The Gold Miner Excavating Nothing But 13 Years of Red TapeBy , , and
Deccan Gold Mines hampered by slow Indian mining permits
Company sees little respite from possible policy changes
After more than a decade struggling to cut through red tape to mine gold in India, Sandeep Lakhwara could be forgiven for thinking things couldn’t get much worse. Then they did.
Following a policy change last year, explorers such as Lakhwara’s Deccan Gold Mines Ltd. now have to bid in auctions for the right to mine deposits they find. He argued that leaves little incentive to scour the world’s seventh-largest land mass for minerals and metals.
"You could go and look for the deposits and once you identify the deposits the government will auction them off to anybody else," Lakhwara said. "Why would anyone be going to do exploration then?"
Some finds predating the rule change don’t have to be auctioned, but Deccan Gold Mines hasn’t dug up a single gram in the past 13 years because state-level mine permits are so slow to materialize. Complaints that the latest rules are paralyzing exploration led the federal government to consider introducing royalties for explorers as an incentive, a plan that’s still under discussion.
India in 2015 embraced competitive auctions as the best long-term approach to resource allocation after bruising corruption scandals over discretionary or free allotments.
The problem is the government lacks the industry expertise needed to trace the full impact of policy shifts, Lakhwara said. He’s the managing director of Deccan Gold Mines.
Companies such as Rio Tinto Group, Anglo American Plc-owned De Beers and Geomysore Services India Pvt. would now have to bid in auctions for the right to mine many of the prospects they’ve found in the country, according to the Federation of Indian Mineral Industries, a trade body.
The uncertainty couldn’t come at a worse time for Asia’s No. 3 economy, which has failed to exploit fully rich seams of everything from coal and bauxite to gold. Mining exploration outlays globally are forecast to drop to an 11-year low amid a slump in commodity prices, according to SNL Metals & Mining.
“We are sorting out these delays," India’s Mines Secretary Balvinder Kumar said, adding the shift to auctioning mines will help with the pace of execution.
The government is considering reworking policy so that companies get a royalty over the life of the mine they find, Kumar said in February. The revised rules would also allow the transfer of exploration rights. The changes could happen by June.
"Nobody in his right senses will ever come to this country for reconnaissance because he has no automatic right to get the mining lease at the end," said R. K. Sharma, secretary general at the Indian mineral federation, who’s been involved in the sector for about five decades.
Only about 13 percent of 575,000 square kilometers with geological potential in India has been explored in detail so far, with minimal private sector involvement, according to the federation.
"Private players don’t want to come into exploration because expenditure is very high and success rates are poor," said Harbans Singh, director general of the state-run Geological Survey of India, the nation’s biggest mineral explorer.
Getting the policy framework for exploration right has become even more important given that the world is awash with commodities. The glut means companies may think twice about major investment projects, according to Ravi Sharma, managing director at Dubai-based mining consultancy Bedrock Mineral Resource Consulting.
India also vies with China as the biggest buyer of gold and is straining to curb imports of the metal, which contribute to the nation’s trade deficit.
Shares in Deccan Gold Mines are down about 66 percent since a peak in 2008, compared with an 18 percent increase in the benchmark S&P BSE Sensex over the same period. The stock fell 2.2 percent to 35.65 rupees at the close in Mumbai on Thursday. The company hasn’t made a fiscal-year profit in more than a decade.
"If you have nothing that’s being produced, it’s extremely frustrating," Lakhwara said.
To continue reading this article you must be a Bloomberg Professional Service Subscriber.
If you believe that you may have received this message in error please let us know.