India’s current minerals code, MMDR 2015 (Amendment) has allowed appropriation of more than 329 existing mining leases<1> for commodities like iron ore, chromite and manganese, which had their mining rights granted fifty years ago. State governments are excited that this recycling through auctions allows them to extract larger revenue share from the sale of ores. However, bidders are compelled to bid high due to an artificially constructed commodity scarcity, which has led to a rush of captive end-users looking to secure their raw material supply through the anticipated disruptions after March 2020, when all the merchant mine leases, which have completed 50 years of execution would be considered lapsed. The state of Odisha, which recently auctioned two chromite mines, has about twenty iron ore and manganese mines scheduled to go under the hammer next month<2>, is confident of garnering an average of additional Rs 2000 Crore per annum to the exchequer for next 50 years<3> towards additional royalty through these forthcoming mine recycling process.
A good trailer of what is expected in these auctions was provided during the recent auctions of two small chromite assets<4> – the Saruabil and Kambarda deposits with 10 million tonnes and 2.3 million tons Geological Resource, respectively. Tata Group subsidiary TS Alloys after aggressively bidding against a dozen other bidders, mostly ferro alloy mill owners to win these two chromite deposits after committing to share 88.5% and 98.6% of their revenue towards the sale of the ores for the Saruabil and Kambarda deposits, respectively. Government of Odisha has appropriated all of Tata Group’s 18 km2 area of chromite assets in the Sukinda chromite belt over the years. Tata Group was however, keen to secure chromite assets for their operational ferro alloy mills in the region, while continuing to benefit from a fully capitalised pre-existing mining infrastructure in the Sukinda Belt.
Sixteen of the eighteen iron ore assets being auctioned in Odisha in December 2019 are existing mines. These mines have their long term employees, relationships with neighbouring communities, years of understanding of the ecology around the operation and a detailed understanding of the geological and structural aspects of the asset, mine infrastructure – all of these would have to be either abandoned or built afresh, if the lease changes hands. These are significant disruptions for an operational ecosystem of a mine, which takes major efforts, money and heart to establish. The pre-bid meetings have witnessed great interest from steel mills, pellet mill owners, sponge iron mill owners to secure these assets, as many of them fear disruptions in the ore supplies in the near and midterm future, as India moves towards its vision of achieving 300 MTPA steel production.
But, there is another major reason for the extreme interest among captive end users to secure iron ore assets. A perception of resource scarcity has been created in many of the established mineral rich regions, like the iron ore belts of Odisha and Karnataka. The captive users, who are facing potential near term resource supply crisis due to the lease transfers after March 2020 are therefore going all out to secure these opportunistically available assets, by committing high revenue share with the government of even over 100%. These captive users are ready to take a hit to their bottom line of their downstream mill production towards the raw material costs.
This scarcity perception for bulk commodities like iron ore, manganese and chromite, for which India has extremely well established resource potential, has been due to a gross lack of resource and reserve base augmentation through exploration. Year-book data from Indian Bureau of Mines for 2017-18 suggests that India has a Geological Resource of about 22 billion tonnes of high grade iron ore, mineable reserve of 5.5 billion tonnes and a production of 225 MTPA. Similarly, IBM data for manganese suggests a Geological Resource base of 650 million tonnes and a Mineable Reserve of 240 million tonnes and an annual production of 2.5 million tonnes. What is however, noteworthy in the IBM inventory is that except from about 2.5 billion tonnes of geological resource explored earlier by GSI, almost none of the resource has been audited by IBM. Since 1960s, there had been only minor brownfield exploration reported. Specialist iron ore geologists believe that there is an additional resource potential of at least twice the current 22 Billion Tonnes of resource shown in the IBM inventory. This exploration potential should be urgently evaluated and added to the inventory. Private sector mill owners also indicate that a large part (likely about 30 – 40%) of India’s iron ore resource is currently sterilised with Public Sector Units like SAIL, NMDC, OMC and others for decades. For manganese, over 80% of India’s resource based is locked with public sector MOIL. These private sector mill owners are also looking to establish a level playing field with large public sector mill owners, and are ready to pay an extra cost for their captive resource.
However, this situation of artificial scarcity of resources and rush by mill-owners to win the bids at any cost is unlikely to benefit India’s minerals sector in the long run. Consumers are likely to bear the brunt of increased cost of domestic metals production. Miners would be cutting corners by manipulating the regulatory processes which could adversely impact employment, employee health and safety, environment and community management processes and above all India’s needs for mineral conservation. India’s mineral sector, currently looking to improve its sagging reputation, may find adherence to sustainable mining standards a significant challenge.
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Biplob is one of worlds leading geologists who has been awarded the National Mineral Award in 1996. In his 34 years of mining sector experience ...
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