In a bid to attract investments in exploration, the Ministry of Mines has decided to adopt several measures that have a proven track record. The ministry plans to launch flow-through–shares used in Canada, while taking a leaf out of African Development Bank’s institutional finance schemes and creating exploration bonds along the lines of infrastructure bonds.
Besides, a working group appointed by the ministry has suggested that financing for the mining sector could be through cash flow from shares. Mining companies could also be allowed to list on stock exchanges along the same lines as Australian and Canadian stock exchanges.
The ministry, however, wanted market regulator Securities & Exchange Board of India (Sebi) and stock exchanges to develop the necessary mechanism and police framework. The move would require a system used by United Nations Framework Classification (UNFC) whereby one needs to introduce the concept of “competent person(s)” to estimate and sign off on reserves.
A ministry official, requesting anonymity, told Business Standard: “There is consensus between the government and the mining sector to step up the value addition process and manufacturing with enhanced efforts for the development of new reserves in the country. Despite certain tax incentives investment, exploration is still low compared to other countries. A working group has recently suggested a flow-through-shares (FTS) mechanism. FTS allows business corporations to obtain financing for expenditures on mineral exploration and development in Canada.”
“By issuing flow-through-shares, a company can renounce, or flow through, certain expenses to the purchaser of the share. These expenses were deemed to be incurred by the investor and not the corporation. It reduces income subject to tax in the hands of investor.” The official said the business corporation receives 100 per cent deduction for the investment amount in shares and the value of investment appreciates in the event of success in exploration.
The working group has also examined how institutional finance can be provided to boost investments in exploration. “New African Mining Fund (NAMF) is a specialist equity fund created by African Development Bank and is based on Johannesburg and Mauritius which invests in early to later stage junior, exploration, mining and benefication activities,” the official said.
The ministry is also looking into how all expenditure incurred prior to commercial production could be eligible for amortisation over the minimum mining lease period of 20 years or a less. For reclamation of mined out area, the mining companies may be allowed to earmark a percentage to book profits each year to meet rehabilitation costs.
The official said investment is also needed for infrastructure development in mining area.
“A working group has made a strong case for establishing a mineral development fund to undertake the task of building infrastructure in mining areas. Such a fund can be set up in each state having stake in major mining activity by earmarking 15 per cent of the annual royalty collections.”
“There is also a need to introduce the “cluster concept” so that trunk facilities are constructed with financial participation of all mines, whether small or big, in a particular area. As far as financing of ‘cluster concept’ projects is concerned the capital outlay can be shared by the individual mines in proportion to the ultimate production level for which their mine has been planned,” he added.
