The push to bring the private sector into mineral exploration

The push to bring the private sector into mineral exploration

Subject: Geography

Section: Economic geography

Context:

On August 2, Parliament passed the Mines and Minerals (Development and Regulation) Amendment Bill, 2023, in a bid to attract private sector investment in the exploration of critical and deep-seated minerals in the country.

How do imported critical minerals affect India’s manufacturing, clean energy, and technology sectors?

• Global Supply Chain Vulnerabilities:
  • The Russian-Ukrainian conflict emphasized the susceptibility of global supply chains to shocks, resulting in scarcity and price surges.
• Mineral Significance:
  • Minerals are pivotal for manufacturing, infrastructure, and clean energy transitions.
• Importance of Critical Minerals:
  • Essential minerals such as lithium (referred to as ‘white gold‘), cobalt, graphite, and rare earth elements (REEs) underpin electric vehicle batteries, electronics, defense systems, and renewable energy technologies.
• Projected Demand:
  • A World Bank study forecasts an astounding 500% surge in demand for critical metals, like lithium and cobalt, by 2050.
• China’s Dominance and Dependency:
  • China’s significant ownership of cobalt mines in the Democratic Republic of Congo and its substantial REE reserves accentuate the world’s reliance on specific supply sources.
• India’s Reserves and Production Gap:
  • Despite holding 6% of global rare earth reserves, India contributes just 1% to global output.
• Mineral Security Partnership (MSP):
  • Major economies, including the US, UK, and EU, have formed the MSP to secure supply chains and reduce reliance on specific countries like China.

Why is private sector participation needed for the exploration of critical and deep-seated minerals?

• Geological Potential:
  • India’s geological history and tectonic context offer similar mineral exploration prospects to resource-rich regions like Western Australia and Eastern Africa.
  • India has explored only 10% of its Obvious Geological Potential (OGP), less than 2% of which is mined.
• Stages of Mineral Exploration:
  • Mineral exploration comprises several stages:
    • reconnaissance, prospecting, general exploration, and detailed exploration.
• Government Monopoly and Limitations:
  • Historically, government entities dominated mineral exploration, hampering private sector involvement.
• Role of the Private Sector:
  • The Mines and Minerals Amendment Bill seeks to expedite exploration by fostering private-sector engagement.
• Global Model:
  • Countries like Australia leverage private mining companies, often called “junior explorers,” to assume exploration risks and discover potential mines.
• Bill’s Objective:
  • The Bill aims to align India’s exploration practices with developed nations by bolstering private sector participation.
• Global Trend:
  • Prominent economies strive to safeguard critical mineral supply chains and reduce reliance on specific countries.

Has India’s existing mining policy encouraged private participation?

• Early Recognition of Private Investment:
  • India acknowledged the significance of private and foreign investment in mining since 1993.
• Private Exploration Momentum:
  • Corporations like Rio Tinto India, Hindustan Zinc, and De Beers India engaged in exploration ventures targeting diamonds, zinc, copper, and bulk metals.
• Exploration Slump and Supreme Court Intervention:
  • Exploration activities waned after 2010 due to apprehensions about favoritism and misuse of resource allocation.
• Supreme Court’s Ruling:
  • In 2012, the Supreme Court mandated transparent and reasonable methods, like auctions, for resource distribution.
• Amendments to MMDR Act:
  • The 2015 amendments allowed private firms to acquire Mining Leases or Composite licenses via government auctions.
• Challenges in Auctions:
  • The Evidence of Mineral content (EMT) rule restricted private participation in early-stage exploration.

How does the Mines and Minerals Bill 2023 encourage private players?

• Opening Up Exploration:
  • The Bill excludes six atomic minerals from the restricted list, enabling private exploration and mining.
• Expanded Activities:
  • Prohibited activities during reconnaissance, such as pitting, trenching, drilling, and sub-surface excavation, are now permitted.
• Exploration License (EL):
  • The Bill introduces the Exploration License (EL), granted by state governments through competitive bidding.
• Auction Mechanism:
  • Explorers bid for a percentage of the auction premium, with the lowest bid winning the exploration license.
• Mineral Scope of EL:
  • The EL covers 29 minerals, including critical, strategic, and deep-seated minerals.
• Exploration Guidelines:
  • The Bill provides guidelines on exploration areas, retention, and related activities.
• Central Government Involvement:
  • The central government reserves auctions for specified critical and strategic minerals.

What are some of the possible issues with the Bill’s proposals?

• Revenue Generation Uncertainty:
  • The primary revenue source for private exploration licenses relies on operationalized mines, leading to revenue delays due to regulatory clearance timelines.
• Operational Delays:
  • Complex regulatory clearances can extend the timeline for revenue generation.
• Auction Suitability for Exploration:
  • The auction mechanism might not be suitable for early-stage exploration licenses.
• Investment Hesitation:
  • Private explorers might hesitate to invest without assurance of resource utilization.
• Divergence from Global Practices: The Bill’s approach diverges from international practices, where private explorers can directly sell their discoveries to mining companies.

United Nations Resources Classification and Why is Lithium called ‘White Gold’?

• UN Classification:
  • The United Nations Framework for Classification of Resources
    • G1 (Detailed Exploration),
    • G2 (General Exploration),
    • G3 (Prospecting), and
    • G4 (Reconnaissance).
• Lithium as ‘White Gold’:
  • Due to its importance in technologies such as lithium-ion batteries, electric vehicles, and renewable energy storage solutions.
  • This nickname reflects its economic significance akin to traditional precious metals.

Which minerals, are designated as “critical and strategic” and are now open for private-sector exploration?

• Lithium
• Beryllium
• Niobium
• Titanium
• Tantalum
• Zirconium

These minerals were previously classified as atomic minerals and were restricted to government-owned entities for exploration and mining.