KOLKATA (miningweekly.com) – India’s Mines Ministry is studying funding options to help government-owned and -operated mining and mineral companies to step up their exploration efforts in a bid to increase the sector’s contribution to gross domestic product from 1% to 2%.
A senior government official has said that most companies designated to take up exploration projects are cash rich, but that their respective board of directors may not be willing to dip into reserves to fund high-risk, long-term projects in order to protect the short-term interests of shareholders.
Under the new National Mineral Exploration Policy (NMEP), mineral exploration, which has until now been the exclusive domain of specialised government exploration entities, has been opened for private sector investments. However, the Mines Ministry believes that government-owned companies have to invest in exploration before large international companies can be wooed into making similar investments.
The government companies identified to lead exploration under the NMEP are the country’s largest steel producer, Steel Authority of India Limited, iron-ore miner NMDC and power utility NTPC.
Some of the funding considerations on the table include options to firewall existing operations and earnings from investments in exploration projects. For this, even the idea of government-owned companies floating separate independent entities is under discussion.
According to the official, the newly created National Mineral Exploration Trust could provide “seed capital’ for investing in exploration projects, but such funding would not be sufficient.
It was pointed out that funding of various projects would vary vastly in terms of investments, scale of operations and timelines. For example, funding requirement for exploration for surface minerals, such as iron-ore, will be less than for exploration for deep-seated minerals, such as gold or copper, the official added.
The Mines Ministry reckons that a ballpark investment required for each exploration project could range between $45-million and $55-million.
Sources have indicated that given the large portfolio of stressed assets of Indian commercial lenders such as banks, debt funding from banks will be a challenge for exploration projects. As such, the Ministry is leaning towards paving the way for the companies to seek funds through flotation of rupee denominated bonds with long-term maturity, both in domestic and international financial markets.
It is also possible that specialised international lenders such as the International Finance Corporation, the commercial lending arm of the World Bank, could be approached to act as facilitators for international flotation of bonds for each specific project, the sources added.