upfront payment based on the reserve value of the minerals they are able to establish.

The payment will be either 0.5% of the reserve value (value of recoverable resources) or 10 times the monthly retention fee for the explorer, said Balvinder Kumar, secretary in the ministry of mines.

The payment that the government makes from its own resources will be recovered from the winning bidder when the block is subsequently auctioned for mineral production based on the explorer’s data.

Assigning exploration activity to one entity for a fee and auctioning the block subsequently backed by data on the mineral wealth is expected to increase the interest among private players for both the activities.

If the block is offered for both in one go, only those investors with deep pockets to invest in production of minerals and take exposure to commodity price volatility will come forward.

“We will empanel 25-30 exploration firms for this scheme. We have identified more than 50 blocks for exploration this way,” said Kumar.

The mines ministry is trying to raise the share of mining and quarrying in the country’s gross domestic product (GDP) by at least one percentage point from 2.4% at present, a target set by Union mines minister Piyush Goyal when he took charge of the ministry in July.

“The proposed model is likely to attract not only large mining companies with risk capital for exploration, but also other mining, engineering and technology services companies with innovative technology but with limited resources to undertake large scale reconnaissance programmes. So, this would attract a broader set of players,” said Kameswara Rao, leader of energy utilities and mining at PricewaterhouseCoopers in India.

The Modi administration introduced auctioning of mineral blocks by amending the Mines and Minerals (Development and Regulation) (MMDR) Act, 1957, two years ago, in a departure from the administrative allocation of mining leases earlier.

So far this financial year, 21 rounds of auctions have been held under the new regime to grant leases for mining limestone, iron ore, diamonds, and gold in Rajasthan, Odisha, Karnataka, Madhya Pradesh, Andhra Pradesh, Chhattisgarh and Jharkhand.

Another 150-200 mines across different minerals will be put up for auction in 2017-18.

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