Monday, April 14, 2008

The mining industry in India starts to be noticed

An article in last week's Wall Street Journal Asia (see: India Unveils Details in New Mining Policy dated April 11) should be a salutary reminder that the Philippines is not the only game in Asia when it comes to country prospectivity and development of the minerals industry. India is certainly playing catch-up—according to reports, only 2.3 percent of the country has been explored for mineral deposits—but suddenly the Philippines may have competition for the investment dollar.

India is not there yet. The intention to develop a new National Mining Policy was foreshadowed in mid-2006 and the draft legislation was approved by India's Cabinet only last month. It still has to face the hurdle of a rambunctious national legislature and easy passage is not a certainty. But the new policy signals a more aggressive approach by India to attracting the investment dollar and, if approved, will likely bring that country into sharper focus.

Mr T. Subbarami Reddy, Union Minister of State for Mines, said at a recent infrastructure conference that the Indian government is looking for fresh annual investment of up to $2 billion as a result of the new policy.

According to reports, this new policy has three major focuses designed to fast-track investment into the mining sector. Firstly, the new policy will allow minerals exploration companies to go direct to the production phase without risk that others will come in and exploit the discoveries made; secondly it will allow exploration companies to sell their mining concessions to others at a profit if they do not wish to carry out the commercialisation themselves and finally, it will permit the auction of rights to minerals discoveries made by publicly funded entities to private sector investors.

India is understood to have substantial reserves of bauxite, iron ore, manganese and gold. In addition the minerals map of India shows deposits of lead and zinc, copper and coal.

In a market where there is growing global demand for metals across the spectrum, these are not necessarily commodities that are in direct export competition with the Philippines; the primary danger could come at the exploration stage with companies attracted by the vast expanse of India that remains untapped so far and the fact that minerals discoveries once located can be exploited or the rights sold to others. Clearly this seems a much better defined concept than the tangle of production sharing or FTAA agreements required of companies operating in the Philippines. At least it may appear so although we would be the first to admit that the devil will be in the detail. The point is that attention of investors may be distracted. There is the added factor that much of the metals production that will be taking place in India will be meeting the domestic demand of the world's second fastest growing economy. Export? Who cares?

Before getting too carried away we should add also that India is not immune from the problems of local governments, environmental lobbyists and insurgents. Mining in India is likely to encounter many of the same troubles faced by the Philippines. But will the Indians prove to be fleeter of foot in solving them?

Secretary Atienza, the present "Philippines mining czar" was in Singapore last week leading the Philippine delegation to the annual Asia Mining Congress and, as expected, he gave an up-beat assessment of the local industry. Between now and 2011, according to Secretary Atienza, the industry is expected to grow five-fold and bring in another $9 billion to the 1.4 billion already invested.

We agree that progress is being made in developing the industry here in the Philippines but the pace of that development remains agonizingly slow. We are told that minerals exports were up by 5.5 percent last year in US dollar terms; but in a situation where the dollar declined against the peso by more than 15 percent, that is hardly much of an accomplishment?

And if there is a shortage of industry specialists now, how will mining companies cope if the industry is five times the size? Nine billion dollars within the next two to three years? Given the present track record, we doubt it.

Indeed, with financial problems in the global economy becoming more serious, the investment shine may already be starting to fade. If Mr. Atienza is serious about bringing in the investment he has promised then now more than ever "time is of the essence."

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