New Delhi: The government will auction off as many as 62 mineral blocks in 2016-17 under its new National Mineral Exploration Policy, tailor-made to suit the risk appetite of investors hurt by low prices in the past fiscal year.
The e-auctions, signalling the government’s plans to further open up the mining sector, will be for a broad range of minerals, including gold, limestone and iron ore, and held across several states.
“Confidence in the mining sector is building up. 2016-17 is expected to be a year of recovery,” said mines secretary Balvinder Kumar.
Under the new policy, companies that do prospecting and surveying of minerals will gain a royalty for 50 years if some other company wins the contract for the production of minerals from the same field in a reverse e-auction, said Kumar.
This is a departure from the earlier policy of allocating the production contract to the same entity that did the initial exploration.
The royalty stream will help the explorer recover the costs incurred and the auction will ensure that the production licence goes to the entity that offers the best terms for the state. State governments too earn royalty from mining leases, which is determined by the auction.
The changes will allow companies with expertise in resource discovery to focus on exploration, while firms with the risk appetite and deep pockets to invest in production can bid for a field in light of the explorer’s findings.
The mines ministry will also finalize in two months the rules for auctioning atomic minerals, said Kumar.
The auction plan comes after a painful 2015-16 financial year for the mining industry, which was bruised by low prices.
According to the latest data from the ministry of mines, the value of the total mineral output contracted by 11% toRs.39,767 crore in 2015-16 despite a strong 9% growth in volumes to 495 million tonnes over the previous fiscal year.
The damage was mostly in iron ore—its output jumped 21% to 155 million tonnes in 2015-16, but the value contracted 22% to Rs.22,114 crore due to sluggish demand for steel in world markets in the wake of a slowdown in industries such as real estate and shipbuilding.
The value of manganese ore contracted 37% in 2015-16 toRs.856 crore on a production of 2 million tonnes, a 12% contraction in volume from a year ago.
Bauxite, chromite, copper concentrate and lead concentrate reported double-digit growth in volume and value.
To encourage sustainable development of mines, the ministry has developed a system of star rating of mines.
“An independent external agency will assess the mine and share the findings with the government before the mining company submits his self-certified rating,” said Kumar, adding that the idea is to encourage not only environmental protection but also the welfare of communities living around the mines.
The government amended the Mines and Minerals (Development & Regulation) Act of 1957 last year to facilitate the auction of all mines, scrapping the previous practice of allotting them, and subsequently this year to provide for the transfer of mining licences which were granted without an auction.
Industry experts remain cautious about the sector for the next two years.
“Forecast on supply picking up and prices would remain muted for a couple of years unless oversupply gets drawn out, supply chains gets utilized, economic growth rate stabilizes and increases, and investment cycle picks up across developing economies,” said Sambitosh Mohapatra, partner, energy utilities and mining, PwC India.
Mohapatra said that mineral prices are predominantly determined by supply and demand across inter-connected global markets, with each mineral following its own trajectory.