Salient Features of Mineral (Auction) Rules, 2015

Following the successful initiation of auctioning coal blocks, the Central Government of India has framed the Mineral (Auction) Rules, 2015 for auctioning other minerals. However, the unlike coal, the mineral auctions will be conducted under the ambit of State Governments. Through auctions the State Governments will grant the leases in two forms – Mining Lease where evidence of mineral contents is established and Composite Lease, a combination of a prospecting licence (PL) and a mining lease (ML), where there is inadequate evidence of mineral contents.

The rules will be applicable to all minerals, except (a) coal & lignite, (b) atomic minerals like uranium, lithium, zirconium, titanium etc. and (c) minor minerals like building stones, gravel, ordinary clay, ordinary sand etc.

Salient Features

Role of Government: The Government will initiate an auction process for grant of a mining lease with respect to an area within the State. It will issue a notice inviting tender (NIT) with respect to mineral auction, identify and demarcate the area where a mining lease is proposed to be granted through auction by using total station and differential global positioning system. It is also required to classify the area so demarcated into forests land, land owned by the State Government and land not owned by the State Government.

The tender document will also include estimated mineral resources and brief particulars regarding evidence of mineral contents and list of all clearances and permissions obtained with respect to such area in order to commence  mining operation.

Eligibility Conditions: The eligibility conditions for participating in the auction has been simplified and categorized  according to the Value of Estimated Resources (VER) which is defined as the product of –

(i) the estimated quantity of mineral resources for which the mineral block is being auctioned, expressed in metric tonne; and

(ii) the average price per metric tonne of such mineral as published by Indian Bureau of Mines for the relevant State for a period of twelve months immediately preceding the month of computation of the Value of Estimated Resources.

* Value of Estimated Resources

1 – applicant, including an individual

2 – applicant, not being an individual

3 – applicant, being an individual

 It has also been mentioned that the mineral reserve should not exceed 1.25 times the requirements of minerals for the specified end use over a period of 50 years.

Specific End Use: In addition to the specified end use for some minerals as given in the table below, the State Government has been given the power to reserve particular mine or mines for any particular industry. It can also earmark a certain percentage of mines for a specific end use.

However, it has been stipulated that the minerals extracted under the mining lease can only be used for the specified end use and cannot be used for merchant purposes.

Auction Modalities: The auction will be conducted electronically. The bidding will be done in two rounds. In the first round the bidders will be required to furnish the technical details and the “Initial Offer” which has to be equal to or greater than the “reserve price” mentioned by the Government.

In the tender document the Government will specify a “Reserve Price” which will be the minimum percentage of the value of mineral despatched. The value of mineral despatched shall be an amount equal to the product of –

(i) mineral despatched in a month; and (ii) sale price of the mineral (grade-wise and State-wise) as published by Indian Bureau of Mines for such month of despatch.

The highest initial offer in the first round will be considered as the floor price in the second round where the technically qualified bidders will be required to bid for the final offer for the lease area in terms of percentage of the value of mineral dispatched which the bidder will like to pay to the State Government.

Our Comments

Geovale considers the approach to be a pragmatic and equitable one which can solve a long pending problem of vague and inefficient process of allocating natural resources. However, we find a few shortcomings in the process.

Regulatory Clearances: The Draft copy of The Mineral (Auction) Rules, 2015 mentions that the State Government will obtain the conditional forest clearance and wildlife clearance or any other law so as to enable commencement of operations. It was also supposed to obtain all necessary permissions from the owners of the land and those having occupation rights.

However, in the official Gazette there is no mention of such obligation on part of the State Government. It may reduce the attractiveness of the auction process if the successful bidder has to arrange for all forest clearance etc.

Mineral Requirement Condition: The rule states that “If a bidder or any of its Affiliates is holding one or more Mining Lease for the same mineral, then the amount of mineral reserves under such Mining Lease shall be deducted from the mineral reserves specified in sub-rule (a) above, for the purposes of computation of 1.25 times of the requirements of minerals”. This can be detrimental for big existing mineral lease holders like Tata Steel, SAIL and others for participating in the auction process and future expansion plan of their end use plants.

Failure of Composite License Holders: If the Composite License holder fails to establish the existence of mineral content in the lease area within the stipulated time frame, the Composite License will be terminated. This increases the risk of applying for such areas without proper advice from the competent consultants.

Basis of Value of Mineral: The value of mineral will be based on the prices published by Indian Bureau of Mines (IBM). However the IBM published prices are often criticized as misrepresented by the market players. In that case a stronger price reporting mechanism has to be established.

A mechanism of long-term price index based in local and international indices would be more relevant for a 50 year project, than a short term market linked IBM price list.

Time Difference between EC and ML: While the Environmental Clearance is given for a maximum period of 30 years the Mining Lease under the new rules will be given for 50 years. A suitable approach needs to be framed to bridge the gap.

In response to the new rules, 13 State Governments are ready to come up with auctions in 70 blocks for Mining Lease and 45 blocks for Composite Licenses in the next one year or so. However, for Goa, no lease can be considered prior to 2020. Also the impending case of Abolition Act, 1987 in the Supreme Court makes mineral auction procedure delayed for Goa.

Commodity-wise, total 58 blocks totaling 21,659 Ha of limestone are ready to be auctioned for ML while 10 iron ore blocks and 2 bauxite blocks may go for auction for ML, mostly by end of 2015.

Specialized Services Offered

Geovale Services offers a gamut of specialized services to the mining industry, which ranges from due diligence, exploration project management, GIS & remote sensing, resource modelling, mine planning, infrastructure assessment, hydrogeological & geotechnical studies to preparation of EIA/EMP.

The geologists and mining engineers of Geovale have enormous experience in large number of projects relating to iron ore, limestone, bauxite, gold, diamond, copper, zinc etc. in India and abroad.

Here is a representative list of projects recently done by Geovale Services.

  • Prognostication of Iron Ore Resource in the Horse Shoe Belt, Singbhum Craton, Jharkhand & Odisha States – India
  • Vishakhapatnam Gemstone Project: Reconnaissance Due Diligence – India
  • Exploration and evaluation of Manganese deposit – Zimbabwe
  • Iron ore property due diligence – Peru
  • Reconnaissance study of Iron ore potential in Madhya Pradesh & Rajasthan – India
  • Due Diligence of Sapphire assets in the Ratnapura region of Sri Lanka – Sri Lanka
  • Value Optimisation Study in Mangampeta Barite Deposit – India
  • Drilling for gold exploration in Jonnagiri, Andhra Pradesh – India
  • Stapregrina Blue Dome Copper Due Diligence – Morocco
  • Mauritania Iron Ore Project Scoping Study – Mauritnia
  • Western Ghats Bauxite – Scoping Study – India