Oct 10, 2023

India Opens Its Doors to Private Specialists to Accelerate Exploration of Critical and Strategic Minerals

India eyes unexplored territories:

2023 is proving to be an important turning point in India’s quest to reduce dependence on other countries to meet its strategic minerals requirement. In February 2023, Geological Survey of India (“GSI”) announced the discovery of 5.9 million tonnes of lithium in Jammu and Kashmir. This discovery served as a strong reminder to India of its untapped minerals reserves potential and culminated in the passing of the Mines and Minerals (Development and Regulation) Amendment Bill, 2023 (“2023 Amendment”).

In India, mining activities and development of minerals are regulated under the Mines and Minerals (Regulation and Development) Act, 1957 (“Act”), as amended from time to time. Till now, the Act did not permit private players to carry out preliminary exploration activities of deep-seated and critical minerals such as lithium, cobalt, graphite, gold, silver, elements of rare earth group, etc. The same was solely undertaken by government entities using public resources. Exploration primarily entails investigating and determining the existence of mineral deposits in an area and is the first step towards commercial mining.

Encouraged by the discovery of lithium reserves, the Indian Parliament has recently passed a bill amending the Act, for the first time, allowing private parties to carry out exploration of certain identified deep-seated strategic and critical minerals. The 2023 Amendment has been notified by the Indian Ministry of Mines with effect from August 17, 2023.

India is a mineral rich but under explored country. As per GSI, India has approximately 688,000 sq.km of obvious geological potential area. Out of this total area, till now GSI has only been able to identify approximately 197,000 sq.km as a high potential area through reconnaissance surveys. Consequently, at present the balance approximately 491,000 sq.km of obvious geological potential area remains largely untapped, waiting to be explored to examine the potential existence of mineral reserves. Additionally, even in the identified area of approximately 197,000 sq.km, the chance of discovering more mineral reserves through specialized techniques cannot be ruled out completely.

The 2023 Amendment provides new business opportunities in the mining space for specialized private companies, popularly known as junior exploration companies, to explore this vast territory. This amendment is particularly beneficial for foreign players who specialize in and have global experience of conducting such mineral exploration activities in other countries such as Australia, Brazil, Canada, etc.

Indian Ministry of Mines initiative to ‘dig deep’:

In the past, India followed a conservative approach in capitalizing upon its large mineral reserves, both identified as well as potential. This is in stark contrast to other countries having large explorable areas such as Australia, Brazil, Canada, Chile etc., who have been exploiting and optimally utilizing their mineral resources.

The difference in the mineral exploitation arc of India vis-à-vis these other countries may inter alia be attributable to the distinct approaches adopted by them to trace the existence of such deep-seated and critical minerals within their territories. In contrast to India’s erstwhile approach, these countries have long opened their doors to specialized private companies to expedite the detection of the existence of minerals.

The 2023 Amendment is the government’s bid to attract these private specialists and monetize on the globally proven practice of engaging with them to accelerate exploration and in turn mining of India’s deep-seated and critical minerals.

In India, mining and exploration of metal and non-metal ores including diamond, gold, silver, and precious ores (excluding titanium bearing minerals and its ores) fall under a 100% automatic route, in terms of the Foreign Exchange Management (Non-debt Instruments) Rules, 2019. As such, foreign players are free to operate in this field.

The 2023 Amendment removes the final roadblock for foreign companies to enter the Indian market in the field of mineral exploration. Subject to the fulfilment of the conditions which may be prescribed, they can now bid for and participate in exploration activities in India. This ensure that private players can now benefit from their involvement at the early stages of the lifespan of mineral exploration, development, and extraction.

Key features of the 2023 Amendment

The 2023 Amendment introduces the concept of an ‘exploration license’. The holders of such licenses will now be entitled to undertake reconnaissance operations or prospecting operations or both in relation to the specified minerals, including lithium bearing minerals, diamonds, gold, graphite, etc.

In terms of the 2023 Amendment, the State governments shall issue exploration licenses to applicants through competitive bidding process. The licenses will be issued for:

  • a maximum area of 1000 sq.km, with an entity only being permitted to hold licenses for a maximum cumulative area of 5000 sq.km in one geographical State in India.
  • a term of 5 years which may be extended by 2 years.

In the first 3 years, the licensee will have the right to explore the entire area allotted to it under the exploration license. Upon the completion of the initial 3 years period, the licensee will have to relinquish 75% of the area allotted to it. Thereafter, for the balance 2 years of the license period, the licensee will only have access to the balance available 25% area. In this regard, the licensee will have to submit a report highlighting the reasons for retaining the identified 25% of the land. This is in line with the practice followed by certain other countries including Chile and Indonesia.

The Central government shall by rules provide for the manner of conducting the bidding process, including the parameters for selection.

In consideration for carrying out reconnaissance and prospecting activities, the licensee shall be entitled to receive a percentage of the premium ultimately payable by the lessee who receives the mining lease for the mineral discovered by the exploration licensee. Consequently, the major monetary returns pursuant to the exploration will be seen once the minerals explored as thereafter exploited.

As per the 2023 Amendment, the State government will have the right to impose penalties on the licensee in case it fails to complete the reconnaissance and prospecting operations before the expiry of the exploration license. As such, this will be a high risk-high gain opportunity for the licensees.

Once the reconnaissance and prospecting stage is completed, the government will, within a period of 6 months from the exploration licensee submitting the geological report, initiate the auction of the mining lease for the identified area. This process will be completed within 1 year from the receipt of the geographical report, failing which the State government shall be liable to pay to the licensees such amount as may be prescribed.

Road ahead:

The 2023 Amendment opens a new market in India for private players who can benefit from India’s untapped potential. At the same time, it is a valuable and unique opportunity for the government to tap into the expertise and advanced equipment of specialized private parties, to explore deep-seated/ other critical minerals which are difficult to locate or have not been adequately explored.

Given the growing avenues for the usage of critical minerals (such as lithium) across the globe and the limited identified mineral reserves to meet such demands, the world recognizes the importance of exploring newer reserves. The 2023 Amendment shows that India is ready to dig deep into its geological capabilities and will generate limitless avenues for the mining and minerals space.

Additionally, with the ever-changing global landscape, the 2023 Amendment will facilitate the discovery of larger and newer reserves and push India closer towards meeting its mineral requirements domestically as well as becoming a global leader in critical mineral exports.





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