Mines ministry unlikely to cap bid premium in critical mineral auctions

The mines ministry rules out any move to limit bid premiums for critical minerals, even as aggressive offers raise questions over their commercial viability

The mines ministry is not working on any proposal to cap the bid premium in the auctions for critical mineral blocks which have witnessed record-high bids in the last few rounds.

 

The aggressive offers by companies bring their commercial viability into question. “The Ministry of Mines is not working on any proposal to cap bid premiums for critical mineral blocks,” a senior government official said.

 

He added that the Centre wants to maintain open competition in the nascent but strategically-crucial sector.

 

The ministry did not respond to an email seeking comments on whether a proposal on capping is being considered. 

A bid premium in critical mineral auctions is the additional percentage of future revenue that a winning bidder agrees to pay to the government, on top of any base price.

 

The bidder who quotes the highest percentage premium wins the bid to mine the block.

The discussion comes amid media reports that the Centre is considering a 50 per cent cap on bid premiums for iron ore block auctions.

 

For critical minerals, however, the government appears inclined to maintain an open-market approach for now. 

Of the 34 critical mineral blocks auctioned so far across five tranches, 15 have attracted bid premiums exceeding 50 per cent, with some reaching as high as 752 per cent, 400 per cent, and 320 per cent, according to government data. Eleven of these are graphite blocks. 

“Except for graphite, bids for other minerals have remained moderate so far. But as this is a sunrise sector, competition is expected to intensify and companies will look to tap the commercial potential of these resources,” said another senior government official.

 

The aggressive bids reflect growing interest of companies in securing long-term access to critical minerals such as lithium, graphite, and nickel. These are key inputs for clean energy technologies, electric vehicles, and advanced electronics.

 

Talking to Business Standard on the issue, H P Modali, managing director (MD) of Deccan Gold Mines Limited, said the company’s own bid for the Bhalukona–Jamnidih block, a nickel and copper acreage in Chhattisgarh, was stretched.

 

“The 20–21 per cent bid was a bit of an overstretch. Ideally, a 10 per cent premium would have been more reasonable since exploration for gold, precious metals, and critical minerals is a high-risk business,” he said. 

He added that commodity prices play a big role in determining commercial viability.

 

“Right now, prices are good, so companies may be able to afford higher bids. But if prices fall later, it becomes very difficult to sustain operations,” he said, adding that companies should be given production-stage relief. 

Commenting on the issue, Satnam Singh, senior practice leader and director at CRISIL Intelligence, said while some companies bid high, anticipating a future rise in deposit value, such optimism may backfire.

 

“If market prices fall or extraction costs rise, projects could become unviable, leading to possible surrender of the block,” he said.

 

The 6th tranche of auctions which is still ongoing will test whether investor enthusiasm for critical minerals remains as strong amid questions over their long-term economic viability. 

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