Critical mineral auction is currently a two-step process. In the first step, exploration licences are auctioned, and the bidder agreeing to share the lowest amount with a future miner wins the licence. Once a discovery is made, another bid is called, and the miner offering the highest revenue share to the government wins the right to mine.
This model has discouraged mining giants and the government is now considering merging the two licences into one, two officials said.
“Combining the two would make sense for big exploration companies and will help India discover and mine more. It is not financially lucrative for companies to focus only on exploration and then bid separately for carrying out mining of discovered resources,” one of the two officials said on the condition of anonymity.
Critical to sectors
Critical and strategic minerals are key to many sectors, including high-tech electronics, telecommunications, transport and defence. Of particular significance is lithium, a key component in rechargeable batteries used in electric vehicles and storage systems. While China controls 75% of global lithium refining, India’s lithium imports were disrupted by the war in Ukraine. Besides, India imports its entire requirement of nickel, used in stainless steel manufacturing. In fact, Jindal Stainless Steel recently acquired a 49% stake in an Indonesian company to secure nickel supplies.
Yet, miners were cold to India’s four auctions of critical and strategic minerals. The government had to annul 14 out of 18 blocks offered in the second tranche due to few or no bidders. The few blocks awarded also did not see participation from global or Indian mining sector giants. The first auctioned lithium block in Chhattisgarh went to Maiki South Mining Ltd.
A composite licence will require an amendment to mining laws, and the proposal is being discussed at various levels in the government, a second official added. The discussions are part of the new policy initiatives that the government wants to bring in its third term.
In the critical minerals fold
The government named 24 minerals as critical and strategic minerals last year, after amending the Mines and Minerals (Development and Regulations) Act. The amendment allows the Centre to grant concession of these minerals so that it can prioritize their auction in view of national requirements. The entire auction premium and royalty for these minerals, would, however, be paid to the state governments.
“Exploration is a capital-intensive and highly risky activity requiring a high level of entrepreneurship to succeed. Allowing successful explorers to progress to the mining stage provides economic incentives that can attract investments from both larger companies and specialized smaller exploration firms. This approach also leverages geological knowledge gained during exploration, aligning with established practices in successful mining codes worldwide,” said Rajnish Gupta, partner, tax and economic policy group, EY India.
An email sent to the mines ministry remained unanswered.
Encouraging indigenous mining would reduce imports and create related industries and infrastructure projects. The proposal is also expected to increase generation of employment in the mining sector. A key aim of the proposed changes is also to attract mining giants such as Rio Tinto, BHP, Vale, Glencore, Anglo American and Barrick Gold entities which have state-of-the-art mining technologies. Though many of these companies operate in India, they have limited operations.
Clarity and predictability
“The integration (of both licences) offers clarity and predictability throughout the project lifecycle, reduces administrative costs, and provides a stable framework conducive to long-term investments… By incentivizing extensive exploration activities alongside mining operations, the amendment encourages the discovery of new mineral resources, expanding the sector’s potential. Moreover, by enhancing competitiveness through a streamlined licensing process, India aims to position itself as an attractive destination for global mining investments,” Davinder Sandhu, co-founder & chairperson at Primus Partners.
According to Yogesh Daruka, partner, power & utilities and mining, PwC India, the government can look at offering a commute licence as well, which would allow the miner to transport the minerals or ore from the mine to its processing plant or refinery. “A commute license as such can enable streamlined transit of materials following the prescribed regulations around environment, safety etc. The coverage & conditions of a commute license can vary significantly across countries,” Daruka said.
Last year, the government classified beryllium, cadmium, cobalt, gallium, indium, rhenium, selenium, tantalum, tellurium, titanium, tungsten and vanadium, glauconite, potash, molybdenum and platinum group of minerals, lithium, niobium, copper, nickel, silicon, graphite, manganese and rare earth elements as critical and strategic minerals.
Cadmium, cobalt, gallium, indium, selenium and vanadium find use in batteries, semiconductors and solar panels. These minerals have gained significance in view of India’s commitment towards energy transition and achieving net-zero emission by 2070. Beryllium, titanium, tungsten and tantalum are used in electronics and defence equipment.