You might say Charles Devenish is a patient man. The Australian entrepreneur has been waiting for more than a decade for permission to start mining projects in India. He has applications for permits on 226 different sites in 14 states. But nearly 15 years on, he doesn’t have a single operating mine to show for it. And to make matters worse, his company is embroiled in a nasty court case with a recalcitrant state government.
“A lot of people have pulled out of India because it’s too bloody hard,” Devenish says in a telephone interview from his home in New Delhi. “Without a doubt India is the hardest country to work in. It is the most difficult place to get land acquisitions and permits granted.”
That says a lot for a man whose mining career has taken him to Angola at the height of that country’s civil war, Zimbabwe and Myanmar, and to post-war Vietnam. So why does he stay? “The prize is very big,” he says simply. “Geologically India is phenomenal and it’s been totally unexplored.”
India’s mineral wealth remains largely untapped. Much of its resource base has been catalogued by government agencies during the past half century but not yet developed due to the monopoly that government-owned mining companies held over the sector until the mid-1990s. The lack of geological data and modern technology has blocked significant discoveries of key commodities.
India’s mineral wealth offers huge opportunities to multinational companies but archaic procedures, a maze of bureaucracy, political uncertainty and poor infrastructure have frightened off all but the most dogged foreign investors.
Companies spend years running around from one government department to another seeking approvals. The delays tie up capital, raise project costs, and increase uncertainty among investors.
Devenish, whose company Deccan Gold Mines (DECNGOLD-BSE) was the first private sector gold exploration company to be listed on the Bombay Stock Exchange, says there are 83 different department desks that he must pass through to apply for a reconnaissance permit.
The bureaucratic hoops and piles of paperwork have become legendary. In one instance, Deccan Gold’s Indian Holding Company, Geomysore, had to supply 5,000 land titles in triplicate and area sketches on enormous village maps for an application for a prospecting licence — even though there are no land acquisitions involved at this stage. “This means fifteen thousand A4 sheets of paper that will never be looked at,” Geomysore’s top geologist recently complained in a letter to the local mining association.
Even when all the applications have been submitted, nothing is guaranteed without a struggle. “Nothing that you file with any government agency in India gets acted on unless you chase it with telephone calls or personal visits,” says Andrew Nevin, president and CEO of Pebble Creek Mining (PEB-V), a Canadian company that has been in India since 1995. “The main reason it takes so long to acquire mineral rights is that the bureaucracy is dense. Not malevolent, just dense.”
One problem is career civil servants in India are rotated from one ministry to the next every two or three years. Civil servants new in their posts are often uncertain about what the laws and regulations say. “Our geologists and lobbyists carry a notebook with complete updated regulations when they visit a government office to move an application along,” explains Nevin. “We end up educating the regulators. It can take a year to educate them, then you work with them for another couple of years and then bingo, they’re transferred to something entirely different.”
There is certainly no shortage of horror stories.
After waiting for six years to get a reconnaissance permit (RP) for a site in the southern state of Karnataka and then spending several hundreds of thousands of dollars on grassroots work, the state government did not recommend that Deccan Gold get a prospecting licence (PL). In response, Deccan Gold has taken them to court.
“They aren’t following the rules of the Mining Act,” he fumes. “They want to give it to their own state mining company. It’s a disaster for us financially. We would have had several mines operating there seven or eight years ago had we been given the prospecting licences.”
Under an RP, which is good for three years, the maximum area of a grant is 5,000 sq. km. At the end of the second year that must be cut in half or taken down to 1,000 sq. km, whichever is less. In the third year, companies must apply for a PL. Under an RP, companies are not allowed to mine test patches, tunnel or go underground. They also can’t drill any more than ten holes per 100 sq. km. The RP is really designed for aerial surveys. RPs are “so highly restricted,” Devenish notes, that explorers can “only identify anomalous metal-bearing spots.”
A PL is also good for three years and can be extended for two one-year terms. Under a PL, companies can drill, trench and conduct bulk sampling. The maximum area granted under a PL is 25 sq. km — the same area for those holding 5,000 sq. km or 150 sq. km under a RP. Devenish calls those rules “illogical,” arguing that, at the very least, the maximum area of a PL should be 10% of the area already granted under the RP.
Mining Licences (ML) are granted for either 20 or 30 years and are renewable for 20-year periods. Mineral rights are leaseholds, not ownership in fee simple, and the area of an ML grant is fixed at 10 sq. km. Other parties may dispute title to any mineral properties.
New mining policy
The good news is that a proposed new mining policy that is expected to pass into law within the next few months could help shift the investment landscape and simplify the infamous maze of regulations and bureaucratic tug-of-wars known as the “licence raj.”
The new policy seeks to shorten the time it will take to guarantee that new mining leases from state and union governments will be granted in about six months to a year. The new act will increase the size and terms of the tenures; provide absolute rights to convert an RP to a PL, and a PL to a Mining Lease (currently the latter is a “preferential right” only); and make mineral tenures more readily transferable from one holder to another.
“The changes will accelerate exploration and mine development markedly for all companies, both foreign and domestic,” says Nevin of Pebble Creek. “Besides the direct impact, the new regulations send a signal to the bureaucrats that there’s a new sheriff in town and he wants more mines developed.”
With any luck, the new act will force states to deal with mining applications more promptly. If a state is too slow in processing an application for a mineral tenure, the central government can step in and approve that application on behalf of the state.
But much more needs to be done. New laws are also needed for the country’s stock markets because the industry historically has been starved of capital. Exploration of minerals requires large amounts of high-risk capital that governments are not prepared to spend, Devenish argues. Under the current regulations, in order to list, companies must show a three-year record of profits. But that raises the bar too high for many exploration companies.
Devenish notes that if consumers in India invested only a fraction of the money in equities as they do in gold (US$10 billion), lotteries (US$7 billion) and cricket match gambling (US$5 billion), mining companies could raise the cash needed to develop the country’s minerals industry.
India’s economic prospects and exciting geology have long captured the interest of foreign companies. India has the same prolific Precambrian geology as Western Australia, Africa, Eastern Canada, and South America.
But foreign direct investment was not encouraged until 1993, after which it was allowed up to 40%. For all minerals other than diamonds and precious stones, that figure rose to 50% on the automatic route in 1997, 74% in 2000 and to 100% in 2006. In the case of diamonds and precious
stones, foreign equity up to 74% is allowed on the automatic route for both exploration and mining operations, but for proposals seeking higher than 74% equity, the case must go before the Foreign Investment Promotion Board for clearance.
Little of India’s sub-surface has been explored using modern exploration methods, the pace of new exploration is slow and the presence of foreign mining houses whose investments would help upgrade India’s outdated extraction and processing technology is skeletal.
The government is aware of the problems. India’s cash outlays for buying gold and diamonds overseas for domestic consumption or as stores of wealth are enormous — more than the total foreign direct investment into the country. The numbers are striking: India produces two tonnes of gold per year, compared with 280 tonnes per year in Australia.
Most mining is still done by state-owned enterprises, which contribute about 85% of the total value of mineral production. India’s mines are a mixture of high and low technology operations, the vast majority of which are small by global standards. According to Austrade, 95% of operating mines produce about 50% of the country’s minerals. There are more than 500 surface mechanized mines in the country’s non-coal sector.
India has struggled to liberalize for the last decade. The government is slowly withdrawing from non-strategic production and undertaking a phased privatization of public sector production.
The royalty structure has been rationalized for some minerals from a unit basis to ad valorem, making it more market oriented. Now only 20 minerals are charged a royalty on a unit-of-production basis (asbestos, ball clay, dolomite, graphite, iron ore, kaolin, lime kanker, lime shell, limestone, monazite, moulding sand, ochre, quartz, quartzite, silica sand, slate, tungsten ore, uranium ore, white clay, and white shale). Royalties on all remaining minerals is on an ad valorem basis (see table 1 on page B5).
With India’s membership in the World Trade Organization, restrictions on grades of iron ore, chrome ore, manganese and a few rare earth minerals that are still channelled through state trading houses, are also gradually being removed. The process has already begun with some private mine owners exporting high grades of iron ore directly with the permission of the central government.
Today, India is a key producer of a number of ores and minerals, ranking as the world’s largest producer of sheet mica, the third-largest producer of coal, the fourth-largest of iron ore and the fifth-largest of bauxite. Despite regulatory hurdles, the range of India’s output — at about 89 minerals — remains impressive. Of these, four are fuel minerals, 52 are non-metallic minerals, 11 are metallic minerals and 22 minor minerals.
Potential areas for exploration ventures include gold, diamonds, copper, lead-zinc, nickel, cobalt, molybdenum, lithium, tin, tungsten, silver, the platinum group of metals and other rare metals, chromite and manganese ore, and fertilizer minerals.
So far the key foreign players active in India are Anglo American (AAUKD-O, AAL-L), Rio Tinto (RTP-N, RIO-L), Companhia Vale do Rio Doce (RIO-N), BHP Billiton (BHP-N) and De Beers. A dozen Australian, British and Canadian junior exploration companies are also active. But Nevin expects the number of companies will double in the next five years. He also expects more competition from Indian companies “that are learning fast.”
Apart from its geological attributes, India boasts: a large industrial economy that produces almost everything the industry needs for exploration and mining; a large pool of extremely competent technical people; good communications; a well-developed banking and commercial infrastructure; laws based on English Common Law; and a mature court system to resolve civil disputes.
What’s more, salary levels are low by most Western standards, averaging 10% to 20% of equivalent Western salaries, according to Neven, even with the inclusion of certain compulsory employee benefits including a yearly bonus, vacation allowance, vested severance, per diem payments for remote working, medical and other payroll burdens (see table 2, above).
At the end of the day, India’s attributes are what makes people like Devenish dig in their heels. “If ever there was a country that is going to have the world’s biggest mining boom it’s going to be India,” he says. “India could spawn a thousand new mining and exploration companies. If Australia with a population of twenty million people can create five hundred and fifty mining companies, just think what a country like India with a billion people can do.”
TABLE 1: India’s mining royalties:
Copper: 3.2% of the average monthly or quarterly posted London Metals Exchange price times the quantity of metal in the ore.
Zinc: 6.6% of the metal sold on an ad valorem basis, which in India has been practiced as sale price or net smelter return royalty after deducting transportation cost to the smelter.
Lead: 5% of the average monthly or quarterly posted LME price times the quantity of metal in the ore.
Gold: If a primary product, 1.5% of the average London Bullion Market Association price (the “London Price”) on the metal in the ore. If a by-product, 2.5% of the average London Price on the metal in the ore.
Silver: 5% of the average LME price of the metal in the ore.
Nickel: 0.12% of the average LME price of the metal in the ore.
Pyrite: 2% of sale price, ad valorem basis.
Cadmium and metals not listed above or such as cobalt and platinum group metals, 10% of the sale price, Ad Valorem basis.
Source: Pebble Creek Mining Ltd.
TABLE 2: On the Payroll
| Position | Indian Rupees | Canadian Dollars |
| Full-time Corporate Secretary/CFO | Rs. 60,000 per month | $1,500 per month |
| Project Manager/Senior Mining Engineer (including housing) | Rs. 35,000-45,000 per month | $900-$1,200 per month |
| Exploration Geologist (including housing) | Rs. 26,000-32,000 per month | $675-$830 per month |
| Lobbyist in State Capital | Rs. 25,000 per month | $650 per month |
| Experienced Underground Mine Foreman | Rs. 11,700 per month | $304 per month |
| Experienced Driver | Rs. 6,000-10,000 per month | $260 per month |
| Underground Miner | Rs. 4,700 per month | $122 per month |
| Consultant (geologist, engineer, environment) | Rs. 5,000 per day | $130 per day |
| Casual Labourer | Rs. 133-200 per day | $3.45-$5.20 per day |
Source: Pebble Creek Mining, August 2007
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