Mineral Exploration, a startup ecosystem

By Dr. Amit Tripathi

In the IT sector the governments – state and central – have realized that that startup ecosystem can be an engine of economic growth. Governments all over the country are proactively promoting startup ecosystem using policy tools, enhancing ease of doing business, creating coworking spaces, market access, mentoring and so on. This is an excellent policy that has started yielding dividends and kudos to the efforts of all stakeholders.

An identical twin to tech startup ecosystem is the mineral exploration industry!! This statement often bring out surprised emoji expression

But it is true. Mineral exploration industry (also called junior mining industry) is an identical twin to the tech startups. This twin (long lost in childhood quoting bollywood parlence) has developed as a policy lawaris – brings memory of the inimitable Kishore Kumar singing आप मुंहमांगी दुआ हम अनसुनी फरियाद हैं .

Anyways, mineral exploration dose not have a dedicated legal framework in India and is treated as a subset of the mining industry. In tech parlance this will the equivalent of framing laws for Google, Microsoft, TCS, Infosys and expecting the one man startup to match these giants in terms of infrastructure, capacity and financing. Such a policy would kill the tech startups before they are born as the current mining policy is strangulating the exploration industry. Exploration companies are essentially small “friends and family” businesses that take birth with an idea that often emerges with reinterpretation of pre-existing databases in public domain. The initial group of friends and family often pool a small capital as seed financing for securing prospecting license and initial surface prospecting. If the results are good this group approaches exploration VCs or PEs to seek financing, at this stage most of these “juniors” often report a discovery and list on venture stock exchanges (like TSX-V in Toronto or AIM in London) to raise public funds for further detailed exploration leading to project feasibility. Continuous good exploration results lift their stock prices and can provide profits to the early investors. Mineral Exploration thus is a valuation business not a revenue business. On the way to project feasibility these juniors hope to get noticed by mining companies and get bought out (partially or fully). The initial investors at this point often cede management control and seek repeat this model in another startup. This model has been so successful that in most developed mining jurisdictions large mining companies have downsized their internal exploration departments and depend on these “juniors” to create derisked mining properties for them. In last 20 years majority of mineral discoveries worldwide are done by such startups or “juniors” and described as An Imperfect Business Model that Works

The exploration industry startup to maturity timelines are generally very rapid. From the initial prospecting to market listing can be around two to three years and another similar two to three years to bankable feasibility. Most of these startups get aquired by mining giants much before feasibility.

Mineral Exploration Industry has jurisdictional needs that are distinct from the mining industry. Indian jurisdictional framework however prevents this startup ecosystem to take shape. The pertinent policy tools that stifle this industry are:

1. Auction of prospecting licenses is a huge upfront barrier and a major turn-off. In many jurisdictions, licensed off and prohibited areas are displayed on a map publicly and everyplace else is available for licensing. The PL applications can often be filed online and granted immediately.
2. Long time frame of obtaining statutory clearances is another upfront cost. Most successful jurisdictions have standard ecological and community responsibility guidelines to follow which allow industry to prosper while being responsible citizens.
3. Rule 24 and rule 12A of the MCR prohibits almost ALL fundraising tools for the exploration startups and prohibit international best practices on exploration financing.
4. Exploration is NOT Mining: Most exploration startups specialize in “exploration” only and are not miners. They hope to make a successful project that is sufficiently derisked for a mining company to buy this project from them and mine it. Present Indian law strongly discourage such transfers.

Mineral exploration is an intrinsically rural industry and has a capacity of creating lakhs of rural jobs if just allowed to be born. The policy levers are very simple and extremely rapid implementation is possible. India has a wonderful geology and  is treated by the global junior industry as one of the few unexplored frontiers. With the proper policy tools a multi-billion dollar rural area industry can be created that will lay foundations of self reliant India in accordance with the clarion call of आत्मनिर्भर भारत given by the Prime Minister Modi. The Prime Minister has himself drawn such parallels between mining sector and technology sectors during his speech to CII on June 2, 2020.

Mineral Exploration Academy offers the services as and when required to support any such initiative. Jai Hind