How companies stand to gain from the new mineral exploration policy

The days of digging in the dark may be over for the Indian mining sector, once the provisions of the National Mineral Exploration Policy are implemented.

The Policy helps gather much-needed geological data on mineral availability. The data in turn will enable the Centre and the bidders to value the mining block during e-auctions. Overall, this will boost private sector participation and also help improve availability of ore, thus helping metal producers. 

 Currently, private sector participation in mining — which is dominated by public sector companies — is low due to various factors. One, getting clearances for new mines has not been easy for private players. There have been inordinate delays in acquiring land and getting prospecting (to find out where the ore is) and mining licences. Taking on blocks with some clarity on clearances (the policy requires time-bound clearances) will be a positive for smaller private miners such as Sandur Manganese.

Two, mining bans in various States have hit small private miners hard. For instance, the ban on iron ore in Goa and Karnataka has led to operations coming to a standstill.

Having a clear policy will reduce risks due to policy uncertainty.  This can be a positive for miners such as Vedanta.

 Lower private participation, along with slow ramp-up by PSU miners, led to supply issues in ore, which have impacted downstream metal manufacturers. For example, aluminium producers faced shortage of bauxite ore when mine licences expired and there were delays in renewal.

More private miners would mean better availability and lower prices for metal producers.  Aluminium makers such as Hindalco and steel makers are likely to benefit from higher ore production.   But does the gain for the private players implies a loss for State owned mining companies? Not necessarily due to a few reasons.

For one, mineral resources in the country have not been anywhere close to being exploited. India has a lot of untapped reserves and there is room for more players.

Also, PSU miners such as NMDC and Coal India have a huge advantage as they acquired the resources for free. As a result, their financing costs are low. Most of them also have a vast cash reserve. This is in contrast with private miners, both locally and globally, who are saddled with debt due to expenses in acquiring and developing mining assets. So, if mines would be auctioned at a high cost, it can dent the profitability and even viability of their operations.