Small blocks keep investors from mine bids

Centre anticipates revenue of Rs 59,639 crore from recently concluded auctions of mineral blocks

With the private sector shying away from investing in mining, experts say it is not just regulatory bottlenecks but also the smaller deposits on offer that are keeping them away.

The central government is anticipating revenue of Rs 59,639 crore from recently concluded auctions of mineral blocks in Jharkhand, Odisha, Rajasthan, Chhattisgarh, Andhra Pradesh, Madhya Pradesh and Karnataka. This revenue includes royalty and funds for the district mineral foundations and the National Mineral Exploration Trust.

The Mines and Minerals (Development and Regulation) (Amendment) Act, 2015, envisages a uniform lease period of 50 years. Thereafter, all mining leases will be put up for auction again.

Experts say 17 mines that were put up for sale were not only small in area but also in terms of the reserves available. Three blocks had reserves of less than one million tonne. These blocks include deposits of limestone, iron ore, gold and diamonds. Some of the smaller mines in Karnataka that did not receive enough interest this time may be bundled and put up for auction again. 

“It is sub-optimal for mining companies to invest effort and capital in mines that are small. The state mineral development agencies should ideally package or prioritise the larger mines for auction,” says Kameswara Rao, partner, PwC. He also feels the lukewarm response could be due to softening of demand. 

Balwinder Kumar, Union mines secretary, however, says this aspect is not a hindrance and the private sector has shown interest in the mines on offer — JSW Steel and Essar Steel have been declared successful bidders for some of the mines. Kumar adds an inter-ministerial group will meet this month to understand issues like land acquisition and environment and forest clearances that are affecting the auction process. The panel will review clearances, the status of the Mine Development and Production Agreement as well as the issuance of letters of intent. 

Even though the government claims the recently concluded auctions were a success, generating interest among companies is an uphill task. Vedanta’s Chief Executive Officer Tom Albanese recently said many of the leases were “stamp size”. There were many instances where companies wanted to bid but did not go ahead because of the size of the lease, he added.

Some experts feel auctioning mineral blocks is not a good idea to begin with. “Nowhere in the world are auctions used for mining natural resources. Also leases are given till the deposit is fully extracted,” says R K Sharma, secretary-general of the Federation of Indian Mineral Industries.

The MMDR Act states all mineral concessions will be granted by state governments. But this will be through auctions for greater transparency.