White paper inputs for mineral exploration policy

By Dr. Amit Tripathi

Exploration industry is distinct from the mining industry and the regulatory requirements for the exploration industry is different from the mining industry. Exploration is a separate standalone business and is a profit center worldwide in its own right. Exploration is not a subset of the mining industry. Worldwide standalone exploration is about a $30 billion industry and India’s share in this is negligible despite the perfect geology and a vibrant stock market. Explorers worldwide consider India a large unexplored frontier and lots of this investment will quickly flow to India given a proper regulatory environment. In addition, a huge domestic industry will be created very rapidly that has a potential of adding 2% to the country’s GDP in a very short time with strong employment generation in rural areas. Several advanced countries like Canada and Australia have achieved that with the industry contributing to 6% to 8% of their GDP. The current regulatory framework needs to be amended to rejuvenate the Exploration Industry:

…The aim of National Mineral Policy 2019 is to have a more effective, meaningful and implementable policy that brings in further transparency, better regulation and enforcement, balanced social and economic growth as well as sustainable mining practices…

– National Mineral Policy 2019

1. Simplify Classification: Classifying minerals into many groups will be counterproductive to the policy objective. The current definition of deep seated is arbitrary and unnecessary as all mineral deposits may start from the surface even gold and copper. Need of the hour is simplification of rules to create rapid growth in this declining industry. All exploration licensing should be exclusive with no exceptions. Several other countries have broad jurisdictional classification for minerals that have special regulatory requirements. In India a logical classification for special mineral specific rules could be:
   1. Coal
   2. Uranium
   3. Diamonds
   4. Building material and aggregates
   5. All other minerals
2. Backlog: Clear All backlog of long pending approvals of licenses under section 10A2B and 10A2C. All cases that have not been granted till date should be automatically deemed to be approved and executed under national disaster management act to immediately on 1^st  July 2020 to provide a big boost to rural economy and employment.
3. Incentive for rapid growth: Special tax relief of 50% tax for 10 years be given to projects that start production within two year of receiving all approvals AND those that employ (whether directly or through contractors) more than 100 people within six months and 200 people within one year.
4. Lower entry barrier for startups and allow them to prosper: Lower the entry barriers for exploration make starting an exploration business EASY. Exploration business is not a revenue business, it is a capital gains and valuation business. Majority of these ventures fail and all profit is made on the minority that succeed. Doing this business is only possible when:
   1. Entry cost is very low with cheap and quick grant of concessions (in Canada claims for a quarter square mile area is available within a week and costs $300 per year). Licensing should ideally be through an online portal where the applicant enters their credentials, select area on map and checks availability instantly (all existing concessions and No-Go areas are already available on the map). Applicant files their exploration plan and investment commitment and RP, PL or CL gets allocated immediately as soon as the license fee is paid online.
   2. To encourage quick start of exploration and relinquishing of areas different jurisdictions use the following tools:
      1. Auto renewal of leases with double the license fee every year eg. Nicaragua has a policy of license fee starting at $0.25/hactare that goes up to $8/hectare. They also issue composite licenses only. Licensee does not need to apply for ML but needs to file a mine plan and EIA/EMP before starting production.  
      2. Make it mandatory to reduce 50% of the area every renewal.
   3. Seek technical credentials for Exploration team but NOT financial credentials. Exploration businesses do not have a balance sheet. These are small groups of individuals that form project specific companies and raise funds AFTER securing the concessions.
   4. Security of title and security of tenure with auto-renewal as long as the exploration plan is followed, investment criteria is met and license fee is paid before year end eg. In USA Sept 1 is fixed renewal date for ALL claims and can be held indefinitely as long as annual asessment of work is made and license fee is paid before Sept 1 https://www.blm.gov/programs/energy-and-minerals/mining-and-minerals/locatable-minerals/mining-claims  
   5. Clearly define Environmental / Infrastructure/ Social criteria – DOs and DONTs are published in guidelines that get emailed to the lessee along with the tenement documents.
   6. Exploration is a high risk high return business. Regulations must be accommodating (not adversarial) of speculative investment and windfall profits
5. Liberalize rule 12
6. Scrap Rule 24 in letter and in spirit: This takes away all regular financing and fundraising tools practiced by the Exploration Industry worldwide. Mineral Exploration is a value addition business that prepares the raw material for the mining companies. The Exploration companies first acquire a prospecting concession, do the initial basic exploration, and then go out to the market with results to raise funds for the next step of exploration. The tools they use to raise funds are share sales at discounted valuation, warrants and options, joint ventures and pledging future production. Investors invest in this business with expectation of rapid valuation increase with good exploration result. Every incremental success – like a good drill result – can give a boost to the share prices and companies can raise more capital for more detailed work. This is the market system to automatically weed out failing projects and reward exploration success. Rule 24 is highly restrictive to these industry practices and scrapping this rule in letter and spirit (speculative investment is GOOD for exploration industry) will be a big boost to the revival of this sector.
   1. To ensure a fair an balanced market reporting an exploration reporting standard is needed (UNFC is not suitable). First such standard was developed in the late 1990s in Australia and has been adopted by all major mining Jurisdictions with country specific tweaks like NI43-101, VALMIN and JORC. India could adopt CRIRSCO
7. Joint ventures and transfers: 
   1. Allow full transfer of ALL leases whether RP, PL, ML or CL. Remove prior approval requirements for transfers. The leases should be at par with “private property” and full transfer rights vested with the lessee. Even partial transfer, share sale of lessee companies, share sales of holding companies be permitted – these are international best practices and in line with the stated objectives of NMP2019.
   2. Joint Ventures to be permitted without any prior approval or interference of regulators. Let market forces find their own way.
8. First Come First Served: All licenses to be exclusively given on First Come First Served basis. Government Departments and PSUs can also secure CLs the same FCFS way and explore. Subsequently they may choose to auction the areas with geological data of do JVs with private companies in a level playing field.
9. Taxation as Capital Gains: Exploration is not a revenue business and should not be taxed. Rather exploration should be encouraged with fiscal measures so high risk capital be welcomed and permitted to make windfall profits with successful ventures. These profits can be taxed at par with “capital gains” on the stock market and listing of all such ventures should be encouraged and facilitated.
10. SEBI should consider a special “VENTURES” exchange (equivalent to TSX – Ventures) where only high risk ventures can be listed with very easy listing norms. Like TSX Ventures exchange and all investors on these exchanges knowingly invest in these high risk – high return businesses.
11. Tax flow through to be permitted
12. Investment in Baseline Data: All NMET funds should be handed over to GSI for producing baseline data, high resolution geological maps, resource maps, collect aero-geophysical data, aerial photos and high resolution imagery, national geochemical mapping and publishing all data in digital form for dissemination (not just scanned but different datasets organized in different GIS layers) eg an excellent template of how to do it is the Geovic system of Victoria, Australia where ALL geological information and reports are available to everybody without any restrictions https://earthresources.vic.gov.au/geology-exploration/maps-reports-data/geovic