KOLKATA (miningweekly.com) – Even with reduced contribution from Indian miners, the District Mineral Fund (DMF) would make mining in India uneconomic and would hold back investment from major foreign firms in the country, an industry body has warned.

While the DMF was aimed at benefit-sharing between miners and locals and had altruistic objectives, under the newly amended Mines and Mineral Development and Regulation (MMDR) legislation, miners would have to invest heavily to secure mineral assets through competitive bids at auctions, pay higher rates of royalties and contribute toward the National Mineral Exploration Trust, all of which would make mining operations "prohibitive" and "uneconomical".

“The new mining and mineral regimes put in place by the government will require far greater capital resource deployment by miners at every stage, from securing projects at auctions to statutory payments during operations, making mining uneconomic,” a spokesperson of the Federation of Indian Mineral Industries (FIMI) said.

Apart from payment towards the DMF, miners would have to contribute the equivalent of 2% of their total royalty towards the National Mineral Exploration Trust, which would be established with an initial corpus of $80-million in the first year, and which would be doubled in the second year.

“Globally, commodity prices are on a downward spiral and cost pressures have increased tremendously for mining operations, and foreign mining majors are unlikely to be interested in entering the Indian sector at a time when statutory capital investment requirements have gone up under the new mining regime put in place,” the FIMI spokesperson said.

The amendments to the MMDR introduced last month through an ordinance, have capped the contribution of miners towards the DMF at one-third of the royalty paid to the provincial governments. The earlier version of the legislation had proposed contributions toward the DMF be 100% equivalent of total royalty payable by miners to the provincial governments, barring for coal and lignite.

The FIMI spokesperson said that the government was putting in place a new mining regime that envisaged the auction of all mineral resources replacing the government nomination route, which would require huge capital investments if bidders were to emerge successful at the auctions. But simultaneously, the current global business environment needed to be factored in so that Indian mining operations were not priced out of the market.

Citing an example, he said that under the new Companies Act, it was mandatory for several categories of large companies, including mining companies, to allocate a minimum of 2% of three-year average net profits towards corporate social responsibility (CSR) projects, which needed to be stated in balance sheets.

The proposed DMF, which would share benefits with local communities, would be in addition to CSR projects, entailing additional investments even though both had the same purpose, the official said.

The Associated Chamber of Commerce, in a communication to the Steel and Mines Ministry, had also taken a similar stand on the DMF, claiming it made Indian mining uneconomic; hence, the industry body had sought that the proposed fund be withdrawn.

The industry body argued that India already had the highest royalty payment regime at 15% compared to 4.8% in Russia, 2% in Brazil and between 0.5% to 3% in China, and additional levies for a DMF would keep foreign miners away from high-cost mining operations in India.