Exploration Licences: Gauging the Efficacy of New Amendments

On January 21, 2024, the Ministry of Mines notified amendment rules for the implementation of provisions pertaining to exploration licences introduced vide an amendment to the Mines and Minerals (Development and Regulation) Act, 1957, in August 2023.

The Ministry released the draft of the amendment rules in November 2023[1], and after holding public consultation, the draft has been modified. The amendments bring in changes to the Mineral (Auction) Rules, 2015, the Mineral Conservation and Development Rules, 2017, the Minerals (Evidence of Mineral Contents) Rules, 2015, and the Minerals (Other than Atomic and Hydro Carbons Energy Minerals) Concession Rules, 2016.

The provisions providing for the grant of the new mineral concession are expected to “provide conducive legal environment for attracting FDI and junior mining companies in the country”.[2]

Exploration licence under the 2023 Amendment Act

An exploration licence has been defined under Section 3 (aaa) of the 2023 Amendment Act as “a licence granted for undertaking reconnaissance operations or prospecting operations or both in respect of minerals specified in the Seventh Schedule”. Here, prospecting operations refer to operations undertaken for exploring, locating, or proving mineral deposits, whereas reconnaissance operations are for preliminary prospecting of a mineral through regional, aerial, geophysical or geochemical surveys and geological mapping. There are 27 minerals in the Seventh Schedule including Gold, Silver, Graphite, Diamond, Lithium-bearing minerals, etc. This list also incorporates the six minerals removed from the list of atomic minerals (under Part B of the First Schedule) which will facilitate private sector participation in the exploration of the minerals and in turn, reduce the country’s dependency on the import of minerals crucial for India’s energy transition goals and use across sectors.

According to the 2023 amendment, the licence will be valid for a period of 5 years. The auction process for the grant of a mining lease will be initiated for the area where the existence of mineral content is established subsequent to the submission of the geological report by the exploration licencee.

Auction for the grant of exploration licence

As per the Mineral (Auction) Amendment Rules, 2024 (hereinafter referred to as the “Amendment Rules, 2024”), the committee set up by the State Government under Rule 19A(3) is tasked with identifying the blocks for auction for the grant of the exploration licence. After receipt of the committee’s recommendations, the State Government will accept or reject the same and then share the details of the identified block with the Central Government for approval. The identified block will be notified after the said approval has been obtained.

The auction will be in electronic mode. Further, in the auction, the applicant should have a net worth of Rs. 25 Crore or more. There would be two rounds of auction; the bidders found to be eligible as per the criteria provided under Rule 19B and whose initial price offer is equal to or less than the ceiling price would be considered for the second round.

Once a bidder is declared as the preferred bidder, a performance security has to be submitted after which the State Government will issue a letter of intent. Thereafter, the State Government will proceed to grant the exploration licence to the successful bidder provided that the conditions laid down under Rule 19(G)(3) pertaining to the submission of the scheme of reconnaissance or prospecting, procurement of necessary clearances and adherence to terms and conditions of eligibility, are complied with.

The exploration licencee is expected to ascertain evidence of mineral contents through geological exploration (reconnaissance or prospecting or both). Also, periodic reports must be submitted by the holder of the exploration licence. Upon completion of operations and identification of the area suitable for the grant of a mining lease within the period prescribed under Section 10BA of the Act, the licencee will be eligible for a percentage share in the auction premium payable by the future lessee of the mining lease. Such a percentage share will be payable for the entire period of 50 years of mining lease or till exhaustion of resources (whichever is earlier).

Analysis

The business potential of the mineral sector is highly dependent on its availability due to the characteristic nature of minerals to occur unorganised in the environment. Thus, the key to a growing mineral sector and ensuring national mineral resource security, is the continuous exploration for locating new mineral resources. India, with its unique geological character, has a significant advantage in this sector. It has high untapped potential as the Indian continental landmass and its offshore consist of several crustal masses dating back to the oldest geological periods.[3]

Although 100% of foreign direct investment (FDI) is allowed in the mining and exploration sector through the automatic route, there was a dearth of significant investment in the sector. This could largely be attributed to the fact that as per the previous scheme of the Mines and Minerals (Development and Regulation) Act, 1957, the scope of mining and exploration of atomic minerals was limited only to Public Sector Undertakings. By removing certain minerals from the list of atomic minerals specified in Part B of the First Schedule, the amendments open them to the private sector. Thus, by allowing auctions for the grant of exploration licences for deep-seated minerals, the Amendment Rules, 2024, ideally invite the attention of several junior mining companies established throughout the world with experience and expertise in the exploration of deep-seated and critical minerals.

As above mentioned, the procedure laid down under the Amendment Rules, 2024, for the selection of a preferred bidder for an exploration licence is in the nature of reverse bidding. In reverse biddings, the inviting party puts up a request for the required good or service and the bidders would then place bids for the amount that they are willing to accept as consideration for the notified good or service. Typically, the preferred bidder would then be the one who quotes or is prepared to accept the lowest amount. This mechanism is expected to create a conducive environment to attract FDI given India’s untapped potential for mineral availability. The enabling of private parties to bid for mining rights that were earlier unavailable also creates a good incentive. Moreover, the reverse bidding process is also ideal for the government as it creates competition in the market, thereby reducing purchase costs.

Thus, the Amendment Rules, 2024, holds significant promise in attracting foreign investment in the mineral sector and puts India on the path toward better mineral resource security.

References: 

[1] https://mines.gov.in/admin/storage/app/uploads/655213f7d8ca21699877879.pdf

[2] https://pib.gov.in/PressReleasePage.aspx?PRID=1945102

[3] https://www.teriin.org/sites/default/files/2018-05/NMEP_discussion-paper_june18.pdf    

Image Credits:

Photo by Ingo Doerrie on Unsplash

The procedure laid down under the Amendment Rules, 2024, for the selection of a preferred bidder for an exploration licence, is in the nature of reverse bidding. In reverse biddings, the inviting party puts up a request for the required good or service and the bidders would then place bids for the amount that they are willing to accept as consideration for the notified good or service. Typically, the preferred bidder would then be the one who quotes or is prepared to accept the lowest amount. This mechanism is expected to create a conducive environment to attract FDI given India’s untapped potential for mineral availability. The enabling of private parties to bid for mining rights that were earlier unavailable also creates a good incentive. Moreover, the reverse bidding process is also ideal for the government as it creates competition in the market, thereby reducing purchase costs.

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